10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM N/A TO N/A

Commission File Number 000 - 25161

MODTECH HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	33 – 0825386
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)
2830 Barrett Avenue, Perris, CA	92571
(Address of principal executive office)	(Zip Code)

(951) 943-4014

(Registrant’s telephone number, including area code)

Indicate by check mark, whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

As of November 5, 2004, there were 14,120,382 of the Registrant’s Common Stock outstanding.

MODTECH HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2004

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The condensed consolidated financial statements included herein have been prepared by Modtech Holdings, Inc. and subsidiaries, hereafter referred to as “Modtech”, “we”, or “our”, the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been omitted pursuant to such rules and regulations. However, we believe that the condensed consolidated financial statements, including the disclosures herein, are adequate to make the information presented not misleading. The results of operations for the three months and nine months ended September 30, 2003 and 2004 are not necessarily indicative of the results to be expected for the full fiscal years. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission.

MODTECH HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

	December 31, 2003		September 30, 2004
Assets
Current assets:
Cash and cash equivalents	$	1,122,000	$	2,353,000
Contracts receivable, net, including costs in excess of billings of $9,535,000 and $17,760,000 in 2003 and 2004, respectively		36,960,000		58,840,000
Inventories		6,841,000		14,665,000
Due from affiliates		1,867,000		—
Deferred tax assets		2,875,000		2,875,000
Other current assets		3,752,000		1,697,000
Total current assets		53,417,000		80,430,000
Property and equipment, net		17,397,000		15,715,000
Other assets
Goodwill		71,903,000		71,903,000
Covenants not to compete, net		58,000		35,000
Debt issuance costs, net		969,000		724,000
Deferred tax asset – non-current		111,000		111,000
Other assets		1,191,000		1,374,000
Total assets	$	145,046,000	$	170,292,000
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	14,720,000	$	35,884,000
Billings in excess of costs		3,817,000		4,982,000
Current revolving credit line		7,400,000		22,900,000
Current maturities of long-term debt		6,000,000		5,750,000
Total current liabilities		31,937,000		69,516,000
Long-term debt, excluding current portion		6,000,000		—
Total liabilities		37,937,000		69,516,000
Shareholders’ equity:
Common stock, $.01 par. Authorized 25,000,000 shares; issued and outstanding 13,726,664 and 13,850,855 in 2003 and 2004, respectively		137,000		139,000
Additional paid-in capital		79,262,000		79,729,000
Retained earnings		27,710,000		20,908,000
Total shareholders’ equity		107,109,000		100,776,000
	$	145,046,000	$	170,292,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

MODTECH HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2004			2003			2004
Net sales	$	50,729,000		$	55,950,000		$	136,727,000		$	139,987,000
Cost of goods sold		44,719,000			58,973,000			121,731,000			139,694,000
Gross profit (loss)		6,010,000			(3,023,000	)		14,996,000			293,000
Selling, general, and administrative expenses		1,847,000			6,383,000			5,757,000			10,969,000
Covenant amortization		6,000			6,000			69,000			23,000
Gain on sale of property and equipment		—			(137,000	)		—			(757,000	)
Income (loss) from operations		4,157,000			(9,275,000	)		9,170,000			(9,942,000	)
Other income (expense):
Interest expense, net		(387,000	)		(464,000	)		(1,090,000	)		(1,448,000	)
Other, net		7,000			16,000			21,000			43,000
		(380,000	)		(448,000	)		(1,069,000	)		(1,405,000	)
Income (loss) before income taxes		3,777,000			(9,723,000	)		8,102,000			(11,347,000	)
Income tax expense (benefit)		1,586,000			(4,084,000	)		3,403,000			(4,766,000	)
Net income (loss)		2,191,000			(5,639,000	)		4,699,000			(6,581,000	)
Series A Preferred stock dividend		—			—			7,000			—
Net income (loss) applicable for common stockholders	$	2,191,000		$	(5,639,000	)	$	4,692,000		$	(6,581,000	)
Basic earnings (loss) per common share	$	0.16		$	(0.41	)	$	0.34		$	(0.48	)
Basic weighted-average shares outstanding		13,727,000			13,851,000			13,674,000			13,812,000
Diluted earnings (loss) per common share	$	0.15		$	(0.41	)	$	0.33		$	(0.48	)
Diluted weighted-average shares outstanding		14,261,000			13,851,000			14,285,000			13,812,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

MODTECH HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2003			2004
Cash flows from operating activities:
Net income (loss)	$	4,699,000		$	(6,581,000	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		1,576,000			1,748,000
Loss (gain) on sale of property and equipment		2,000			(757,000	)
(Increase) decrease in assets:
Contracts receivable		(911,000	)		(21,880,000	)
Inventories		(1,408,000	)		(7,824,000	)
Due from affiliates		(1,462,000	)		1,867,000
Other current and noncurrent assets		(1,270,000	)		1,872,000
Increase in liabilities:
Accounts payable and accrued liabilities		8,083,000			21,436,000
Billings in excess of costs		1,497,000			1,165,000
Net cash (used in) provided by operating activities		10,806,000			(8,954,000	)
Cash flows from investing activities:
Proceeds from sale of property and equipment		26,000			2,405,000
Purchase of property and equipment		(4,122,000	)		(1,211,000	)
Net cash (used in) provided by investing activities		(4,096,000	)		1,194,000
Cash flows from financing activities:
Net principal borrowings under revolving credit line		200,000			15,500,000
Principal payments on long-term debt		(5,250,000	)		(6,250,000	)
Payment of debt issuance costs		(113,000	)		(235,000	)
Series A dividend payment		—			(221,000	)
Proceeds from exercise of stock options		202,000			197,000
Net cash (used in) provided by financing activities		(4,961,000	)		8,991,000
Net increase in cash and cash equivalents		1,749,000			1,231,000
Cash and cash equivalents at beginning of period		213,000			1,122,000
Cash and cash equivalents at end of period	$	1,962,000		$	2,353,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

MODTECH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2004

1) Basis of Presentation

In the opinion of management, the condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods presented.

The results of operations for the three and nine months ended September 30, 2003 and 2004 are not necessarily indicative of the results to be expected for the full fiscal years.

2) Inventories

Inventories consist of the following:

	December 31, 2003		September 30, 2004
Raw materials	$	5,614,000	$	12,696,000
Work in process		1,227,000		1,969,000
	$	6,841,000	$	14,665,000

Raw materials at September 30, 2004 include approximately $4.2 million purchased in 2004 which will be used over the next 4-6 months.

3) Earnings (Loss) Per Share

The following table illustrates the calculation of basic and diluted earnings (loss) per common share:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003		2004			2003		2004
Basic
Net income (loss)	$	2,191,000	$	(5,639,000	)	$	4,699,000	$	(6,581,000	)
Dividends on preferred stock		—		—			7,000		—
Net income (loss) available to common stockholders	$	2,191,000	$	(5,639,000	)	$	4,692,000	$	(6,581,000	)
Basic weighted-average common shares outstanding		13,727,000		13,851,000			13,674,000		13,812,000
Basic earnings (loss) per common share	$	0.16	$	(0.41	)	$	0.34	$	(0.48	)
Diluted
Net income (loss)	$	2,191,000	$	(5,639,000	)	$	4,699,000	$	(6,581,000	)
Weighted-average common shares outstanding		13,727,000		13,851,000			13,674,000		13,812,000
Add:
Conversion of preferred stock		—		—			35,000		—
Exercise of stock options		534,000		—			521,000		—
Diluted weighted-average shares outstanding		14,261,000		13,851,000			14,285,000		13,812,000
Diluted earnings (loss) per common share	$	0.15	$	(0.41	)	$	0.33	$	(0.48	)

Options to purchase 1,101,000 and 1,088,000 shares of common stock were outstanding during the three and nine months ended September 30, 2003, and options to purchase 1,485,000 and 1,483,000 shares of common stock were outstanding during the three and nine months ended September 30, 2004, respectively, but were not included in the computation of diluted earnings (loss) per share because the option exercise price was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive. In addition, the three and nine months ended September 30, 2004 had a loss and therefore diluted earnings per share are equal to basic earnings per share.

4) Debt

Modtech has a $42.0 million credit facility, of which $30.0 million represents a revolving loan commitment. The credit facility is secured by all of our assets, as well as our stock ownership in its subsidiaries. The credit facility expires in December 2006. On September 30, 2004, $22.9 million was outstanding under the revolving loan commitment with an additional $7.0 in stand-by letters-of-credit. The credit facility in place contains various covenants.

Due to the operating loss during the three months ended September 30, 2004 we were not in compliance with certain covenants as of September 30, 2004. Compliance with certain covenants has been waived until year-end, but certain other covenants including earnings as measured by EBITDA, current ratio and net worth, were violated due to the loss incurred during the three months ended September 30, 2004 and these covenant violations have not been waived. Due to these covenant violation, Modtech has reclassified $2,750,000 in long-term debt to current debt.

Management is in discussions regarding debt restructuring with several lenders, including the current bank group. We believe that any restructuring, if required, will be orderly and will not have a negative impact on our continuing operations, but there is no assurance that we will be successful in restructuring our debt. There can be no assurance that Modtech will be able to improve its cash flow and operating results to improve our financial condition, but we are committed to take all feasible actions directed toward achieving these goals.

Please see footnote 7 for further disclosure regarding liquidity.

5) Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

Balance as of December 31, 2003	$	71,903,000
Goodwill acquired during nine months ended September 30, 2004		—
Impairment loss during the nine months ended September 30, 2004		—
Balance as of September 30, 2004	$	71,903,000

6) Stock Options Plans

Modtech applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. FASB Statement No. 123, “Accounting for Stock-Based Compensation” – as amended, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by existing accounting standards, Modtech has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of Statement 123, as amended. The following table illustrates the effect on net income (loss) if the fair-value-based method had been applied to all outstanding and unvested awards in each period.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003		2004			2003		2004
Net income (loss)
As reported	$	2,191,000	$	(5,639,000	)	$	4,699,000	$	(6,581,000	)
Deduct stock-based compensation expense determined under fair-value based method, net of tax	$	202,000	$	96,000		$	377,000	$	314,000
Pro forma	$	1,989,000	$	(5,735,000	)	$	4,322,000	$	(6,895,000	)
Basic earnings (loss) per share
As reported	$	0.16	$	(0.41	)	$	0.34	$	(0.48	)
Pro forma	$	0.14	$	(0.41	)	$	0.32	$	(0.50	)
Diluted earnings (loss) per share
As reported	$	0.15	$	(0.41	)	$	0.33	$	(0.48	)
Pro forma	$	0.14	$	(0.41	)	$	0.30	$	(0.50	)

There were no stock options granted during the three months ended September 30, 2003 and 2004. The per share weighted-average fair value of stock options granted during the nine months ended September 30, 2003 and 2004 were $5.00 and $3.84, respectively. The fair value of stock options on the date of grant were estimated using the Black Scholes option-pricing model with the following weighted-average assumptions:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2003	2004	2003		2004
Expected dividend yield	n/a	n/a	0	%	0	%
Average risk-free interest rate	n/a	n/a	2.6	%	3.2	%
Volatility factor	n/a	n/a	65.54	%	57.7	%
Expected life	n/a	n/a	4 years		4 years

7) Liquidity

Modtech has experienced material operating losses and negative operating cash flows during the three months ended September 30, 2004. Modtech’s ability to fund its reasonably foreseeable working capital, capital expenditure and debt service requirements for the next twelve months from cash on hand, funds from operations and its bank line of credit will require improvements in operating results and operating cashflow and the willingness of our lenders to waive defaults to financial covenants. Modtech is aggressively pursuing improvements in its cash flow and operating results, including specific steps directed at conserving cash, increasing margins and reducing costs and is committed to take all feasible actions to achieve these goals. Management believes that its efforts will succeed in enabling it to meet its cash requirements, improve its financial position and satisfy the lenders.

Management is in discussions regarding debt restructuring with several lenders, including the current bank group. We believe that any restructuring, if required, will be orderly and will not have a negative impact on our continuing operations, but there is no assurance that we will be successful in restructuring our debt. We are committed to take all feasible actions including but not limited to seeking additional equity and very aggressive cost controls. The failure to successfully restructure our debt could have a material adverse effect on our liquidity position and capital resources which may force us to curtail operations until we are able to secure alternate financing.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

You should read the following discussion and analysis with our Unaudited Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this report. We urge you to carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission.

Company Overview

Modtech manufactures and sells modular buildings for both re-locatable and permanent applications. We serve the educational, commercial, governmental, institutional and retail markets. We distribute our products through the customer’s preferred channel utilizing dealers and distributors and for major projects and direct sales. We also arrange third-party financing for those customers who request our help.

At September 30, 2004, Modtech had six manufacturing facilities. Three facilities are located in California and we have a single plant in Texas, Arizona and Florida. All of the locations manufacture and sell products into all the markets we serve.

Forward Looking Statements

This report contains statements which, to the extent that they are not recitations of historical fact, such as our belief that we have sufficient liquidity to meet our near-term operating needs, constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast” “may,” “will,” “should,” “continue,” “predict” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are intended to be subject to the safe harbor protection within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this quarterly report, including the Notes to the Condensed Consolidated Financial Statements and in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could contribute to or cause such differences.

In addition, the accuracy of such forward looking statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including but not limited to: the ability to adequately pass through to customers unanticipated future increases in raw material costs; an unanticipated change in the types of classrooms required by school districts; and declines in available funding for modular classroom construction and other risks and uncertainties that are described in our other filings with the Securities and Exchange Commission, including our reports on Form 10-K. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, there is no assurance that our expectations will be attained. We will not update these forward-looking statements, even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionary statements.

Use of Estimates and Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires Modtech to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statement and reported amounts of net revenue and expenses during the reporting period.

Management continually evaluates its estimates and assumptions including those related to Modtech’s most critical accounting policies. Management bases its estimates and assumptions on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Changes in economic conditions could have an impact on these estimates and our actual results. Management believes that the following critical accounting policies may involve a higher degree of judgment or complexity:

Allowances for Contract Adjustments

Modtech maintains allowances for contract adjustments that result from the inability of its customers to make their required payments. Management bases its allowances on analysis of the aging of accounts receivable, by account, at the date of the financial statements, assessments of historical collection trends, and an evaluation of the impact of current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Revenue Recognition on Construction Contracts

Contracts are recognized using the percentage-of-completion method of accounting and, therefore, take into account the costs, estimated earnings and revenue to date on contracts not yet complete. Revenue recognized is that percentage of the total contract price that cost expended to date bears to anticipated final total cost, based on current estimates of costs to complete. The percentage-of-completion methodology generally results in the recognition of reasonably consistent profit margins over the life of a contract. Cumulative revenues recognized may be less or greater than cumulative costs and profits billed at any point in time during a contract’s term. The resulting difference is recognized as unbilled or deferred revenue.

Any estimation process, including that used in preparing contract accounting models, involves inherent risk. We reduce the inherent risk relating to revenue and cost estimates in percentage-of-completion models through corporate policy, approval and monitoring processes. Risks relating to project delivery, productivity and other factors are considered in the estimation process. Our estimates of revenues and costs on construction contracts change periodically in the normal course of business due to factors such as productivity and modifications of contractual arrangements. Such changes are reflected in the results of operations as a change in accounting estimate in the period the revisions are determined. Provisions for estimated losses are made in the period in which the loss first becomes apparent.

Overview of Three Months ended September 30, 2004

Net sales of $56.0 million in the third quarter of 2004 were up 10.3% over the prior year on the strength of business outside of California. Sales outside California increased 62.3% year-over-year while California sales were down 8.3%. California sales were negatively impacted by projected cost overruns on two major projects for which we recognized a future loss in the third quarter.

These losses resulted in a reduction of sales revenue of $3.1 million with a corresponding reduction in gross margin. The largest of these projects, accounting for $2.6 million, began production in the third quarter at which time it became clear that we would not be able to manufacture or install the project for the projected costs. A major contributor to the cost overruns on this project was our inability to enforce contract specifications that allowed “modular-friendly” modifications to the design. That is, we could not change certain design requirements to accommodate factory production where such a change had been assumed during the estimating process.

The previously announced management changes also had a significant negative impact on our expenses in the quarter. There was an additional $2.1 million in costs relating to severance pay for the departing officers and recruiting fees and related costs for hiring our new President/CEO.

