Modtech Holdings, Inc. (Nasdaq:MODT) paid off $17.6 million convertible subordinated debt, obtained $22.5 million in new financing, and announced preliminary financial results for the third quarter ended September 30, 2006.

The company today retired its convertible subordinated notes for approximately $13.1 million, which represents a discount of approximately 25% from the $17.6 million balance due on the notes. The payment consisted of $8 million cash and one million shares of common stock with a current market value of approximately $5.1 million. The shares, plus $5 million of restricted cash, were delivered October 31, 2006, and the remaining $3 million in cash was paid November 1, 2006 from the proceeds of the new financing. The note holder, Amphora Limited, retained warrants issued in connection with the notes, exercisable for 269,442 shares at $7.69. The company expects to record a gain from the retirement of debt of approximately $3.0 million in the quarter ending December 31, 2006.

The new financing consists of $18 million in debt issued to Laurus Master Fund, Ltd. (?Laurus?) and $4.5 million in sale proceeds from a sale leaseback of the company's Florida manufacturing plant to NL Ventures V Plant City, L.P. The loan transaction with Laurus replaced the asset-based $25 million revolving line of credit with Bank of America, N.A.

The debt issued to Laurus is made up of a $13 million term note and a $5 million convertible note, both of which are amortized over a 36-month period. The notes bear interest at prime plus 2.5% to 3.75%. The convertible note is convertible into 763,897 shares of the company's common stock at an average conversion price of $6.63 per share. In connection with the loan transaction, Laurus was issued warrants exercisable for 2,122,092 shares at an average exercise price of $7.05 per share.

Rodman and Renshaw acted as placement agent for these transactions.

Modtech Chief Executive Dennis Shogren commented: "These transactions materially reduce interest expense and significantly improve the company's balance sheet.

"With project costs under tight control, operating expenses at minimum but sustainable levels, and reduced cost of capital going forward, management has further improved the company's potential to operate profitably," Shogren continued. "Although the lean structure we achieved during the quarter can support significantly higher revenue levels, our ability to generate sales growth remains a focus area for improvement.

"We expect third-quarter revenues of approximately $45.0 million, which is below plan largely because of slower-than-expected education sales in Florida, project delays in California and very sluggish sales in Texas," Shogren stated. "We continue to bolster our sales efforts, particularly in Florida and California, and see signs of improvement as we go into 2007.

"The changes to our cost structure which we implemented during the third quarter will not be reflected until the fourth quarter and beyond. As a result, the third-quarter results of operations were relatively flat compared to the prior quarter.

"We expect to report complete financial results for the third quarter on November 9, 2006 and also discuss our new outlook for the remainder of 2006 and 2007, including further moves to establish more predictable and stable revenues and improve profitability," Shogren said.

About Modtech Holdings, Inc.

Modtech® is a leading national designer and manufacturer of modular buildings, both permanent and relocatable. In the school industry, the company has advanced typical modular building technology to greater dimensions of flexibility and architectural integrity. Modtech® has substantial product and geographic diversification throughout the southwestern states and a growing presence in Florida and Texas. Modtech's commercial and industrial buildings are sold to a diverse end-user market and may be leased through national, regional and local dealers. The company also designs and manufactures modular buildings to customer specifications for a wide variety of uses.

Some statements in this press release may constitute ?forward-looking statements? within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Refer to the company's filings with the U.S. Securities and Exchange Commission for further discussion of such factors. The forward-looking statements are made as of the date of this press release and the company assumes no obligation to update such statements.