Based on the strength of our current backlog, both in California classrooms and our other markets, Modtech believes it is poised for a strong turn-around starting with a “break-even” fourth quarter in 2004 followed by the strongest first quarter in 2005 in the last four years. Our backlog of $149.3 million includes $129.8 million of California classroom and $19.5 million of non-California classroom projects / orders. We include firm purchase orders and notices of award from school districts for work over the next eighteen months in our backlog.

We are expecting significant growth in revenue for 2005 and, in addition, the new leadership team is aggressively attacking Modtech’s cost structure with a commitment to returning to positive earnings beginning in the first quarter and continuing throughout 2005.

The losses in the third-quarter continued to put pressure on our cash position. As a result, we are in discussions regarding debt restructuring with several lenders, including our current bank group. We believe that any restructuring, will be orderly and will not have a negative impact on our continuing operations. Our discussions regarding future financing also take into account our needs associated with our anticipated growth.

Trends, Risks and Uncertainties

The trends, risks, and uncertainties described below are not the only ones we face. Additional trends, risks and uncertainties not presently known or that are currently deemed immaterial may also affect our business. If any of these known or unknown trends, risks or uncertainties actually occur, they could have a material adverse effect on our business, financial condition and results of operations.

• We are facing a trend of increasing demand for complex modular structures

Sales of standardized modular classrooms to California school districts as a percentage of total sales has declined both due to an increase in sales outside of California and as a result of increased demand for more complex, customized structures. In response to this shift in demand, Modtech has had to rely less on its factory production skills and become more involved in the on-site construction and installation of its products. Our design and contract bidding methods have also had to be adapted to the changing market demand. Because of these changes in our business and large, unanticipated cost increases in steel and lumber which could not be passed through to the customer under existing contracts, we have experienced cost overruns on certain projects which have resulted in losses despite an increased sales volume.

• We must successfully change our business methods to avoid cost overruns on projects

Modtech has made, and continues to make, adjustments in its methods of bidding, contracting, designing, constructing and installing the more complex structures that are now being ordered by our customers. Management believes that these adjustments will reduce the problem of cost overruns on future projects. If the adjustments prove to be inadequate, we will continue to incur cost overruns that will effect our profitability.

• We may not be able to adequately pass through to our customers price increases in raw materials

Although Modtech is attempting to contract with its customers to be able to pass through price increases in steel and lumber, we have not been successful in all cases. We still have several existing contracts that prevent passing through such increases. If there is another increase in the price of these raw materials, Modtech could experience more cost overruns on its pending projects.

Due to all of the foregoing factors, and the other risks discussed in this Report and our other filings with the Securities and Exchange Commission, including our reports on Forms 10-K and 8-K, quarter to quarter comparisons of our operating results is not a reliable indicator of future performance.

Results of Operations

The following table sets forth certain items in the Condensed Consolidated Statements of Operations as a percent of net sales.

	Percent of Net Sales				Percent of Net Sales
	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2004		2003		2004
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit (loss)	11.8		(5.4	)	11.0		0.2
Selling, general and administrative expenses	3.6		11.4		4.3		7.8
Gain on sale of property and equipment	—		0.2		—		0.5
Income (loss) from operations	8.2		(16.6	)	6.7		(7.1	)
Interest expense, net	(0.8	)	(0.8	)	(0.8	)	(1.0	)
Income (loss) before income taxes	7.4		(17.4	)	5.9		(8.1	)
Income tax expense (benefit)	3.1		(7.3	)	2.5		(3.4	)
Net income (loss)	4.3		(10.1	)	3.4		(4.7	)

Net sales for the three months ended September 30, 2004, increased by $5.2 million or 10.3% while net sales for the nine months ended September 30, 2004 increased by $3.3 million or 2.4%, when compared to the same periods in 2003. Compared to the same periods in the prior year, sales of California classrooms decreased by 22.1% for the three months ended September 30, 2004 and by 18.7% for the nine months then ended. California classroom sales have been impacted throughout the year by continuing delays in major projects. The projects remain in our backlog, but have not started on schedule. Also impacting revenue in the 3^rd quarter was the recognition of future losses on two projects which resulted in a reduction of sales revenue of $3.1 million with a corresponding reduction in gross margin.

Revenue from sources other than California classrooms grew by 75.3% in the 3^rd quarter and 42.9% year-to-date with growth in revenue at all of our locations. In 2003, California classroom revenue accounted for 66.8% and 65.8%, respectively, for the three and nine months ended at September 30, 2003. In 2004, California classroom revenue accounted for 47.2% and 52.3%, respectively, for the three and nine months ended at September 30, 2004. We expect this trend to continue and as we become even more balanced and less dependant on California classroom sales delays, in specific projects will have a reduced impact.

The 5.4% gross loss as a percentage of net sales for the quarter ended September 30, 2004 compares to a gross profit of 11.8% for the same period the prior year. In addition to the impact of the recognition of future losses referenced above, the same projects had an additional $1.4 million in direct cost overruns recognized as cost-of-goods sold. Cost increases for steel and lumber across the company accounted for an additional $1.1 million of cost overruns. An additional $900,000 was incurred as subcontractor cost overruns were incurred in finishing several projects. We believe that changes implemented during 2004 in project management, estimating and engineering, combined with significantly increased involvement by the senior management at all stages will eliminate these cost overruns in the future. However, if the changes prove to be inadequate, we will continue to incur cost overruns that will effect our profitability.

The physical inventory taken as of September 30, 2004 identified $800,000 of obsolete steel and elevators which were written off. Due to the age and condition of certain finished goods the value of such goods was also written down by $900,000 to reflect only the value of the raw materials in such goods.

These same factors caused a decline in gross profit for the nine month period ended at September 30, 2004 from 11.0% in 2003 to 0.2% in 2004.

Selling, general and administrative expenses (SG&A) increased for the three and nine months ended September 30, 2004 by $4.5 million and $5.2 million, respectively. Costs associated with the management change in the 3^rd quarter, including severance for former officers and costs associated with recruiting and relocation, totaled $2.1 million. Professional fees associated with certain compliance issues, including Sarbanes-Oxley 404, amounted to an incremental $1.0 million in the 3^rd quarter. We also increased our bad debt reserve by $500,000 in recognition of the unlikely collection of specific receivables. The additional SG&A costs incurred in the third quarter and year-to-date are related to costs supporting incremental sales outside California.

The gain on the sale of property and equipment was from the sale of a plant in Florida. We had previously combined the operations of this facility into the Plant City, Florida facility.

Net interest expense increased for the three and nine months ended September 30, 2004 by $77,000 or 19.5% and $358,000 or 32.8%, respectively, when compared to the same periods in 2003. The increase is due to the increased borrowing required due to losses from operations and certain costs of restructuring the debt facility during 2004.

Based on an effective tax rate of 42%, we recorded a tax benefit of $4.1 million and $4.8 million for the three and nine months ended September 30, 2004. The effective tax rate has not changed from the prior year.

Inflation

We have been adversely affected by steel, lumber and plywood price increases during the three and nine months ended September 30, 2004. Although we aggressively pursued means of offsetting the impact of these price increases, we estimate that there was a negative impact exceeding $1.0 million and $4.0 million for the three and nine months ended September 30, 2004, respectively. Although we use the most recently available cost information when evaluating pricing and margin decisions when entering contracts, there can be no assurance that our business will not be affected by unusually volatile inflation in the future.

Liquidity and Capital Resources

Modtech has historically generated cash from operations and bank borrowings to meet its needs. At September 30, 2004, Modtech had $2.4 million in cash and cash equivalents. During the nine months ended September 30, 2004, Modtech used $9.0 million in cash for operating activities.

Modtech believes that improvements in our cash flow and operating results are crucial to our financial stability and our relationship with our lenders and is aggressively pursuing these objectives. To improve cash flow, we are directing our efforts toward minimizing inventories and accounts receivable. We are also focusing on improving operating results which will further improve cash flow.

Modtech has a $42.0 million credit facility, of which $30.0 million represents a revolving loan commitment. The credit facility is secured by all of our assets, as well as the Company’s stock ownership in its subsidiaries. The credit facility expires in December 2006. On September 30, 2004, $22.9 million was outstanding under the revolving loan commitment with an additional $7.0 in stand-by letters-of-credit. The credit facility in place contains various covenants. Due to the operating loss we were not in compliance with certain covenants as of September 30, 2004. Compliance with certain covenants has been waived until year-end, but certain other covenants including earnings as measured by EBITDA, current ratio and net worth, were violated due to the loss incurred during the three months ended September 30, 2004 and these covenant violations have not been waived. Due to these covenant violation, Modtech has reclassified $2,750,000 in long-term debt to current debt.

Management is in discussions regarding debt restructuring with several lenders, including the current bank group. We believe that any restructuring, if required, will be orderly and will not have a negative impact on our continuing operations, but there is no assurance that we will be successful in restructuring our debt. There can be no assurance that Modtech will be able to improve its cash flow and operating results to improve our financial condition, but we are committed to take all feasible actions directed toward achieving these goals. The failure to successfully restructure our debt could have a material adverse effect on our liquidity position and capital resources which may force us to curtail operations until we are able to secure alternate financing.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

Market risk refers to the risk that a change in the level of one or more market factors such as interest rates, foreign currency exchange rates, or equity prices will result in losses for a certain financial instrument of group of instruments. We are principally exposed to interest rate and credit risks. We are not exposed to foreign currency exchange rate risk.

Interest Rate Risk

We are exposed to market risks related to fluctuation in interest rates on our $42 million credit facility. During the quarter ended September 30, 2004, we did not use interest rate swaps or other types of derivative financial instruments. The carrying value of the credit facility approximates fair value as the interest rate is variable and resets frequently. Indebtedness under the credit facility bears interest at LIBOR plus additional interest of between 1.25% and 2.75%, or the Federal Funds rate plus additional interest of between 0.25% to 1.25%. The additional interest charge is based upon certain financial ratios. In addition, Modtech’s default on certain financial covenants may lead to higher interest charges by our lender group. We estimate that the average amount of debt outstanding under the credit facility for the remaining three months of 2004 will be $28.0 million. Therefore, a one-percentage point increase in interest rates would result in an increase in interest expense of $70,000 for the remaining three months of 2004.

Management believes that Modtech’s existing product lines and manufacturing capacity coupled with the management changes in the third quarter along with the renewed focus on cost containment and inventory control will enable us to generate sufficient cash through operations, supplemented by periodic use of our existing bank line of credit, to finance our business at current levels over the next twelve months. Additional cash resources may be required if Modtech is able to expand its business beyond current levels or if operating losses continue. For example, it will be necessary for Modtech to construct or acquire additional manufacturing facilities in order for Modtech to compete effectively in new market areas or states which are beyond a 300 mile radius from one of our production facilities. The construction or acquisition of new facilities would require significant additional capital. For these reasons, among others, Modtech may need additional debt or equity financing in the future. There can be no assurance that Modtech will be successful in obtaining such additional financing.

Credit Risk

We are currently exposed to credit risk on credit extended to customers. We actively monitor this risk through a variety of control procedures involving senior management. Historically, credit losses have been small and within our expectations.

Item 4. Controls And Procedures

As of the end of the period covered by this report, we carried out an evaluation, with the participation of our management, including our President/Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our President/Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934. No change occurred during the quarter ended September 30, 2004, in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its state goals under all potential future conditions, regardless of how remote.

14

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are party to various claims, complaints and other legal actions that have arisen in the normal course of business from time to time. We believe the outcome of these pending legal proceedings, in the aggregate, will not have a material adverse effect on our operations or financial position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

Due to operating losses, we are not in compliance with, and have not received a waiver for, the covenants not met under our $42 million line of credit with the Wells Fargo lender group.

Item 4. Submission of Matters to a Vote of Security Holders

At our annual meeting of the stockholders held on August 10, 2004, the stockholders elected by the votes indicated below the following persons as directors to hold office until the next annual meeting and until their successors are elected and qualified:

Name:	Votes Cast For:	Votes Withheld:
Evan M. Gruber	10,710,883	1,681,232
Robert W. Campbell	12,363,097	29,018
Daniel J. Donahoe III	12,183,790	208,325
Stanley N. Gaines	12,182,938	209,177
Charles R. Gwirtsman	12,132,369	259,746
Charles C. McGettigan	12,133,221	258,894
Michael G. Rhodes	12,186,090	206,025
Myron A. Wick III	12,133,221	258,894

Item 5. Other Information

None

Item 6. Exhibits

Number	Name of Exhibit
3.11	Certificate of Incorporation of Modtech Holdings, Inc.
3.25	Bylaws of Modtech Holdings, Inc.
10.12	Modtech, Inc’s 1994 Stock Option Plan
10.2	Modtech, Inc’s 1996 Stock Option Plan
10.3	Modtech Holdings, Inc. 1999 Stock Option Plan
10.4	Modtech Holdings, Inc. 2002 Stock Option Plan
10.5	Separation Agreement between the Company and Evan M. Gruber
10.6	Separation Agreement between the Company and Michael G. Rhodes
10.7	Employment Agreement between the Company and David M. Buckley

10.83	Lease between the Company and Pacific Continental Modular Enterprises, relating to the Barrett property in Perris, California
10.93	Lease between the Company and BMG, relating to the property in Lathrop, California
10.103	Form of Indemnity Agreement between the Company and its executive officers and directors
10.114	Credit Agreement, dated December 26, 2001
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

¹ Incorporated by reference to Modtech Holdings, Inc.’s Registration Statement on Form S-4 filed with the Commission on October 27, 1998 (Commission File No. 333-69033).

² Incorporated by reference to Modtech, Inc.’s Registration Statement on form S-8 filed with the Commission on December 11, 1996 (Commission File No. 333-17623).

³ Incorporated by reference to Modtech, Inc.’s Registration Statement on Form S-1 filed with the Commission on June 6, 1990 (Commission File No. 033-35239).

⁴ Incorporated by reference to Modtech Holdings, Inc.’s Form 10-K filed with the Commission on April 1, 2002 (Commission File No. 000-25161).

⁵ Incorporated by reference to Modtech Holdings, Inc.’s Form 10-K filed with the Commission on March 15, 2004 (Commission File No. 000-25161).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Modtech Holdings, Inc.
Date: November 12, 2004	by:	/s/ Dennis L. Shogren
		Dennis L. Shogren
		Chief Financial Officer
	by:	/s/ David M. Buckley
		David M. Buckley
		President/Chief Executive Officer

EX-10.2

Exhibit 10.2

MODTECH, INC.

1996 STOCK OPTION PLAN

1. PURPOSE. The Plan is intended to provide incentive to key employees and directors of, and key consultants, vendors, customers, and others expected to provide significant services to, the Corporation, to encourage proprietary interest in the Corporation, to encourage such key employees to remain in the employ of the Corporation and its Subsidiaries, to attract new employees with outstanding qualifications, and to afford additional incentive to consultants, vendors, customers, and others to increase their efforts in providing significant services to the Corporation.

2. DEFINITIONS.

(a) “Board” shall mean the Board of Directors of the Corporation.

(b) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(c) “Committee” shall mean the committee, if any, appointed by the Board in accordance with Section 4 of the Plan.

(d) “Common Stock” shall mean the Common Stock, $.01 par value, of the Corporation.

(e) “Corporation” shall mean Modtech, Inc., a California corporation.

(f) “Disability” shall mean the condition of an Employee who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.

(g) “Employee” shall mean an individual who is employed (within the meaning of Code Section 3401 and the regulations thereunder) by the Corporation or a Subsidiary.

(h) “Exercise Price” shall mean the price per Share of Common Stock, determined by the Board or the Committee, at which an Option may exercised.

(i) “Fair Market Value” shall mean the value of one (1) Share of Common Stock, determined as follows:

(1) If the Shares are traded on an exchange, the price at which Shares traded at the close of business on the date of valuation;

(2) If the Shares are traded over-the-counter on the NASDAQ System, the closing price if one is available, or the mean between the bid and asked prices on said System at the close of business on the date of valuation; and

(3) If neither (1) nor (2) applies, the fair market value as determined by the Board or the Committee in good faith. Such determination shall be conclusive and binding on all persons.

(j) “Incentive Stock Option” shall mean an option described in Section 422A(b) of the Code; provided, however, that no Incentive Stock Option can be granted hereunder unless and until the Plan has been approved by the shareholders of the Corporation.

(k) “Non-Employee Director” shall mean a member of the Board who is not an Employee.

(l) “Nonstatutory Stock Option” shall mean an option not described in Section 422(b), 422A(b), 423(b) or 424(b) of the Code.

(m) “Option” shall mean any stock granted pursuant to the Plan.

(n) “Optionee” shall mean an employee who has received an Option.

(o) “Plan” shall mean the Modtech, Inc. 1996 Stock Option Plan, as it may be amended from time to time.

(p) “Purchase Price” shall mean the Exercise Price times the number of Shares with respect to which an Option is exercised.

(q) “Retirement” shall mean the voluntary termination of employment by an Employee upon the attainment of age sixty-five (65) and the completion of not less than twenty (20) years of service with the Corporation or a Subsidiary.

(r) “Share” shall mean one (1) share of Common Stock, adjusted in accordance with Section 10 of the Plan (if applicable).

(s) “Subsidiary” shall mean any corporation at least fifty percent (50%) of the total combined voting power of which is owned by the Corporation or by another Subsidiary.

3. EFFECTIVE DATE. The Plan was adopted by the Board on July 11, 1996, which shall be the Effective Date of the Plan.

4. ADMINISTRATION. The Plan shall be administered by the Board, or by a committee appointed by the Board which shall consist of not less than three (3) members (the “Committee”). The Board shall appoint one of the members of the Committee, if there be one, as Chairman of the Committee. If a Committee has been appointed, the Committee shall hold meetings at such times and places as it may determine. Acts of a majority of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The Board, or the Committee if there be one, shall from time to time at its discretion select the Employees, directors and consultants who are to be granted Options, determine the number of Shares to be granted to each Optionee and designate such Options such as Incentive Stock Options or Nonstatutory Stock Options, except that no Incentive Stock Option may be granted to a non-Employee director or a non-Employee consultant. No member of the Board or a Committee member shall in no event participate in any determination relating to Options held by or to be granted to such Board or Committee member. The interpretation and construction by the Board, or by the Committee if there be one, of any provision of the Plan or of any Option granted thereunder shall be final. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted thereunder.

5. ELIGIBILITY AND PARTICIPATION.

(a) Eligibility. The Optionees shall be such persons as the Board, or the Committee if there be one, may select from among the following classes of persons, subject to the terms and conditions of (b) below:

(i) Employees of the Corporation or of a Subsidiary (who may be officers, whether or not they are directors);

(ii) Non Employee Directors of the Corporation or of a Subsidiary; and

(ii) Consultants, vendors, customers, and others expected to provide significant services to the Corporation or a Subsidiary.

For purposes of this Plan, an Optionee who is a director or a consultant, vendor, customer, or other provider of significant services to the Corporation or a Subsidiary shall be deemed to be an Employee, and service as a director, consultant, vendor, customer, or other provider of significant services to the Corporation or a Subsidiary shall be deemed to be employment, except that no Incentive Stock Option may be granted to a Non-Employee director or non-Employee consultant, vendor, customer, or other provider of significant services to the Corporation or a Subsidiary, and except that no Nonstatutory Stock Option may be granted to a non-Employee consultant, vendor, customer, or other provider of significant services to the Corporation or a Subsidiary other than upon a vote of a majority of disinterested directors finding that the value of the services rendered or to be rendered to the Corporation or a Subsidiary by such non-Employee director or non-Employee consultant, vendor, customer, or other provider of services is at least equal to the value of the option or options granted.

(b) Non-Employee Directors. Each Non-Employee Director who was re-elected to the Board at the Annual Meeting of Shareholders held on the Effective Date shall be granted as of the Effective Date a Nonstatutory Stock Option to purchase 5,000 Shares for each full year of continuous service on the Board since the 1994 Annual Meeting of Shareholders. In addition, on each anniversary of the Effective Date, each Non-Employee Director automatically shall be granted a Nonstatutory Stock Option to purchase 5,000 Shares, provided that such Non-Employee Director continues to serve on the Board as of such anniversary of the Effective Date. The Exercise Price of each Option granted pursuant to the provisions of this Section 5(b) shall be the Fair Market Value of a Share on the date of grant.

(c) Ten-Percent Shareholders. An Employee who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Corporation, its parent or any of its Subsidiaries shall not be eligible to receive an Incentive Stock Option unless (i) the Exercise Price of the Shares subject to such Option is at least one hundred ten percent (110%) of the Fair Market Value of such Shares on the date of grant and (ii) such Option by its terms is not exercisable after the expiration of five (5) years from the date of grant.

(d) Stock Ownership. For purposes of (b) above, in determining stock ownership an Employee shall be considered as owning the stock owned, directly or indirectly, by or for his brothers, sisters, spouses, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries. Stock with respect to which such Employee holds an Option shall not be counted.

(e) Outstanding Stock. For purposes of (b) above, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant of the Option to the Optionee. “Outstanding stock” shall not include shares authorized for issue under outstanding Options held by the Optionee or by any other person.

6. STOCK. The stock subject to Options granted under the Plan shall be Shares of the Corporation’s authorized but unissued or reacquired Common Stock. The aggregate number of Shares which may be issued upon exercise of Options under the Plan shall not exceed 500,000 shares. The number of Shares subject to Options outstanding at any time shall not exceed the number of Shares remaining available for issuance under the Plan. In the event that any outstanding Option for any reason expires or is terminated, the Shares allocable to the unexercised portion of such Option may again be made subject to any Option. The limitations established by this Section 6 shall be subject to adjustment in the manner provided in Section 10 hereof upon the occurrence of an event specified therein.

7. TERMS AND CONDITIONS OF OPTIONS.

(a) Stock Option Agreements. Options shall be evidenced by written stock option agreements in such form as the Board, or the Committee if there be one, shall from time to time determine. Such agreements shall comply with and be subject to the terms and conditions set forth below.

(b) Number of Shares. Each Option shall state the number of Shares to which it pertains and shall provide for the adjustment thereof in accordance with the provisions of Section 10 hereof.

(c) Exercise Price. Each Option shall state the Exercise Price. The Exercise Price in the case of any Incentive Stock Option shall not be less than the Fair Market Value on the date of grant and, in the case of any Incentive Stock Option granted to an Optionee described in Section 5(b) hereof, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant. The Exercise Price in the case of any Nonstatutory Stock Option shall not be less than 85% of the Fair Market Value on the date of grant.

(d) Medium and Time of Payment. The Purchase Price shall be payable in full in United States dollars upon the exercise of the Option; provided, however, that if the applicable Option Agreement so provides the Purchase Price may be paid (i) by the surrender of Shares in good form for transfer, owned by the person exercising the Option and having a Fair Market Value on the date of exercise equal to the Purchase Price, or in any combination of cash and Shares, as long as the sum of the cash so paid and the Fair Market Value of the Shares so surrendered equal the Purchase Price, (ii) by cancellation of indebtedness owed by the Corporation to the Optionee, (iii) with a full recourse promissory note executed by the Optionee, or (iv) any combination of the foregoing. The interest rate and other terms and conditions of such note shall be determined by the Board, or the Committee if there be one. The Board, or the Committee if there be one, may require that the Optionee pledge his or her Shares to the Corporation for the purpose of securing the payment of such note. In no event shall the stock certificate(s) representing such Shares by released to the Optionee until such note shall be been paid in full. In the event the Corporation determines that it is required to withhold state or Federal income tax as a result of the exercise of an Option, as a condition to the exercise thereof, an Employee may be required to make arrangements satisfactory to the Corporation to enable it to satisfy such withholding requirements.

(e) Term and Nontransferability of Options. Each Option shall state the time or times, and the conditions upon which, all or part thereof becomes exercisable. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted, and no Incentive Stock Option granted to an Optionee described in Section 5(b) hereof shall be exercisable after the expiration of five (5) years from the date it was granted. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable. In the event of the Optionee’s death, the Option shall not be transferable. In the event of the Optionee’s death, the Option shall not be transferable by the Optionee other than by will or the laws of descent and distribution.

(f) Termination of Employment, Except by Death, Disability or Retirement. If an Optionee ceases to be an Employee for any reason other than his or her death, Disability or Retirement, such Optionee shall have the right, subject to the restrictions of (e) above, to exercise the Option at any time within three months after termination of employment, but only to the extent that, at the date of termination of employment, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable option agreement and had not previously been exercised; provided, however, that if the Optionee was terminated for cause (as defined in the applicable option agreement) any Option not exercised in full prior to such termination shall be canceled. For this purpose, the employment relationship shall be treated as continuing intact while the Optionee is on military leave, sick leave or other bona fide leave of absence (to be determined in the sole discretion of the Committee). The foregoing notwithstanding, (i) in the case of an Incentive Stock Option, employment shall not be deemed to continue beyond the ninetieth (90th) day after the Optionee’s reemployment rights are guaranteed by statute or by contract, and (ii) in the case of a Nonstatutory Stock Option, the Board, or the Committee if there be one, may extend or otherwise modify the period of time specified herein during which the Option may be exercised following termination of Optionee’s employment.

(g) Death of Optionee. If an Optionee dies while an Employee, or after ceasing to be an Employee but during the period while he or she could have exercised the Option under this Section 7, and has not fully exercised the Option, then the Option may be exercised in full, subject to the restrictions of (e) above, at any time within twelve (12) months after the Optionee’s death, by the executors or administrators of his or her estate or by any person or persons who have acquired the Option directly from the Optionee by bequest or inheritance, but only to the extent that, at the date of death, the Optionee’s right to exercise such Option had accrued and had not been forfeited pursuant to the terms of the applicable Option Agreement and had not previously been exercised. The foregoing notwithstanding, in the case of a Nonstatutory Stock Option, the Board, or the Committee if there be one, may extend or otherwise modify the period of time specified herein during which the Option may be exercised following termination of Optionee’s employment.

(h) Disability of Optionee. If an Optionee ceases to be an Employee by reason of Disability, such Optionee shall have the right, subject to the restrictions of (f) above, to exercise the Option at any time within twelve (12) months after termination of employment, but only to the extent that, at the date of termination of employment, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable Option Agreement and had not previously been exercised. The foregoing notwithstanding, in the case of a Nonstatutory Stock Option, the Board, or the Committee if there be one, may extend or otherwise modify the period of time specified herein during which the Option may be exercised following termination of Optionee’s employment.

(i) Retirement of Optionee. If an Optionee ceases to be an Employee by reason of Retirement, such Optionee shall have the right, subject to the restrictions of (e) above, to exercise the Option at any time within three (3) months after termination of employment, but only to the extent that, at the date of termination of employment, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable Option Agreement and had not previously been exercised. The foregoing notwithstanding, in the case of a Nonstatutory Stock Option, the Board, or the Committee if there be one, may extend or otherwise modify the period of time specified herein during which the Option may be exercised following termination of Optionee’s employment.

(j) Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by his or her Option until the date of the issuance of a stock certificate for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 10 hereof.

(k) Modification, Extension and Renewal of Option. Within the limitations of the Plan, the Board, or the Committee if there be one, may modify, extend or renew outstanding Options or accept the cancellation of outstanding Options (to the extent not previously exercised) for the granting of new Options in substitution therefor. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted.

(l) Other Provisions. The stock option agreements authorized under the Plan may contain such other provisions not inconsistent with the terms of the Plan (including, without limitation, restrictions upon the exercise of the Option) as the Board, or the Committee if there be one, shall deem advisable.

8. LIMITATION ON VALUE OF EXERCISABLE SHARES. In the case of Incentive Stock Options granted hereunder, the aggregate Fair Market Value (determined as of the date of the grant thereof) of the Shares with respect to which Incentive Stock Options become exercisable by any employee of the Corporation for the first time during any calendar year (under this Plan and all other plans maintained by the Corporation, its parent or its Subsidiaries) shall not exceed $100,000.

9. TERM OF PLAN. Options may be granted pursuant to the Plan until the expiration of ten (10) years from the Effective Date of the Plan.

10. RECAPITALIZATIONS. Subject to any required action by shareholders, the number of Shares covered by the Plan as provided in Section 6 hereof, the number of Shares covered by each outstanding Option and the Exercise Price thereof shall be proportionately adjusted for any increase of decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or the payment of a stock dividend (but only of Common Stock) or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation. Subject to any required action by stockholders, if the Corporation is the surviving corporation in any merger or consolidation, each outstanding Option shall pertain and apply to the securities to which a holder of the number of Shares subject to the Option would have been entitled. In the event of a merger or consolidation in which the Corporation is not the surviving corporation, the date of exercisability of each outstanding Option shall be accelerated to a date prior to such merger or consolidation, unless the agreement of merger or consolidation provides for the assumption of the Option by the successor to the Corporation. To the extent that the foregoing adjustments relate to securities of the Corporation, such adjustments shall be made by the Board, or the Committee if there be one, whose determination shall be conclusive and binding on all persons. Except as expressly provided in this Section 10, the Optionee shall have no rights by reason of subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation, and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power to the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business assets.

11. SECURITIES LAW REQUIREMENTS.

(a) Legality of Issuance. The issuance of any Shares upon the exercise of any Option and the grant of any Option shall be contingent upon the following:

(1) the Corporation and the Optionee shall have taken all actions required to register the Shares under the Securities Act of 1933, as amended (the “Act”), and to qualify the Option and the Shares under any and all applicable state securities or “blue sky” laws or regulations, or to perfect an exemption from the respective registration and qualification requirements thereof;

(2) any applicable listing requirement of any stock exchange on which the Common Stock is listed shall have been satisfied; and

(3) any other applicable provision of state of Federal law shall have been satisfied.

(b) Restrictions on Transfer. Regardless of whether the offering and sale of Shares under the plan has been registered under the Act or has been registered or qualified under the securities laws of any state, the Corporation may impose restrictions on the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state or any other law. In the event that the sale of Shares under the Plan is not registered under the Act but an exemption is available which required an investment representation or other representation, each Optionee shall be required to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, and to make such other representations as are deemed necessary or appropriate by the Corporation and its counsel. Any determination by the Corporation and its counsel in connection with any of the matters set forth in this Section 11 shall be conclusive and binding on all persons. Stock certificates evidencing Shares acquired under the Plan pursuant to an unregistered transaction shall bear the following restrictive legend and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law.

“THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”). ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT.”

(c) Registration or Qualification of Securities. The Corporation may, but shall not be obligated to register or qualify the issuance of Options and/or the sale of Shares under the Act or any other applicable law. The Corporation shall not be obligated to take any affirmative action in order to cause the issuance of Options or the sale of Shares under the plan to comply with any law.

(d) Exchange of Certificates. If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing shares sold under the Plan is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.

12. AMENDMENT OF THE PLAN. The Board may from time to time, with respect to any Shares at the time not subject to Options, suspend or discontinue the plan or revise or amend it in any respect whatsoever, except that, if the Plan has been approved by the shareholders of the Corporation, without the approval of the Corporation’s shareholders, no such revision or amendment that has not been approved by the Corporation’s shareholders shall:

(a) Increase the number of Shares subject to the Plan;

(b) Change the designation in Section 5 hereof with respect to the classes of persons eligible to receive Options; or

(c) Amend this Section 12 to defeat its purpose.

13. APPLICATION OF FUNDS. The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option will be used for general corporate purposes.

14. EXECUTION. To record the adoption of the Plan in the form set forth above by the Board effective as of the date specified in Section 3 above, the Corporation has caused this Plan to be executed in the name and on behalf of the Corporation where provided below by an officer of the Corporation thereunto duly authorized.

MODTECH, INC.
By:
	President
By:
	Secretary

EX-10.3

Exhibit 10.3

MODTECH HOLDINGS, INC.

1999 NONSTATUTORY STOCK OPTION PLAN

1. Purpose. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company’s future performance through awards of Options. Capitalized terms not defined in the text are defined in Section 19.

2. Shares Subject to the Plan

2.1 Number of Shares Available. Subject to Sections 2.2 and 14, (a) the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 1,450,000¹ Shares, and (b) Shares that are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option will again be available for grant and issuance in connection with future Awards under this Plan. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan.

2.2 Adjustment of Shares. In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, and (b) the Exercise Prices of and number of Shares subject to outstanding Options will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provide, however, that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee.

¹ Increased from 1,250,000 to 1,450,000 in 2002

3. Eligibility. Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, contractors, and advisors render bona fide services not in connection with the offer and sale of securities in a capital raising transaction.

4. Administration.

4.1 Committee Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

(b) prescribe, amend and rescind rules and regulations relating to this Plan;

(c) select persons to receive Awards;

(d) determine the form and terms of Awards;

(e) grant waivers of Plan or Award conditions;

(f) determine the vesting and exercisability of Awards;

(g) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; and

(h) make all other determinations necessary or advisable for the administration of this Plan.

4.2 Discretion. Any determination made by the Board or Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan.

5. Options. All Options granted will be nonstatutory stock options, which are options not intended to satisfy the requirements of incentive stock options under Section 422 of the Code, or comply with the requirements for employee stock purchase plans under Section 423 of the Code. No other form of Award may be made under this Plan. The Committee will have the discretion to determine, the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:

5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by a written Award Agreement, which will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.

5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Award Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3 Exercise Period. Options will be exercisable within the times or upon the events determined by the Committee as set forth in the Award Agreement governing such Option. The Committee may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.

5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than 100% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 6 of this Plan.

5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the

Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding the Participant’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased.

5.6 Termination. Except as otherwise determined by the Committee and set forth in the Award Agreement, exercise of an Option is subject to the following:

(a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant’s Options no later than three (3) months after the Termination Date, but only to the extent that such Options would have been exercisable upon the Termination Date, and in any event, no later than the expiration date of the Options.

(b) If the Participant is Terminated because of the Participant’s death or Disability (or the Participant dies within three (3) months after a Termination other than because of the Participant’s death or disability), then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the Termination Date and must be exercised by the Participant (or the Participant’s legal representative or authorized assignee) no later than twelve (12) months after the but in any event no later than the expiration date of the Options.

(c) Notwithstanding (a) and (b) above, if the Participant is Terminated for cause (as defined in the applicable Award Agreement) any Option not exercised in full prior to such termination will be deemed automatically canceled and may not be exercised on or after the Termination Date.

5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that must be purchased on any exercise of an Option, provided that such minimum number will not prevent the Participant from exercising the Option for the full number of Shares for which it is then exercisable.

5.8 Modification. Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that

any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. The Committee may reduce the Exercise Price of outstanding Options without the consent of the Participants affected by a written notice to them; provided, however that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price.

6. Payment for Share Purchases.

6.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:

(a) by cancellation of indebtedness of the Company to the Participant;

(b) by surrender of shares of common stock of the Company that are acceptable to the Committee;

(c) by tender of a full recourse promissory note having such terms, including security for the note, as the Committee may determine, or as may be required by law;

(d) by waiver of compensation due or accrued to the Participant for services rendered;

(e) provided that a public market for the Company’s stock exists:

(1) through a “same day sale” commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(2) through a “margin” commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(f) by any combination of the foregoing, or by such other method as is approved by the Committee and otherwise permitted by law.

6.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

7. Withholding Taxes.

7.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state, and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares.

7.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in writing in a form acceptable to the Committee and will be subject to such additional restrictions as the Committee may elect to impose.

8. Rights as a Stockholder. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such certificate or certificates are issued, except as provided in Section 2.2 above.

9. Transferability. Awards granted under this Plan, and any interest therein, will not be transferable or assignable by any Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Award Agreement provisions relating thereto. During the lifetime of a Participant, the Award will be exercisable only by the Participant, and any elections with respect to the Award, may be made only by the Participant.

10. Certificates. All certificates for Shares delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.

11. Exchange of Awards. The Committee may, at any time or from time to time with the consent of the respective Participants issue new Awards in exchange for the surrender and cancellation of existing Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares or other consideration, based on such terms and conditions as the Committee and the Participant may agree.

12. Securities Law and Other Regulatory Compliance. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable.

13. No Obligation to Employ. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate any Participant’s employment or other relationship at any time, with or without cause.

14. Corporate Transactions.

14.1 Assumption or Replacement of Awards by Successor. In the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company (other than any stockholder which merges (or which owns or controls another corporation which merges) with the Company in such merger) cease to own their shares or other equity interests in the Company, (d) the sale of substantially all of the assets of the Company, or (e) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company from or by the stockholders of the Company), any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to the Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Options, as provided above, pursuant to a transaction described in this Subsection 14.1, such Options will expire on such transaction at such time and on such conditions as the Board will determine. The Board may elect to fully or partially accelerate the vesting of Options prior to the closing of the transaction.

14.2 Other Treatment of Awards. Subject to any greater rights granted to the Participants under the foregoing provisions of this Section 14, in the event of the occurrence of any transaction described in Section 14.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other “corporate transaction.”

14.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.

15. Adoption and Stockholder Approval. This Plan was adopted by the Board effective as of February 16, 1999. The Board may at its discretion seek stockholder approval of this Plan, if it determines that such approval is required by law, The Nasdaq Stock Market Marketplace Rules, or is otherwise necessary or desirable.

16. Term of Plan. The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding.

17. Amendment or Termination of Plan. The Board may at any time terminate or amend the Plan without the approval of the stockholders of the Company, unless such approval is required by law (including Section 16(b) of the Exchange Act), The Nasdaq Market Marketplace Rules, or otherwise. Notwithstanding the foregoing, no amendment or termination may, in the absence of written consent by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the date such amendment or termination is adopted by the Board; provided that adjustments pursuant to Section 2.2 and 14 shall not require the consent of any Participant.

18. Nonexclusivity of the Plan. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

19. Definitions.

“Award” means any award of Options under this Plan.

“Award Agreement” means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

“Board” means the Board of Directors of the Company.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means a committee of the Board comprised of two or more “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act who are also “outside directors” within the meaning of Treasury Regulation 1.162-27(e)(3) appointed to administer this Plan, or if no such committee is appointed, the Board. During all times that the Company is subject to Section 16 of the Exchange Act, the Company will take appropriate steps to comply with the administration requirements of Section 16(b) of the Exchange Act.

“Company” means Modtech Holdings, Inc., a Delaware corporation, or any successor corporation.

“Disability” means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exercise Price” means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

“Fair Market Value” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

(a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination (if such day is a trading day), and, if such date of determination is not a trading day, then on the last trading day prior to the date of determination;

(b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the last trading day prior to the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading;

(c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the last trading day prior to the date of determination; or

(d) if none of the foregoing is applicable, by the Committee in good faith.

“Option” means an award of an option to purchase Shares pursuant to Section 5.

“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under this Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Participant” means a person who receives an Award under this Plan.

“Plan” means this Modtech Holdings, Inc. 1999 Nonstatutory Stock Option Plan, as amended from time to time.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” means shares of the Company’s Common Stock and any successor security.

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Termination” or “Terminated” means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, director, consultant, independent contractor or advisor to the Company or a Parent or Subsidiary of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “Termination Date”).

EX-10.4

Exhibit 10.4

MODTECH HOLDINGS, INC.

2002 NONSTATUTORY STOCK OPTION PLAN

1. Purpose. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company’s future performance through awards of Options. Capitalized terms not defined in the text are defined in Section 19.

2. Shares Subject to the Plan

2.1 Number of Shares Available. Subject to Sections 2.2 and 14, (a) the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be One Million (1,000,000) Shares, and (b) Shares that are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option will again be available for grant and issuance in connection with future Awards under this Plan. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan.

2.2 Adjustment of Shares. In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, and (b) the Exercise Prices of and number of Shares subject to outstanding Options will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provide, however, that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee.

3. Eligibility. Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, contractors, and advisors render bona fide services not in connection with the offer and sale of securities in a capital raising transaction.

4. Administration.

4.1 Committee Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

(b) prescribe, amend and rescind rules and regulations relating to this Plan;

(c) select persons to receive Awards;

(d) determine the form and terms of Awards;

(e) grant waivers of Plan or Award conditions;

(f) determine the vesting and exercisability of Awards;

(g) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; and

(h) make all other determinations necessary or advisable for the administration of this Plan.

4.2 Discretion. Any determination made by the Board or Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan.

5. Options. All Options granted will be nonstatutory stock options, which are options not intended to satisfy the requirements of incentive stock options under Section 422 of the Code, or comply with the requirements for employee stock purchase plans under Section 423 of the Code. No other form of Award may be made under this Plan. The Committee will have the discretion to determine, the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:

5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by a written Award Agreement, which will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.

5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Award Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3 Exercise Period. Options will be exercisable within the times or upon the events determined by the Committee as set forth in the Award Agreement governing such Option. The Committee may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.

5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than 100% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 6 of this Plan.

5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding the Participant’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased.

5.6 Termination. Except as otherwise determined by the Committee and set forth in the Award Agreement, exercise of an Option is subject to the following:

(a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant’s Options no later than three (3) months after the Termination Date, but only to the extent that such Options would have been exercisable upon the Termination Date, and in any event, no later than the expiration date of the Options.

(b) If the Participant is Terminated because of the Participant’s death or Disability (or the Participant dies within three (3) months after a Termination other than because of the Participant’s death or disability), then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the Termination Date and must be exercised by the Participant (or the Participant’s legal representative or authorized assignee) no later than twelve (12) months after the Termination Date, but in any event no later than the expiration date of the Options.

(c) Notwithstanding (a) and (b) above, if the Participant is Terminated for cause (as defined in the applicable Award Agreement) any Option not exercised in full prior to such termination will be deemed automatically canceled and may not be exercised on or after the Termination Date.

5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that must be purchased on any exercise of an Option, provided that such minimum number will not prevent the Participant from exercising the Option for the full number of Shares for which it is then exercisable.

5.8 Modification. Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. The Committee may reduce the Exercise Price of outstanding Options without the consent of the Participants affected by a written notice to them; provided, however that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price.

6. Payment for Share Purchases.

6.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:

(a) by cancellation of indebtedness of the Company to the Participant;

(b) by surrender of shares of common stock of the Company that are acceptable to the Committee;

(c) by tender of a full recourse promissory note having such terms, including security for the note, as the Committee may determine, or as may be required by law;

(d) by waiver of compensation due or accrued to the Participant for services rendered;

(e) provided that a public market for the Company’s stock exists:

(1) through a “same day sale” commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(2) through a “margin” commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or

(f) by any combination of the foregoing, or by such other method as is approved by the Committee and otherwise permitted by law.

6.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

7. Withholding Taxes.

7.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state, and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares.

7.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in writing in a form acceptable to the Committee and will be subject to such additional restrictions as the Committee may elect to impose.

8. Rights as a Stockholder. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such certificate or certificates are issued, except as provided in Section 2.2 above.

9. Transferability. Awards granted under this Plan, and any interest therein, will not be transferable or assignable by any Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Award Agreement provisions relating thereto. During the lifetime of a Participant, the Award will be exercisable only by the Participant, and any elections with respect to the Award, may be made only by the Participant.

10. Certificates. All certificates for Shares delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.

11. Exchange of Awards. The Committee may, at any time or from time to time with the consent of the respective Participants issue new Awards in exchange for the surrender and cancellation of existing Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares or other consideration, based on such terms and conditions as the Committee and the Participant may agree.

12. Securities Law and Other Regulatory Compliance. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable.

13. No Obligation to Employ. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate any Participant’s employment or other relationship at any time, with or without cause.

14. Corporate Transactions.

14.1 Acceleration; Assumption or Replacement of Awards by Successor. Unless assumed, converted or replaced as provided for below, each Option outstanding at the time of a Corporate Transaction that is not otherwise fully vested shall automatically accelerate so that each such Option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the Shares at the time subject to that Option. An outstanding Option shall not so accelerate if and to

the extent: (i) such Option is, in connection with the Corporate Transaction, assumed, converted or replaced or otherwise continued in full force and effect by the successor corporation (or parent thereof) pursuant to the terms of the Corporate Transaction, (ii) such Option is replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Corporate Transaction on the Shares for which the Option is not otherwise at that time exercisable and provides for subsequent payout in accordance with the same vesting schedule applicable to those Shares or (iii) the acceleration of such Option is subject to other limitations imposed by the Committee at the time of it was granted. Immediately following the consummation of the Corporate Transaction, all outstanding Options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise expressly continued in full force and effect pursuant to the terms of the Corporate Transaction. Each Option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Participant in consummation of such Corporate Transaction had the Option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the Exercise Price payable per Share under each outstanding Option, provided the aggregate Exercise Price payable for such securities shall remain the same, and (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan. The Committee may at any time provide that one or more Options will automatically accelerate in connection with a Corporate Transaction, whether or not those Options are assumed or otherwise continued in full force and effect pursuant to the terms of the Corporate Transaction. Any such Option shall accordingly become exercisable, immediately prior to the effective date of such Corporate Transaction, for all of the Shares at the time subject to that Option.

14.2 Other Treatment of Awards. Subject to any greater rights granted to the Participants under the foregoing provisions of this Section 14, in the event of the occurrence of any transaction described in Section 14.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other “corporate transaction.”

14.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.

15. Adoption and Stockholder Approval. This Plan was adopted by the Board effective as of March 5, 2002. The Board may at its discretion seek stockholder approval of this Plan, if it determines that such approval is required by law, The Nasdaq Stock Market Marketplace Rules, or is otherwise necessary or desirable.

16. Term of Plan. The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding.

17. Amendment or Termination of Plan. The Board may at any time terminate or amend the Plan without the approval of the stockholders of the Company, unless such approval is required by law (including Section 16(b) of the Exchange Act), The Nasdaq Market Marketplace Rules, or otherwise. Notwithstanding the foregoing, no amendment or termination may, in the absence of written consent by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the date such amendment or termination is adopted by the Board; provided that adjustments pursuant to Section 2.2 and 14 shall not require the consent of any Participant.

18. Nonexclusivity of the Plan. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

19. Definitions.

“Award” means any award of Options under this Plan.

“Award Agreement” means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

“Board” means the Board of Directors of the Company.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means a committee of the Board comprised of two or more “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act appointed to administer this Plan, or if no such committee is appointed, the Board. The Committee may consist of persons who are not “non-employee directors” within the meaning of Rule 16b-3 if the Awards are approved by the

Board or stockholders, or if the Awards may not be exercised for at least 6 months from the date of grant. During all times that the Company is subject to Section 16 of the Exchange Act, the Company will take appropriate steps to comply with the administration requirements of Section 16(b) of the Exchange Act.

“Company” means Modtech Holdings, Inc., a Delaware corporation, or any successor corporation.

“Corporate Transaction” means:

(a) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the outstanding securities of the Company are transferred to a person or persons different from the person or persons holding those securities immediately prior to such transaction, or

(b) the sale, transfer or other disposition of all or substantially all of the assets of the Company in complete liquidation or dissolution of the Company.

“Disability” means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exercise Price” means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

“Fair Market Value” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

(a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination (if such day is a trading day), and, if such date of determination is not a trading day, then on the last trading day prior to the date of determination;

(b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the last trading day prior to the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading;

(c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the last trading day prior to the date of determination; or

(d) if none of the foregoing is applicable, by the Committee in good faith.

“Option” means an award of an option to purchase Shares pursuant to Section 5.

“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under this Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Participant” means a person who receives an Award under this Plan.

“Plan” means this Modtech Holdings, Inc. 1999 Nonstatutory Stock Option Plan, as amended from time to time.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” means shares of the Company’s Common Stock and any successor security.

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Termination” or “Terminated” means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, director, consultant, independent contractor or advisor to the Company or a Parent or Subsidiary of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “Termination Date”).

MODTECH HOLDINGS, INC.

2002 NONSTATUTORY STOCK OPTION PLAN

STOCK OPTION AWARD AGREEMENT

(NONSTATUTORY STOCK OPTION)

This Agreement is made and entered into effective as of                             , by and between MODTECH HOLDINGS, INC., a Delaware Company (the “Company”), and                              (the “Optionee”).

R E C I T A L S

A. The Board of Directors of the Company (the “Board”) has adopted the Modtech Holdings, Inc. 2002 Nonstatutory Stock Option Plan (the “Plan”) in order to provide key employees and directors of, and key consultants, vendors, customers, and others expected to provide significant services to, the Company, with a favorable opportunity to acquire shares of the Company’s common stock (the “Stock”).

B. The Board has by resolution duly adopted that it is in the best interests of the Company and its shareholders to grant to Optionee, as an employee of the Company, the option to purchase shares of Stock on the terms and conditions provided for in this Agreement, as an inducement to Optionee to continue to remain in the service of the Company and to provide Optionee with additional incentive for increasing his or her efforts and contributions to the success of the Company during such service.

NOW THEREFORE, it is agreed as follows:

1. Definitions and Incorporation. The terms used in this Agreement shall have the meanings given to such terms in the Plan. The Plan is hereby incorporated in and made a part of this Agreement as if fully set forth herein. The Optionee hereby acknowledges receipt of a copy of the Plan.

2. Grant of Option. The Company hereby grants to Optionee as of the date hereof the right and option to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of                  shares of Stock (the “Option”), subject to adjustment in accordance with Section 2.2 of the Plan. It is understood and acknowledged that the Option will be a Nonstatutory Stock Option which will not qualify as an Incentive Stock Option under Section 422A of the Code.

3. Option Price. The price to be paid for Stock upon exercise of the Option or any part thereof shall be $             per share (the “Purchase Price”), which is equal to or greater than 100% of the Fair Market Value of one share of Stock as of the date hereof.

4. Right to Exercise. Subject to the conditions set forth in this Agreement, the right to exercise the Option shall accrue in accordance with Schedule 1 attached hereto and hereby incorporated in and made a part hereof. The Optionee hereby accepts and agrees to be bound by each and every provision contained in Schedule 1.

5. Securities Law Requirements. No part of the Option shall be exercised if counsel to the Company determines that any applicable registration requirement under the Securities Act of 1933, as amended, or any other applicable requirement of Federal or state law has not been met.

6. Term of Option. The Option shall terminate in any event on the earliest of (a) the 10th anniversary of the date of this Agreement first set forth above, at 11:59 P.M., (b) the expiration of the period described in Paragraph 7 below, or (c) the expiration of the period described in Paragraph 8 below.

7. Exercise Following Termination of Service. If the Optionee’s service with the Company terminates for any reason other than death or Disability, the Option may be exercised no later than three (3) months after the Termination Date, but only to the extent that such Option would have been exercisable upon the Termination Date, and in any event, no later than the expiration date of the Option. The foregoing notwithstanding, the Option shall cease to be exercisable on the Termination Date if the termination is for cause or if following termination with or without cause the Optionee becomes an employee, director or consultant of a person who is in direct competition with the Company. For this purpose, “cause” shall mean conviction of a felony, misappropriation of assets of the Company or any subsidiary, continued or repeated insobriety, continued or repeated absence from service during the usual working hours of the Optionee’s position for reason other than disability or sickness, or refusal to carry out the reasonable directions of the Company’s executive officers or of the Board.

8. Exercise Following Death or Disability. If the Optionee’s service with the Company terminates by reason of the Optionee’s death or Disability, or if the Optionee dies after termination of service but while the Option would have been exercisable hereunder, then the Option may be exercised only to the extent that such Option would have been exercisable by the Optionee on the Termination Date and must be exercised by the Optionee (or the Optionee’s legal representative or authorized assignee) no later than twelve (12) months after the Termination Date, but in any event no later than the expiration date of the Option.

9. Time of Termination of Service. For the purposes of this Agreement, Optionee’s service shall be deemed to have terminated on the earlier of (a) the date when Optionee’s service in fact terminated or (b) the date when the Optionee gave or received written notice that his or her service is to terminate, in each case as determined by the Committee.

10. Nontransferability. Unless the Company otherwise consents in writing, the option and all rights and privileges granted hereunder shall be non-assignable and non-transferable by the Optionee, either voluntarily or by operation of law, except by will or by operation of the laws of descent and distribution, shall not be pledged or hypothecated in any way, and shall be exercisable during lifetime only by the Optionee. Except as otherwise provided herein, any attempted alienation, assignment, pledge, hypothecation, attachment, execution or similar process, whether

voluntary or involuntary, with respect to all or any part of the Option or any right thereunder, shall be null and void and, at the Company’s option, shall cause all of Optionee’s rights under this Agreement to terminate.

All certificates representing shares of Stock purchased upon the exercise of the Option shall bear the following legend:

“THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”). ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT.”

11. Effect of Exercise. Upon exercise of all or any part of the Option, the number of shares of Stock subject to option under this Agreement shall be reduced by the number of shares with respect to which such exercise is made.

12. Method of Exercise. Each exercise of the Option shall be by means of a written notice of exercise in substantially the form prescribed from time to time by the Board or Committee (the “Exercise Agreement”) delivered to the Secretary of the Company at its principal office and accompanied by payment in full of the option price for each share of Stock purchased under the Option. The Exercise Agreement shall state the number of shares of Stock with respect to which the Option is exercised, the restrictions imposed on such shares, if any, such representations and agreements regarding the Optionee’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, and shall be signed by the person exercising the Option. If the Option is exercised by a person other than the Optionee, such notice shall be accompanied by proof, reasonably satisfactory to the Company, of such person’s right to exercise the Option.

The Purchase Price specified in paragraph 3 above shall be paid in full upon the exercise of the Option (i) by cash, in United States dollars; by the surrender of Shares in good form for transfer, owned by the person exercising the Option and having a Fair Market Value on the date of exercise equal to the Purchase Price, or in any combination of cash and Shares, as long as the sum of the cash so paid and the Fair Market Value of the Shares so surrendered equal the Purchase Price; (ii) by cancellation of indebtedness owed by the Company to the Optionee; or (iii) by any combination of the foregoing.

13. Withholding Taxes. If the Optionee is an employee or former employee of the Company when all or part of the Option is exercised, the Company may require the Optionee to deliver payment of any withholding taxes (in addition to the Option exercise price) in cash with respect to the difference between the Option exercise price and the fair market value of the Stock acquired upon exercise.

14. Issuance of Shares. Subject to the foregoing conditions, the Company, as soon as reasonably practicable after receipt of a proper Exercise Agreement and without transfer or issue tax or other incidental expense to the person exercising the Option, shall deliver to such person at the principal office of the Company, or such other location as may be acceptable to the Company and such person, one or more certificates for the shares of Stock with respect to which the option has been exercised. Such shares shall be fully paid and nonassessable and shall be issued in the name of such person. However, at the request of the Optionee, such shares may be issued in the names of the Optionee and his or her spouse (a) as joint tenants with right of survivorship, (b) as community property or (c) as tenants in common without right of survivorship.

15. Limitation of Optionee’s Rights. Neither Optionee nor any person entitled to exercise the Option shall be or have any of the rights of a shareholder of the Company in respect of any share issuable upon the exercise of the Option unless and until a certificate or certificates representing shares of Stock shall have been issued and delivered upon exercise of the Option in full or in part. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.

16. Consent Required to Transfer. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the 1933 Act, the Optionee shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to, any Stock purchased under the Option without the prior written consent of the Company or its underwriters. Such limitations shall be in effect for such period of time from and after the effective date of such registration statement as may be requested by the Company or such underwriters.

17. Notices. Any notice to the Company contemplated by this Agreement shall be addressed to it in care of its President; any notice to the Optionee shall be addressed to him or her at the address on file with the Company on the date hereof or at such other address as Optionee may hereafter designate in a writing delivered to the Company as provided herein.

18. Interpretation. The interpretation, construction, performance and enforcement of this Agreement shall lie within the sole discretion of the Board, and the Board’s determinations shall be conclusive and binding on all interested persons.

19. Governing Law. This Agreement has been made, executed and delivered in, and the interpretation, performance and enforcement hereof shall be governed by and construed under the laws of the State of California.

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, in the case of the Company by its duly authorized office, as the day and year first above written.

MODTECH HOLDINGS, INC.,

a Delaware corporation

By:

Title:

“Optionee”

SCHEDULE 1

RIGHT TO EXERCISE

1. Subject to the conditions set forth in this Agreement, the Option shall first become exercisable as to the respective number of shares and at the times indicated below: +

Number of Shares Date First Exercisable

EX-10.5

Exhibit 10.5

SEPARATION AND CONSULTING AGREEMENT – EVAN M. GRUBER

This Separation and Consulting Agreement (“Separation and Consulting Agreement”), is entered as of the 11^th day of August 2004, by and between Evan M. Gruber, an individual (“Gruber”), and Modtech Holdings, Inc., a corporation (the “Company”).

WHEREAS, Gruber has been employed as Chief Executive Officer of the Company, pursuant to an Employment Agreement, entered into as of November 7, 2003 (the “Employment Agreement”);

WHEREAS, Gruber and the Company have mutually agreed to terminate their employment relationship upon the terms set forth herein; and

WHEREAS, Gruber and the Company have mutually agreed that Gruber will provide consulting services to the Company for a specified period after the termination of his employment relationship with the Company.

NOW, THEREFORE, in consideration of the covenants undertaken and the releases contained in this Separation and Consulting Agreement, Gruber and the Company agree as follows:

I. Resignation as Chief Executive Officer. Gruber hereby resigns as Chief Executive Officer of the Company effective August 12, 2004 (the “Separation Date”), and the Company hereby accepts such resignation.

II. Resignation as an Employee. Gruber hereby resigns as an employee of the Company effective as of the Separation Date, and the Company hereby accepts such resignation.

III. Resignation as a Director. The Board of Directors of the Company may require Gruber to resign from the Board (and Gruber shall resign) and Gruber may resign from the Board at any time after September 13, 2004. On the date hereof, the Company counsel shall confirm in writing to Gruber that he is, and will be following the Separation Date, covered under the Company’s current D&O policy.

IV. Termination of Employment Agreement. The Employment Agreement shall terminate and shall have no further force or effect upon the execution of this Agreement. All payments due to Gruber from the Company after the effective date hereof shall be determined under this Separation and Consulting Agreement, and no payments shall be made under the Employment Agreement. Notwithstanding the foregoing, Sections 9 and 10 of the Employment Agreement shall continue in force and effect as they relate to Gruber’s past and future services to the Company as a Director and as an employee and Chief Executive Officer of the Company and as a consultant.

V. Transition; Final Paycheck and Bonus. From and after the Separation Date, Gruber shall assist in the transition of his duties and business contacts as a consultant pursuant to the terms set forth below. On or before the Separation Date, the Company shall pay to Gruber all earned, but unpaid compensation through the Separation Date, including salary through the Separation Date, accrued bonus in the amount of $17,619.00, and five days of accrued but unused vacation.

VI. Severance Payment. On or before the Separation Date, the Company shall pay to Gruber severance pay in the lump sum amount of $736,250.00, less tax withholdings and authorized deductions, in lieu of any severance payments or other termination payments provided under the Employment Agreement.

VII. Benefit Continuation.

A. Medical and Dental Coverage. Gruber hereby elects continuation of his and his eligible dependents medical and dental insurance coverage under COBRA. The Company will pay for the premium for such continuation coverage until the earlier to occur of the following: (i) expiration of eighteen (18) months from the Separation Date or (ii) until Gruber or his eligible dependents cease to qualify for such extension of coverage under COBRA.

B. Life Insurance and Long Term Disability. To the extent permitted by the Company’s group insurance policies, the Company will cause to be continued Gruber’s life insurance coverage and long term disability insurance coverage substantially equivalent to the coverage maintained by the Company for Gruber prior to his separation at no premium cost to Gruber. Such coverage will terminate upon the expiration of eighteen (18) months following the Separation Date. If such continuation is not permitted by the Company’s group insurance policies, the Company for a period of eighteen (18) months following the Separation Date will reimburse Gruber for the premium cost incurred to obtain comparable life insurance and long term disability insurance under private policies, up to the amount the Company would have paid to provide such coverage to Gruber had he remained an employee of the Company.

C. Other Benefits. Nothing in this Agreement is intended to deprive Gruber of any vested rights, payments, benefits or service credit for benefits which he earned during employment with respect to any welfare, pension, deferred compensation, or other benefit plan.

VIII. Stock Options. On the Separation Date, Gruber shall receive 18 months of vesting credit with respect to all stock options granted prior to the date hereof as if he had provided services to the Company during such 18 month period. In addition, Gruber shall have twenty-one (21) months from the Separation Date to exercise all or any portion of his vested stock options in accordance with the terms and conditions of such options and the Company’s Stock Option Plan.

IX. Non-Disparagement. Gruber and the Company agree they shall not, directly or indirectly, make or ratify any statement, public or private, oral or written, to any person that disparages, either professionally or personally, the other.

X. Mutual Releases.

A. Gruber, on behalf of himself and his heirs, executors, administrators, successors and assigns, hereby knowingly, voluntarily and irrevocably releases and discharges the Company and its subsidiaries, and any and all of their respective affiliates, current and former officers, employees, agents, directors, legal representatives, attorneys, and any successor or assign or predecessor of any of the foregoing, from any and all claims, charges, actions or causes of action he may have against any such released person, whether known or unknown, from the beginning of time through the date hereof based upon any matter, cause or thing whatsoever related to or arising out of (1) Gruber’s employment with the Company, or any subsidiary or predecessor entity prior to the Separation Date, (2) Gruber’s service as a director of the Company, or any subsidiary or predecessor entity prior to the Separation Date, or (3) the termination of Gruber’s positions with the Company, or any subsidiary or predecessor entity as of or prior to the Separation Date as contemplated by this Agreement; provided, however, that this release shall not limit in any way or constitute a waiver of any rights or claims Gruber may have (i) under this Agreement, (ii) under any applicable insurance policy, (iii) that arise after the Separation Date, (iv) under any stock option, deferred compensation or other similar compensation plan, program, agreement or arrangement, or (v) under any pension, retirement or welfare benefit plan, program, agreement or arrangement.

B. Except as set forth herein, the Company, on behalf of itself and each subsidiary, and any successor or assign of any of the foregoing, hereby knowingly, voluntarily and irrevocably releases and discharges Gruber, his family, estate, legal representatives, agents, attorneys, heirs, executors, successors and assigns, from any and all claims, charges, actions or causes of action any of them may have against any such released person, whether known or unknown, from the beginning of time through the date hereof based upon any matter, cause or thing whatsoever related to or arising out of (1) Gruber’s employment with the

Company, or any subsidiary or predecessor entity prior to the Separation Date, (2) his service as a director of the Company, or any subsidiary or predecessor entity prior to the Separation Date, or (3) the termination of Gruber’s positions with the Company, or any subsidiary or predecessor entity prior to or as of the Separation Date as contemplated by this Agreement; provided, however, that this release shall not limit or waive any rights or claims of the Company or any subsidiary (i) under this Agreement, or (ii) as a result of any acts or omissions by Gruber that constitute fraud or willful misconduct.

XI. Confidentiality. Gruber and the Company agree that the terms and conditions of this Separation and Consulting Agreement shall remain confidential and shall not (except as required by law), disclose them to any other person other than (i) attorneys or any other professional providing advice to Gruber or the Company, or (ii) Gruber’s spouse. Gruber will not respond to or in any way participate in or contribute to any public discussion, notice or other publicity concerning, or in any way relating to, execution of this Separation and Consulting Agreement or the events (including any negotiations) which led to its execution. The parties hereby agree that disclosure of any of the terms and conditions of the Separation and Consulting Agreement in violation of the foregoing shall constitute and be treated as a material breach of this Separation and Consulting Agreement.

XII. Consulting Engagement. The Company hereby engages Gruber and Gruber hereby accepts such engagement, upon the terms and conditions hereinafter set forth, for a twelve (12) month period commencing on the Separation Date (the “Consulting Period”), unless earlier terminated by mutual agreement of the parties.

XIII. Consulting Services.

A. Gruber shall perform reasonable consulting services during the course of his engagement under this Separation and Consulting Agreement which shall include providing advice to and consultation with the Company and its affiliates as the Board may request from time to time (and agreed to by Gruber) on matters with which Gruber was familiar and/or about which Gruber acquired knowledge, expertise and/or experience during the time that Gruber was employed by the Company. Gruber shall not undertake any consulting project for the Company except as requested by the Board.

XIV. Consulting Compensation. The Company shall pay to Gruber a consulting fee of $2,000.00 per day of consulting services to the Company (the “Consulting Fee”). Gruber shall submit invoices monthly in arrears for the consulting services provided the prior month, and such invoices shall be promptly paid by the Company. Gruber agrees that he will be solely responsible for any taxes due as a result of the payment of such Consulting Fee, and Gruber will defend and indemnify the Company from and against any and all losses or liabilities, including defense costs, arising out of Gruber’s failure to pay any taxes due with respect to such Consulting Fee. If the Company determines that applicable law requires that taxes should be withheld from the Consulting Fee, the Company reserves the right to withhold, as legally required, and to notify Gruber accordingly. All services provided by Gruber under Section XVIII. E. shall be considered consulting services hereunder, and subject to the terms and conditions of providing such services set forth herein, and the Company shall be required to pay Gruber the Consulting Fee in connection therewith.

XV. Expenses. Gruber shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him in performance of the services under this Separation and Consulting Agreement upon the presentation of documentary evidence of such expenses.

XVI. Relationship. Gruber shall operate at all times as an independent contractor of the Company. This Separation and Consulting Agreement does not authorize Gruber to act for the

Company as its agent or to make commitments on behalf of the Company. Gruber and the Company intend that an independent contractor relationship be created by this Separation and Consulting Agreement, and nothing herein shall be construed as creating an employer/employee relationship, partnership, joint venture, or other business group or concerted action. Gruber at no time shall hold himself out as an agent of the Company for any purpose, including reporting to any governmental authority or agency, and shall have no authority to bind the Company to any obligation whatsoever.

XVII. Soliciting Employees. Gruber promises and agrees that he will not, for a period of one year following the Separation Date, directly or indirectly solicit any of the Company employees who earned annually $25,000 or more as a Company employee during the last six months of his or her own employment to work for any business, individual, partnership, firm, or corporation.

XVIII. Miscellaneous

A. Successors.

1. This Separation and Consulting Agreement is personal to Gruber and shall not, without the prior written consent of the Company, be assignable by Gruber.

2. This Separation and Consulting Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and any such successor or assignee shall be deemed substituted for the Company under the terms of this Separation and Consulting Agreement for all purposes. As used herein, “successor” and “assignee” shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires the stock of the Company or to which the Company assigns this Separation and Consulting Agreement by operation of law or otherwise. This Agreement shall not be terminated by the Company merging with or otherwise being acquired by another entity, whether or not the Company is the surviving entity, or by the Company transferring all or substantially all of its assets (any such event, an “Acquisition”). In the event of an Acquisition, the surviving entity or transferee, as the case may be, shall be bound by and shall have the benefits of this Agreement, and the Company shall not enter into any Acquisition unless the surviving entity or transferee, as the case may be, agrees to be bound by the provisions of the Agreement.

B. Waiver. No waiver of any breach of any term or provision of this Separation and Consulting Agreement shall be construed to be, nor shall be, a waiver of any other breach of this Separation and Consulting Agreement. No waiver shall be binding unless in writing and signed by the party waiving the breach.

C. Modification. This Separation and Consulting Agreement may not be amended or modified other than by a written agreement executed by Gruber and the Chairman of the Board of the Company.

D. Complete Agreement. This Separation and Consulting Agreement constitutes and contains the entire agreement and final understanding concerning Gruber’s relationship with the Company and the other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. Any representation, promise or agreement not specifically included in this Separation and Consulting Agreement shall not be binding upon or enforceable against either party. This is an integrated agreement.

E. Litigation and Investigation Assistance. As a part of the consulting services described in Section XII, Gruber may be required to provide reasonable cooperation in the Company’s defense against any threatened or pending litigation or in any investigation or proceeding by any governmental agency or body that relates to any events or actions which occurred during the term of Gruber’s employment.

F. Severability. If any provision of this Separation and Consulting Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Separation and Consulting Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Separation and Consulting Agreement are declared to be severable.

G. Choice of Law. This Separation and Consulting Agreement shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with, and governed by, the laws of the State of California without regard to principles of conflict of laws.

H. Cooperation in Drafting. Each party has cooperated in the drafting and preparation of this Separation and Consulting Agreement. Hence, in any construction to be made of this Separation and Consulting Agreement, the same shall not be construed against any party on the basis that the party was the drafter.

I. Counterparts. This Separation and Consulting Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

J. Arbitration. Any controversy arising out of or relating to this Separation and Consulting Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, shall be submitted to final and binding arbitration, to be held in Orange County, California in accordance with California Civil Procedure Code §§ 1282-1284.2, provided, however, that provisional injunctive relief may, but need not, be sought in a court of law while arbitration proceedings are pending, and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the Arbitrator. In the event either party institutes arbitration under this Separation and Consulting Agreement, the party prevailing in any such proceeding shall be entitled, in addition to all other relief, to reasonable attorneys’ fees relating to such arbitration. The non-prevailing party shall be responsible for all costs of the arbitration, including but not limited to, the arbitration fees, court reporter fees, etc.

K. Supplementary Documents. All parties agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force to the basic terms and intent of this Separation and Consulting Agreement and which are not inconsistent with its terms.

L. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

M. Attorneys Fees. The Company shall pay up to $5,000 of the attorney’s fees of Gruber in connection with the preparation, negotiation and execution of this Agreement.

N. Class Leasing. The Company acknowledges that Gruber owns an interest in and operates, and shall continue to own and operate, Class Leasing, and that such ownership and operation by

Gruber shall not constitute a breach of any obligation under this Agreement, provided, however, that nothing in this subsection shall operate as or be construed to be a waiver of any rights or obligations under Section 10 of the Employment Agreement.

I have read the foregoing Separation and Consulting Agreement and I accept and agree to the provisions it contains and hereby execute it voluntarily with full understanding of its consequences.

EXECUTED this 11th day of August 2004, at Riverside County, California.

“Gruber”

/s/ Evan M. Gruber

Evan M. Gruber

EXECUTED this 11th day of August 2004, at Riverside County, California.

“Company”
Modtech Holdings, Inc.
/s/ Charles C. McGettigan
By:	Charles C. McGettigan
	Its: Chairman

EX-10.6

Exhibit 10.6

SEPARATION AND CONSULTING AGREEMENT – MICHAEL G. RHODES

This Separation and Consulting Agreement (“Separation and Consulting Agreement”), is entered as of the 22^nd day of September 2004, by and between Michael G. Rhodes, an individual (“Rhodes”), and Modtech Holdings, Inc., a corporation (the “Company”).

WHEREAS, Rhodes has been employed as President and Chief Operating Officer of the Company, pursuant to an Employment Agreement, entered into as of December 22, 2003 (the “Employment Agreement”);

WHEREAS, Rhodes and the Company have mutually agreed to terminate their employment relationship upon the terms set forth herein; and

WHEREAS, Rhodes and the Company have mutually agreed that Rhodes will provide consulting services to the Company for a specified period after the termination of his employment relationship with the Company.

NOW, THEREFORE, in consideration of the covenants undertaken and the releases contained in this Separation and Consulting Agreement, Rhodes and the Company agree as follows:

XIX. Resignation as President and Chief Operating Officer. Rhodes hereby resigns as President and Chief Operating Officer of the Company effective September 22, 2004 (the “Separation Date”), and the Company hereby accepts such resignation.

XX. Resignation as an Employee. Rhodes hereby resigns as an employee of the Company effective as of the Separation Date, and the Company hereby accepts such resignation.

XXI. Resignation as a Director. The Board of Directors of the Company may require Rhodes to resign from the Board (and Rhodes shall resign) and Rhodes may resign from the Board at any time after September 21, 2004. On the date hereof, the Company counsel shall confirm in writing to Rhodes that he is, and will be following the Separation Date, covered under the Company’s current D&O policy.

XXII. Termination of Employment Agreement. The Employment Agreement shall terminate and shall have no further force or effect upon the execution of this Agreement. All payments due to Rhodes from the Company after the effective date hereof shall be determined under this Separation and Consulting Agreement, and no payments shall be made under the Employment Agreement. Notwithstanding the foregoing, Sections 9, 10 and 11 of the Employment Agreement shall continue in force and effect as they relate to Rhodes’s past and future services to the Company as a Director and as an employee and Chief Operating Officer of the Company and as a consultant.

XXIII. Transition and Final Paycheck. From and after the Separation Date, Rhodes shall assist in the transition of his duties and business contacts as a consultant pursuant to the terms set forth below. On or before the Separation Date, the Company shall pay to Rhodes all earned, but unpaid compensation through the Separation Date, including salary through the Separation Date and a number of days of accrued but unused vacation that will be determined by close of business, September 22, 2004.

(15) Severance Payment. On or before the Separation Date, the Company shall pay to Rhodes severance pay in the lump sum amount of $ 514,583.33, less tax withholdings and authorized deductions, in lieu of any severance payments or other termination payments provided under the Employment Agreement.

XXIV. Benefit Continuation.

A. Medical and Dental Coverage. Rhodes hereby elects continuation of his and his eligible dependents medical and dental insurance coverage under COBRA. The Company will pay for the premium for such continuation coverage until the earlier to occur of the following: (i) expiration of nineteen (19) months from the Separation Date or (ii) until Rhodes or his eligible dependents cease to qualify for such extension of coverage under COBRA.

B. Life Insurance and Long Term Disability. To the extent permitted by the Company’s group insurance policies, the Company will cause to be continued Rhodes’s life insurance coverage and long term disability insurance coverage substantially equivalent to the coverage maintained by the Company for Rhodes prior to his separation at no premium cost to Rhodes. Such coverage will terminate upon the expiration of nineteen (19) months following the Separation Date. If such continuation is not permitted by the Company’s group insurance policies, the Company for a period of nineteen (19) months following the Separation Date will reimburse Rhodes for the premium cost incurred to obtain comparable life insurance and long term disability insurance under private policies, up to the amount the Company would have paid to provide such coverage to Rhodes had he remained an employee of the Company.

C. Other Benefits. Nothing in this Agreement is intended to deprive Rhodes of any vested rights, payments, benefits or service credit for benefits which he earned during employment with respect to any welfare, pension, deferred compensation, or other benefit plan.

XXV. Stock Options. On the Separation Date, Rhodes shall receive Eighteen (18) months of vesting credit with respect to all stock options granted prior to the date hereof as if he had provided services to the Company during such Eighteen (18) month period. In addition, Rhodes shall have twenty-one (21) months from the Separation Date to exercise all or any portion of his vested stock options in accordance with the terms and conditions of such options and the Company’s Stock Option Plan.

XXVI. Non-Disparagement. Rhodes and the Company agree they shall not, directly or indirectly, make or ratify any statement, public or private, oral or written, to any person that disparages, either professionally or personally, the other.

XXVII. Mutual Releases.

A. Rhodes, on behalf of himself and his heirs, executors, administrators, successors and assigns, hereby knowingly, voluntarily and irrevocably releases and discharges the Company and its subsidiaries, and any and all of their respective affiliates, current and former officers, employees, agents, directors, legal representatives, attorneys, and any successor or assign or predecessor of any of the foregoing, from any and all claims, charges, actions or causes of action he may have against any such released person, whether known or unknown, from the beginning of time through the date hereof based upon any matter, cause or thing whatsoever related to or arising out of (1) Rhodes’s employment with the Company, or any subsidiary or predecessor entity prior to the Separation Date, (2) Rhodes’s service as a director of the Company, or any subsidiary or predecessor entity prior to the Separation Date, or (3) the termination of Rhodes’s positions with the Company, or any subsidiary or predecessor entity as of or prior to the Separation Date as contemplated by this Agreement; provided, however, that this release shall not limit in any way or constitute a waiver of any rights or claims Rhodes may have (i) under this Agreement, (ii) under any applicable insurance policy, (iii) that arise after the Separation Date, (iv) under any stock option, deferred compensation or other similar compensation plan, program, agreement or arrangement, or (v) under any pension, retirement or welfare benefit plan, program, agreement or arrangement.

B. Except as set forth herein, the Company, on behalf of itself and each subsidiary, and any successor or assign of any of the foregoing, hereby knowingly, voluntarily and irrevocably releases and discharges Rhodes, his family, estate, legal representatives, agents, attorneys, heirs, executors, successors and assigns, from any and all claims, charges, actions or causes of action any of them may have against any such released person, whether known or unknown, from the beginning of time through the date hereof based upon any matter, cause or thing whatsoever related to or arising out of (1) Rhodes’s employment with

the Company, or any subsidiary or predecessor entity prior to the Separation Date, (2) his service as a director of the Company, or any subsidiary or predecessor entity prior to the Separation Date, or (3) the termination of Rhodes’s positions with the Company, or any subsidiary or predecessor entity prior to or as of the Separation Date as contemplated by this Agreement; provided, however, that this release shall not limit or waive any rights or claims of the Company or any subsidiary (i) under this Agreement, or (ii) as a result of any acts or omissions by Rhodes that constitute fraud or willful misconduct.

C. Waiver of Civil Code Section 1542. It is a further condition of the consideration hereof and is the intention of Rhodes and the Company in executing this instrument that the same shall be effective as a bar as to each and every claim, demand, and cause of action hereinabove specified and, in furtherance of this intention, Rhodes and the Company hereby expressly waive any and all rights or benefits conferred by the provisions of SECTION 1542 OF THE CALIFORNIA CIVIL CODE and expressly consent that this Agreement shall be given full force and effect according to each and all of its express terms and conditions, including those relating to unknown and unsuspected claims, demands and causes of actions, if any, as well as those relating to any other claims, demands and causes of actions hereinabove specified. SECTION 1542 provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

Rhodes and the Company acknowledge that they may hereafter discover claims or facts in addition to or different from those that they now know or believe to exist with respect to the subject matter of this Agreement and that, if known or suspected at the time of executing this Agreement, may have materially affected this settlement. Nevertheless, Rhodes and the Company hereby waive any right, claim or cause of action that might arise as a result of such different or additional claims or facts.

XXVIII. Confidentiality. Rhodes and the Company agree that the terms and conditions of this Separation and Consulting Agreement shall remain confidential and shall not (except as required by law), disclose them to any other person other than (i) attorneys or any other professional providing advice to Rhodes or the Company, or (ii) Rhodes’s spouse. Rhodes will not respond to or in any way participate in or contribute to any public discussion, notice or other publicity concerning, or in any way relating to, execution of this Separation and Consulting Agreement or the events (including any negotiations) which led to its execution. The parties hereby agree that disclosure of any of the terms and conditions of the Separation and Consulting Agreement in violation of the foregoing shall constitute and be treated as a material breach of this Separation and Consulting Agreement.

XXIX. Consulting Engagement. The Company hereby engages Rhodes and Rhodes hereby accepts such engagement, upon the terms and conditions hereinafter set forth, for a twelve (12) month period commencing on the Separation Date (the “Consulting Period”), unless earlier terminated by mutual agreement of the parties.

XXX. Consulting Services.

Rhodes shall perform reasonable consulting services during the course of his engagement under this Separation and Consulting Agreement which shall include providing advice to and consultation with the Company and its affiliates as the Company may request from time to time (and agreed to by Rhodes) on matters with which Rhodes was familiar and/or about which Rhodes acquired knowledge, expertise and/or experience during the time that Rhodes was employed by the Company. Rhodes shall not undertake any consulting project for the Company except as requested by the CEO or CFO of the Company.

XXXI. Consulting Compensation. The Company shall pay to Rhodes a consulting fee of $1,750 per day of consulting services to the Company (the “Consulting Fee”). Rhodes shall submit invoices monthly in arrears for the consulting services provided the prior month, and such invoices shall be promptly paid by the Company. Rhodes agrees that he will be solely responsible for any taxes due as a result of the payment of such Consulting Fee, and Rhodes will defend and indemnify the Company from and against any and all losses or liabilities, including defense costs, arising out of Rhodes’s failure to pay any taxes due with respect to such Consulting Fee. If the Company determines that applicable law requires that taxes should be withheld from the Consulting Fee, the Company reserves the right to withhold, as legally required, and to notify Rhodes accordingly. All services provided by Rhodes under Section XVII. E. shall be considered consulting services hereunder, and subject to the terms and conditions of providing such services set forth herein, and the Company shall be required to pay Rhodes the Consulting Fee in connection therewith.

XXXII. Expenses. Rhodes shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him in performance of the services under this Separation and Consulting Agreement upon the presentation of documentary evidence of such expenses.

XXXIII. Relationship. Rhodes shall operate at all times as an independent contractor of the Company. This Separation and Consulting Agreement does not authorize Rhodes to act for the Company as its agent or to make commitments on behalf of the Company. Rhodes and the Company intend that an independent contractor relationship be created by this Separation and Consulting Agreement, and nothing herein shall be construed as creating an employer/employee relationship, partnership, joint venture, or other business group or concerted action. Rhodes at no time shall hold himself out as an agent of the Company for any purpose, including reporting to any governmental authority or agency, and shall have no authority to bind the Company to any obligation whatsoever.

XXXIV. Miscellaneous

A. Successors.

1. This Separation and Consulting Agreement is personal to Rhodes and shall not, without the prior written consent of the Company, be assignable by Rhodes.

2. This Separation and Consulting Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and any such successor or assignee shall be deemed substituted for the Company under the terms of this Separation and Consulting Agreement for all purposes. As used herein, “successor” and “assignee” shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires the stock of the Company or to which the Company assigns this Separation and Consulting Agreement by operation of law or otherwise. This Agreement shall not be terminated by the Company merging with or otherwise being acquired by another entity, whether or not the Company is the surviving entity, or by the Company transferring all or substantially all of its assets (any such event, an “Acquisition”). In the event of an Acquisition, the surviving entity or transferee, as the case may be, shall be bound by and shall have the benefits of this Agreement, and the Company shall not enter into any Acquisition unless the surviving entity or transferee, as the case may be, agrees to be bound by the provisions of the Agreement.

B. Waiver. No waiver of any breach of any term or provision of this Separation and Consulting Agreement shall be construed to be, nor shall be, a waiver of any other breach of this Separation and Consulting Agreement. No waiver shall be binding unless in writing and signed by the party waiving the breach.

C. Modification. This Separation and Consulting Agreement may not be amended or modified other than by a written agreement executed by Rhodes and the Chief Executive Officer of the Company.

D. Complete Agreement. This Separation and Consulting Agreement constitutes and contains the entire agreement and final understanding concerning Rhodes’s relationship with the Company and the other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. Any representation, promise or agreement not specifically included in this Separation and Consulting Agreement shall not be binding upon or enforceable against either party. This is an integrated agreement.

E. Litigation and Investigation Assistance. As a part of the consulting services described in Section XIII, Rhodes may be required to provide reasonable cooperation in the Company’s defense against any threatened or pending litigation or in any investigation or proceeding by any governmental agency or body that relates to any events or actions which occurred during the term of Rhodes’s employment.

F. Severability. If any provision of this Separation and Consulting Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Separation and Consulting Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Separation and Consulting Agreement are declared to be severable.

G. Choice of Law. This Separation and Consulting Agreement shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with, and governed by, the laws of the State of California without regard to principles of conflict of laws.

H. Cooperation in Drafting. Each party has cooperated in the drafting and preparation of this Separation and Consulting Agreement. Hence, in any construction to be made of this Separation and Consulting Agreement, the same shall not be construed against any party on the basis that the party was the drafter.

I. Counterparts. This Separation and Consulting Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

J. Arbitration. Any controversy arising out of or relating to this Separation and Consulting Agreement, its enforcement or interpretation, or because of an alleged breach, default, or misrepresentation in connection with any of its provisions, shall be submitted to final and binding arbitration, to be held in Orange County, California in accordance with California Civil Procedure Code §§ 1282-1284.2, provided, however, that provisional injunctive relief may, but need not, be sought in a court of law while arbitration proceedings are pending, and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the Arbitrator. In the event either party institutes arbitration under this Separation and Consulting Agreement, the party prevailing in any such proceeding shall be entitled, in addition to all other relief, to reasonable attorneys’ fees relating to such arbitration. The non-prevailing party shall be responsible for all costs of the arbitration, including but not limited to, the arbitration fees, court reporter fees, etc.

K. Supplementary Documents. All parties agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force to the basic terms and intent of this Separation and Consulting Agreement and which are not inconsistent with its terms.

L. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

M. Attorneys Fees. The Company shall pay up to $5,000 of the attorney’s fees of Rhodes in connection with the preparation, negotiation, and execution of this Agreement.

I have read the foregoing Separation and Consulting Agreement and I accept and agree to the provisions it contains and hereby execute it voluntarily with full understanding of its consequences.

EXECUTED this 22^nd day of September 2004, at Riverside County, California.

“Rhodes”

/s/ Michael G. Rhodes

Michael G. Rhodes

EXECUTED this 22^nd day of September 2004, at Riverside County, California.

“Company”
Modtech Holdings, Inc.
/s/ David M. Buckley
By:	David M. Buckley
Its:	Chief Executive Officer

EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is finalized as of September 28, 2004, and is made effective as of September 7, 2004, by and between MODTECH HOLDINGS, INC., a Delaware corporation (the “Company”), and DAVID M. BUCKLEY, an individual currently residing in the State of Pennsylvania (“Executive”).

R E C I T A L S

WHEREAS, Executive has been hired as the Company’s Chief Executive Officer, effective September 7, 2004.

WHEREAS, the Company desires to retain the services of Executive on the terms and conditions provided herein, and Executive is willing to provide such services on such terms and conditions;

A G R E E M E N T

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants of the parties contained herein, the parties agree as follows:

1. Term. This Agreement shall continue in full force and effect for a period which shall commence on September 7, 2004, and shall continue until December 31, 2006 (the “Term”), unless sooner terminated as hereinafter provided or extended by the mutual agreement of the parties. On December 31, 2006, and each one-year anniversary of that date, this Agreement shall automatically be renewed for a period of one year, unless either party shall have given the other written notice of their intent not to renew this Agreement at least thirty (30) calendar days prior to the expiration of the Term or any extension.

2. Services and Exclusivity of Services. So long as this Agreement shall continue in effect, Executive shall devote his full business time, energy and ability exclusively to the business, affairs and interests of the Company and its direct and indirect subsidiaries (the “Subsidiaries), and matters related thereto, shall use his best efforts and abilities to promote the Company’s interests, and shall perform the services contemplated by this Agreement in accordance with policies established by and under the direction of the Board of Directors of the Company (the “Board”). Executive shall at all times perform his duties and obligations faithfully and diligently and to the best of Executive’s ability.

Executive may make and manage personal business investments of Executive’s choice and serve in any capacity with any civic, educational or charitable organization without seeking or obtaining approval by the Board, provided that such activities and services do not substantially interfere or conflict with the performance of duties hereunder or create any conflict of interest with such duties. An investment that exceeds five percent (5%) of the equity securities or capitalization of a competitor, supplier or customer of the Company shall be deemed to constitute such a conflict.

Executive represents to the Company that Executive has no other outstanding commitments inconsistent with any of the terms of this Agreement or the services to be rendered hereunder.

3. Duties and Responsibilities. Executive shall serve as the Chief Executive Officer of the Company for the duration of this Agreement. In performance of Executive’s duties, Executive shall report directly to the Chairman of the Board and shall be subject to such limits on Executive’s authority as the Chairman of the Board may from time to time impose. Executive agrees to observe and comply with the rules and regulation of the Company as adopted by the Board respecting the performance of Executive’s

duties and agrees to carry out and perform directions and policies of the Company and its Board as they may be from time to time stated either orally or in writing. Executive shall have responsibilities, duties and authority consistent with his position as assigned by the Board, including day-to-day responsibility for the management of all of the Company’s affairs and operations, and oversight of the operations and management of the Subsidiaries. In addition, Executive shall serve as a member of the Company’s Board, and on one or more committees thereof, but without compensation other than as provided for in Section 4 below.

4. Compensation.

(a) Base Salary. As compensation for the services provided by Executive hereunder, during the Term of this Agreement, the Company shall pay Executive an annual Base Salary of not less than $345,000 per year (“Base Salary”). Executive’s Base Salary shall be reviewed by the Company’s Board of Directors from time to time at its discretion but not less often than annually, and Executive shall receive such Base Salary increases as the Company’s Board of Directors shall determine. Executive’s Base Salary will not be decreased during the Term of this Agreement. All Base Salary shall be payable in equal installments in conformity with the Company’s normal payroll periods, but not less frequently than monthly.

(b) Bonus. In addition to the Base Salary payable to Executive as provided in Section 4(a) above, Executive shall be entitled to receive, for each full or partial calendar year during the Term hereof, a bonus which shall be calculated and paid as provided in Exhibit A attached hereto.

(c) Stock Options. In addition to the Base Salary payable to Executive as provided in Section 4(a) above, and the bonus provided in Section 4(b) above, Executive shall be entitled to receive, for each full or partial calendar year during the Term hereof, incentive stock options which shall be granted as provided in Exhibit A attached hereto. Stock options granted pursuant to this provision, including but not limited to vesting, exercise rights and expiration, shall be governed by the terms of the Company’s 2002 Stock Option Plan (the “Stock Option Plan”) and the standard “Stock Option Agreement” required for a grant of stock options under the Stock Option Plan.

(d) Other Incentive Plans. In addition to the foregoing, during the Term of this Agreement, Executive shall be a full participant in any and all incentive plans and equity compensation plans in which Senior Officers of the Company or its Subsidiaries participate that are in effect on the date hereof or that may hereafter be adopted, with at least the same reward opportunities, if any, that are provided to other Senior Officers of the Company and its Subsidiaries from time to time during the term of this Agreement. For purposes of this Agreement, the term “Senior Officers” is defined as the Senior Officers of the Company who participate in the Incentive Bonus Plan as provided in Exhibit A attached hereto.

(e) Automobile Allowance. During the Term of this Agreement, Executive will receive an automobile allowance of $450 per month.

5. Signing Bonus. To assist Executive in selling his current residence in Malvern, Pennsylvania and purchasing a new residence in Temecula, California, the Company will pay to Executive $150,000 in cash, which shall be used by Executive as a down payment on a new residence. In addition, on or about April 15, 2005, when Executive is aware of the tax payments due on the advance of the $150,000, the Company will pay to Executive an additional amount to make the tax payments. If Executive does not complete 27.75 months of continuous employment as the CEO of the Company (i.e., December 31, 2006), Executive will be required to repay the aggregate amount paid to Executive pursuant to this Section 5 (estimated to be approximately $250,000). less $75,000.

In addition, upon execution of this Agreement, Executive will receive an option to acquire 100,000 shares of the Company’s common stock, exercisable at the closing price of the Company’s common stock on September 7, 2004, and vesting over four years. Stock options granted pursuant to this provision, including but not limited to vesting, exercise rights and expiration, shall be governed by the terms of the Company’s 2002 Stock Option Plan (the “Stock Option Plan”) and the standard “Stock Option Agreement” required for a grant of stock options under the Stock Option Plan.

6. Benefits and Vacations.

(a) Benefits. Executive shall be entitled to participate in any employee benefit plans, arrangements and perquisites currently available to Senior Officers of the Company, provided, however, that Executive’s participation shall be in accordance with plan rules and qualifications. The Company and its Subsidiaries will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would materially adversely affect Executive’s rights or benefits thereunder, except to the extent that such changes are made applicable to all Senior Officers eligible to participate in such plans, arrangements and perquisites. Without limiting the generality of the foregoing, and provided that Executive is a qualified participant, Executive shall be entitled to participate in any pension plans, profit sharing plans, non-qualified deferred compensation plans and related “rabbi” trusts, life insurance plans, disability benefit plans, vacation and holiday pay plans, medical, dental and welfare plans, and other present or successor plans and practices of the Company and its Subsidiaries for which Senior Officers are eligible.

(b) Vacations and Holidays. Executive shall be entitled to the number of paid vacation days in each calendar year, and to compensation for earned but unused vacation days, determined by the Company from time to time for its Senior Officers, but not less than four (4) weeks in each full year of the Term hereof. Executive shall also be entitled to all paid holidays given by the Company to its Senior Officers.

6. Expenses. During the Term hereof, Executive shall be entitled to receive prompt reimbursement of all reasonable expenses incurred by Executive (in accordance with the policies and procedures from time to time adopted by the Board for its Senior Officers) in performing the services contemplated hereunder, provided that Executive properly accounts therefor in accordance with the Company’s policy.

7. Termination.

(a) Death. Executive’s employment hereunder shall terminate immediately upon the death of Executive.

(b) Disability. In the event that Executive shall be unable to perform the services contemplated hereunder by reason of disability, illness or other incapacity, such failure to so perform such duties shall not be grounds for terminating the employment of Executive by the Company; provided, however, that the Company may terminate Executive’s employment hereunder should the period of such incapacity exceed four (4) consecutive months (“Disability”). Any such termination shall not be considered to be for “Cause” as defined in Section 7(d) below.

(c) By the Company, Upon Notice. Executive’s employment hereunder may be terminated by the Company prior to the expiration of the Term, with or without Cause. If the termination is without Cause, the Company will provide Executive with thirty (30) days prior written notice. If the termination is for Cause, it will take effect as provided in Section 7(d) below.

(d) By the Company, For Cause. Executive’s employment hereunder may be terminated by the Company prior to the expiration of the Term for “Cause.” For the purposes of this Agreement, “Cause” means (i) Executive’s material breach of any of the duties and responsibilities under this Agreement (other than as a result of incapacity due to Executive’s Disability); (ii) Executive’s conviction by, or entry of a plea of guilty or nolo contendere in, a court of competent jurisdiction for a felony, or any crime which in the Company’s sole discretion adversely affects the Company or its reputation in the community, or any crime which involves moral turpitude or is punishable by imprisonment; (iii) Executive’s commission of an act of fraud upon the Company, or any personal dishonesty with respect to Executive’s obligations to the Company; or (iv) Executive’s willful failure or refusal to perform Executive’s duties or responsibilities under this Agreement, material violation of any duty of loyalty to the Company, or breach of his fiduciary duty to the Company. Before the Company terminates Executive’s employment for a “material breach” as provided in subsection (i) above, the Company shall first provide Executive with written notice of the breach and a period of not less than ten (10) calendar days from the date of delivery of the notice for Executive to cure the breach.

Notwithstanding the foregoing, Executive will not be terminated for Cause pursuant to clauses (i) though (iv) above unless and until Executive has received notice of a proposed termination for Cause and Executive has had an opportunity to be heard before at least three (3) members of the Board. Executive shall be deemed to have had such opportunity if given written or telephonic notice at least 72 hours in advance of a meeting scheduled in California.

In the event that Executive is terminated for Cause, the Company shall pay Executive’s Base Salary through the date of termination, and any bonuses which have been earned by Executive through the date of termination, after deducting any amounts lawfully owing from Executive to the Company, and shall thereafter have no further obligation to Executive, except to the extent that Executive may be entitled to exercise any of the options granted to Executive as contemplated in Section 4(c) above or otherwise.

(e) By Executive. Executive shall be entitled to terminate his employment with the Company hereunder upon thirty (30) days prior written notice. In the event that Executive terminate his employment, the Company shall pay Executive’s Base Salary through the date of termination, and any bonuses which have been earned by Executive through the date of termination, after deducting any amounts lawfully owing from Executive to the Company, and shall thereafter have no further obligation to Executive, except to the extent that Executive may be entitled to exercise any of the options granted to Executive as contemplated in Section 4(c) above or otherwise.

(g) Form of Notice. Any termination of Executive’s employment by the Company for or by Executive shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and shall set forth the date upon which such termination is to become effective (“Date of Termination”).

8. Compensation on Certain Terminations. If the Company terminates Executive’s employment without Cause, or if the Company does not renew the Agreement at the expiration of the Term, including any renewal Term, or if Executive’s employment is terminated by Executive’s death or Disability as defined

above, Executive shall be entitled to the following severance benefits upon execution by Executive (or the legal representative of Executive’s estate if Executive has died) of a general release (acceptable to the Company) of any and all claims arising from Executive’s employment or termination of employment:

(a) Severance Payment. If the termination occurs during Executive’s initial twelve (12) months of employment, the Company shall pay to Executive in a lump sum payment an amount equivalent to twelve (12) months of his Base Salary, less required withholding and deductions. If the termination occurs following Executive’s initial twelve (12) months of employment, the Company shall pay to Executive in a lump sum payment an amount equivalent to eighteen (18) months of his Base Salary, less required withholding and deductions. These provisions are referred to collectively as the “Severance Payment”.

In the event of Executive’s death, the Severance Payment shall be made to his estate or beneficiaries, as the case may be. The Severance Payment shall be made in full within thirty (30) days following the Date of Termination. Executive is not required to mitigate the amount of the Severance Payment by seeking other employment or otherwise, nor shall any compensation earned by Executive in other employment or otherwise reduce the amount of the Severance Payment.

(b) Stock Options. Unless Executive’s termination occurs following a Change of Control as defined below, all stock options held by Executive shall cease vesting as of the effective date of Executive’s termination. Executive shall have the right to exercise vested stock options in accordance with Option Plan rules. The vesting of all stock options granted to Executive prior to his termination for the purchase of stock of the Company, and Executive’s time in which to exercise vested stock options, may be extended an additional eighteen (18) months, if the parties mutually agree to enter into a consulting agreement, whereby Executive would provide consulting services to the Company as an independent contract following his termination from employment. It is understood by all parties, however, that neither Executive nor the Company shall be obligated to enter into any such consulting agreement.

If Executive’s termination occurs following a Change of Control, stock options previously granted to Executive shall vest as follows: (i) if the termination occurs within twelve (12) months following the Change of Control, fifty percent (50%) of Executive’s granted but not vested stock options shall vest immediately upon termination and the remainder shall extinguished; (ii) if the termination occurs more than twelve (12) months following the Change of Control, one hundred percent (100%) of Executive’s granted but not vested stock options shall vest immediately upon termination.

For purposes of this Agreement, a Change of Control shall be deemed to have take place if: (i) any person or entity or group of affiliated persons or entities, including a group which is deemed a “person” by Section 13(d)(3) of the Securities Exchange Action of 1934, as amended (the “Exchange Act”), after the date hereof first acquires in one or more transactions, at least one of which is after the date of this Agreement, ownership of fifty percent (50%) or more of the outstanding shares of stock entitled to vote in the election of directors of the Company, and (ii) as a result of, or in connection with, any such acquisition or any related proxy contest, cash tender or exchange offer, merger or other business combination, sale of all or substantially all of the assets of the Company or any combination of the foregoing transactions (other than a transaction unanimously approved by the members of the Board voting thereon), hereinafter referred to as a “Transaction,” the persons who were directors of the Company immediately before the acquisition shall cease to constitute three-fourths of the membership of the Board or any successor to the Company during the period commencing with the consummation of the Transaction and ending on the first to occur of the first

anniversary of such date or the conclusion of the next meeting of shareholders to elect directors, except to the extent that any new directors during such period were elected or nominated by at lest three-fourths of such persons (or new directors who were so nominated or elected). “Ownership” means beneficial or record ownership, directly or indirectly, other than (i) by a person owning such shares merely of record (such as a member of a securities exchange, a nominee, or a securities depository system); (ii) by a person as a bona fide pledge of shares prior to a default and determination to exercise powers as an owner of the shares, (iii) by a person who is not required to file statements on Schedule 13D by virtue of Rule 13d-1(b) of the Securities and Exchange Commission under the Exchange Act, or (iv) by a person who owns or holds shares as an underwriter acquired in connection with an underwritten offering pending and for purposes of their public resale or planned private placement in increments of less than such amount.

(c) Medical Benefits. Provided that Executive timely elects continuation of his and his eligible dependents medical and dental insurance coverage under COBRA, and they remain eligible for the continuation of such coverage under COBRA, the Company will cause to be continued medical and dental coverage substantially equivalent to the coverage maintained by the Company or its Subsidiaries for Executive and his eligible dependents prior to his termination. The Company shall provide such coverage to Executive at no premium cost to Executive, and it shall provide such coverage to Executive’s eligible dependents under the same terms and conditions, including the requirement of premium contributions, as applicable to Senior Officers in active employment status. Such coverage shall cease upon the earliest of the following events: (i) expiration twelve (12) months from the Date of Termination, or (ii) when Executive or his eligible dependents cease to qualify for such extension of coverage under COBRA.

(d) Nothing in Sections 8(a) through 8(c) shall deprive Executive of any rights, payments, benefits or service credit for benefits after termination of employment which were earned pursuant to any provision of this Agreement or any plan or practice of the Company on or prior to such termination including, without limitation, any pension or welfare benefits and any rights under the Company’s pension, deferred compensation, or other benefit plans.

9. Indemnification. The Company shall indemnify Executive to the fullest extent permitted by law, for all amounts, (including, without limitation, judgments, fines, settlement payments that the Company has expressly approved in writing, litigation expenses and attorneys’ fees), incurred or paid by Executive in connection with any action, suit, investigation or proceeding, or threatened action, suit, investigation or proceeding, arising out of or relating to the performance by Executive of services for, or the acting by Executive as a director, officer or employee of, the Company, or any Subsidiary. Any fees or other necessary expenses incurred by Executive in defending any such action, suit, investigation or proceeding shall be paid by the Company in advance, subject to the Company’s right to seek repayment from Executive if a determination is made that Executive was not entitled to indemnity. During the Term of this Agreement and for eighteen (18) months following Executive’s Date of Termination, the Company or its successor shall maintain general liability and directors and officers liability insurance covering Executive for claims and other amounts set forth in this Section 9. Nothing in this Section 9 or elsewhere in this Agreement is intended to prevent the Company from indemnifying Executive to any greater extent than is required by this Section 9.

10. Proprietary Information.

(a) Confidential Information. As used in this Agreement “Confidential Information” means information (a) that is not known by actual or potential competitors of Company or is not generally known to the public, (b) that has been created, discovered, developed, or otherwise become known to

the Company, or in which property rights have been assigned or otherwise conveyed to the Company, and (c) that has economic value to the Company’s present or future business. “Confidential Information” includes trade secrets (as defined under California Civil Code Section 3426.1) and all other discoveries, developments, designs, improvements, inventions, formulas, methods, software programs, processes, techniques, marketing materials, know-how, data, research, technical data, customer lists (past and present), customer preferences, financial information, contacts, lead sources, marketing materials, and personnel information, and any modifications or enhancements of any of the foregoing, and all program, marketing, sales, personnel, or other financial or business information, disclosed to Executive by the Company, either directly or indirectly, in writing or orally or by drawings or observation, which has actual or potential economic value to the Company, its subsidiaries, divisions and affiliates.

(b) Duty of Trust and Confidentiality. Executive’s employment with the Company creates a duty of trust and confidentiality to the Company with respect to the Confidential Information, or any other information (a) related, applicable, or useful to the business of the Company, including its anticipated research and development; or (b) resulting from tasks assigned to Executive by the Company; or (c) resulting from the use of equipment, supplies, or facilities owned, leased, or contracted for by the Company; or (d) related, applicable, or useful to the business of any of the Company’s customers, which may be made known to Executive by the Company or by such customers, or learned by Executive during the course of his employment. Without limiting the generality of the foregoing, Executive agrees that while employed by the Company he will not divert or attempt to divert any business of the Company to any other competitive business, by direct or indirect inducement or otherwise.

(c) Nondisclosure of Proprietary Information. At all times, both during employment and after cessation of employment, whether cessation is voluntary or involuntary: (a) Executive will keep in strictest confidence and trust all Confidential Information; and (b) Executive will not disclose, use, or induce or assist in the use or disclosure of any Confidential Information without the Company’s prior express written consent, except as may be necessary in the ordinary course of performing Executive’s duties for the Company. Executive will take reasonable measures to prevent unauthorized persons or entities from having access to, obtaining, or being furnished with any Confidential Information.

(d) Confidential and Proprietary Information of Third Parties. The Company has received and in the future will receive from third parties their confidential or proprietary information, subject to a duty to maintain the confidentiality of such information and to use it only for certain limited purposes. Executive agrees to hold all such confidential or proprietary information in strictest confidence, and will not disclose, use, or induce or assist in the use or disclosure of any such confidential or proprietary information without the Company’s prior express written consent, except as may be necessary in the ordinary course of performing Executive’s job duties for the Company, consistent with its agreement with such third party.

(e) Return of Documents Upon Termination. All records, files, lists, drawings, documents, equipment and similar items relating to the Company’s business which Executive will prepare for or receive from the Company, during the course of Executive’s employment hereunder, shall remain the Company’s sole and exclusive property and Executive shall not acquire any interest therein. Upon termination of employment, and in any event at the request of the Company at any time, Executive shall promptly return to the Company all property of the Company in his possession and all documents, records, diskettes, hard drives, notebooks, work papers, and all similar material containing any Confidential Information, whether prepared by Executive, the Company, or anyone else.

(f) Non-solicitation of Employees Following Termination. During the term of this Agreement and for a period of twenty-four (24) month after the cessation of employment for any reason, whether with or without Cause, Executive shall not directly or indirectly, either alone or in concert with others, solicit or in any way entice any employee of or consultant to the Company to leave the Company or work for anyone in competition with the Company.

(g) Non-solicitation of Customers Following Termination. During the term of this Agreement and for a period of twenty-four (24) months after the cessation of employment for any reason, whether with or without Cause, Executive shall not directly or indirectly, either alone or in concert with others, (a) contact any of the customers of the Company for the purpose of soliciting, inducing or encouraging such customers to divert or direct their business away from the Company, or (b) in any way attempt to disrupt the relationship between the Company and any of its customers, vendors or suppliers.

(h) Reasonableness of Restrictions; Equitable Remedies. Executive agrees that the periods of restriction and the geographical areas of restriction imposed by the provisions of this Agreement are fair and reasonable and are reasonably required for the protection of Employer. Executive agrees that irreparable injury will result to the Company from Executive’s violation of any of the provisions set forth in Sections 10(a) through 10(g) of this Agreement. Executive expressly agrees that the Company will be entitled, in addition to damages and any other remedies provided by law, to an injunction or other equitable remedy respecting any such violation or continued violation.

11. General Provisions.

(a) Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, addressed to the Company or Executive at their respective last known address, or when hand delivered to the intended recipient. Either party may change its address by written notice given in accordance with this subparagraph.

(b) This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective executors, administrators, successors and assigns; provided, however, that Executive may not assign any or all of Executive’s rights or duties hereunder without the prior written consent of the Company.

(c) This Agreement is made and entered into, is to be performed primarily within, and shall be governed by and construed in all respects in accordance with the laws of the State of California.

(d) Captions and Section headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it.

(e) Should any provision of this Agreement for any reason be declared invalid, void, or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portions shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.

(f) This Agreement contains the entire agreement of the parties, and supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by the Company. Each party to this Agreement acknowledges that no representations,

inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein or therein, and that no other agreement, statement or promise not contained herein or therein shall be relied upon or be valid or binding. This Agreement may not be modified or amended by oral agreements, but only by an agreement in writing signed by the Company on the one hand, and by Executive on the other hand.

(g) Any controversy, claim or dispute arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including determination of the scope or applicability of this agreement to arbitrate, shall be determined through arbitration, conducted by a single arbitrator, in Riverside County, California, administered by the American Arbitration Association under its Employment Arbitration rules. This agreement to arbitrate includes all common law and statutory claims that may arise from the Agreement or termination of the Agreement, including but not limited to, claims for breach of contract, breach of an implied covenant of good faith and fair dealing, wrongful termination, failure to pay wages or other compensation, and harassment, discrimination or retaliation in alleges violation of state and/or federal discrimination statutes. Judgment on the award rendered by the arbitrator may be entered in any court having competent jurisdiction.

(h) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original for all purposes. This Agreement may be executed by a party’s signature transmitted by facsimile (“fax”), and copies of this Agreement executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures. All parties hereto agree that a faxed signature page may be introduced into evidence in any proceeding arising out of or related to this Agreement as if it were an original signature page.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

By:	/s/ Charles C. McGettigan
	Charles C. McGettigan
	Chairman of the Board, Modtech Holdings, Inc.
By:	David M. Buckley
	David M. Buckley
	CEO, Modtech Holdings, Inc.

EXHIBIT A

EXHIBIT A

BONUS COMPENATION AND STOCK OPTIONS

For each full or partial calendar year of the Term of the Employment Agreement commencing January 1, 2005, Executive shall be eligible to receive Bonus Compensation and Stock Options. Bonus Compensation has two components: “Performance Bonus Compensation” and “Discretionary Bonus Compensation.” “Performance Bonus Compensation” shall be determined based upon the Company’s level of achievement of defined goals in specified Performance Categories. “Discretionary Bonus Compensation” shall be determined by the Compensation Committee of the Board of Directors, in its discretion. Stock Options shall be determined by formula based upon Executive’s Base Compensation and the closing price of the Company’s common stock on the last business day of the preceding calendar year.

I. PERFORMANCE BONUS COMPENSATION.

A. Performance Categories. Executive shall be eligible to receive Performance Bonus Compensation based upon the Company’s performance in the following Performance Categories: (1) California Education Sales; (2) Florida Education Sales; (3) All Other Sales; and (4) EBITDA.

B. Setting of Performance Targets. Commencing on December 1, 2004, and on or before December 1 of each calendar year of the Term of the Employment Agreement, the Company’s Executive Management (i.e., CEO, COO and CFO) will submit to the Board of Directors a business plan for the next calendar year which will include performance targets for California Education Sales, Florida Education Sales, All Other Sales and EBITDA (the “Performance Targets”). Executive Management and the Board of Directors (or its designee) shall meet to discuss the reasonableness of the targets and to make any adjustments required in light of business conditions. The Board of Directors shall have final authority to set Performance Targets.

C. Performance Bonus Calculation. At the end of each calendar year (or, in the case of a partial year, on Executive’s last day of employment) of the Term of the Employment Agreement, actual results will be compared to the Performance Targets set for the year in each Performance Category. The actual result will be divided by the Performance Target. If the quotient is less than 0.90 (i.e., the Company earned less than 90% of the Performance Target), no Performance Bonus Compensation will be earned in the Performance Category. If the quotient equals or exceeds 0.90 (i.e., the Company earned at least 90 percent of the Performance Target), the “Eligible Bonus Percentage” for the Performance Category shall be determined by the following chart:

PERCENTAGE OF PLAN ACHIEVED	ELIGIBLE BONUS PERCENTAGE
90%	90%
95%	95%
100%	100%
110%	120%
125%	140%
140%	160%
150%	175%

The Eligible Bonus Percentage shall then be multiplied by the applicable “Weight Factor,” as follows:

FACTOR	WEIGHT FACTOR
California Education Sales	12.5%
Florida Education Sales	12.5%
All Other Sales	5.0%
EBITDA	70.0%

The product of the Eligible Bonus Percentage and the Weight Factor shall be multiplied by Executive’s Eligible Base Salary (i.e., 75% of Executive’s Base Salary for the year of the Performance Bonus Calculation) to determine the Performance Bonus Compensation earned in the Performance Category. Executive’s total Performance Bonus Compensation for the calendar year will be the sum of the Performance Bonus Compensation figures earned in each Performance Category

D. Summary of Performance Bonus Calculation. If at least 90% of a Performance Target is reached, a Performance Bonus is deemed to be earned in the Performance Category, and is calculated as follows:

Eligible Bonus Weight Eligible Performance Percentage x Factor x Base Salary = Bonus Comp.

If less than 90% of the Performance Goal is reached in any Performance Category, no bonus amount is earned in that Performance Category. Total Performance Bonus Compensation as calculated above will be reduced by $25,000 in each of calendar years 2005 and 2006.

E. Payment of Performance Bonus Compensation. Any Performance Bonus Compensation earned by Executive for a calendar year shall be paid on or before January 31 of the following year, less standard withholding and authorized deductions.

F. Form of Bonus Payment. Up to one-half of the aggregate bonus earned in a given year may be paid, at the discretion of the Executive in cash, with the remainder to be paid in options. The Executive may accept up to 75% of his bonus in options.

G. Stock Options. The number of options granted shall be calculated by dividing Executive’s

indicated Bonus to be paid in options by one half of the closing price of the Company’s common stock on the last business day of the year for which the bonus is being paid. For example, if the Executive is due a bonus of $258,750 (75% of his base salary), and the Executive opts to receive 50% of his bonus in options, he will receive 34,500 options, based on a closing price at the year end of $7.50 per share. The exercise price shall be the closing price of the Company’s common stock on the last business day of the year for which the bonus is being paid. Stock Options granted pursuant to this provision, including but not limited to vesting, exercise rights and expiration, shall be governed by the terms of the Company’s 2002 Stock Option Plan (the “Stock Option Plan”) and the standard “Stock Option Agreement” required for a grant of stock options under the Stock Option Plan.

H.

II. DISCRETIONARY BONUS COMPENSATION.

In addition to Performance Bonus Compensation, the Board of Directors shall have the authority to award Executive a Discretionary Bonus of up to twenty-five percent (25%) of Base Salary in each calendar year of the Term of the Employment Agreement. Any Discretionary Bonus awarded to Executive for a calendar year shall be paid on or before January 31 of the following year, less standard withholding and authorized deductions. The amount of the Discretionary Bonus, if any, shall be within the full and complete discretion of the Board of Directors and no amount of Discretionary Bonus shall be vested or otherwise guaranteed for any calendar year.

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David M. Buckley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Modtech Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ David M. Buckley

David M. Buckley

President / Chief Executive Officer

November 12, 2004

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis L. Shogren, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Modtech Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and we have:

d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

e) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

f) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

c) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Dennis L. Shogren

Dennis L. Shogren

Chief Financial Officer

November 12, 2004

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as Chief Executive Officer of Modtech Holdings, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge:

• the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2004, (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 12, 2004

/s/ David M. Buckley

David M. Buckley

President / Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as Chief Financial Officer of Modtech Holdings, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge:

• the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2004, (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 12, 2004

/s/ Dennis L. Shogren

Dennis L. Shogren

Chief Financial Officer