EX-10.1






Exhibit 10.1




THIRD MODIFICATION AGREEMENT




THIS THIRD MODIFICATION AGREEMENT (“AGREEMENT”) is made as of December 31, 2008, by and among
AVATECH SOLUTIONS, INC., a Delaware corporation, and AVATECH SOLUTIONS SUBSIDIARY, INC., a Delaware
corporation, jointly and severally (collectively, the “BORROWERS”), and PNC BANK, NATIONAL
ASSOCIATION, successor by merger to Mercantile-Safe Deposit and Trust Company (“LENDER”).



RECITALS



In accordance with the terms and conditions set forth in a Loan and Security Agreement dated
as of January 27, 2006 between the BORROWERS and the LENDER (“ORIGINAL LOAN AGREEMENT”), the LENDER
extended to the BORROWERS a revolving line of credit in the maximum principal amount outstanding at
any one time of Five Million Dollars ($5,000,000.00) (the “LOAN”). Pursuant to the ORIGINAL LOAN
AGREEMENT, the BORROWERS’ obligations to the LENDER are secured by all of the BORROWERS’ tangible
and intangible assets.



Pursuant to a Modification Agreement dated as of May 30, 2006 (the “FIRST MODIFICATION”), the
LENDER extended to the BORROWERS a short term bridge loan, in the amount of Six Million Five
Hundred Thousand ($6,500,000.00) (“BRIDGE LOAN”), and the terms of the ORIGINAL LOAN AGREEMENT were
modified in certain respects. All sums due in connection with the BRIDGE LOAN have been repaid by
the BORROWERS.



Pursuant to a Second Modification Agreement dated as of December 31, 2006 (collectively with
the ORIGINAL LOAN AGREEMENT and the FIRST MODIFICATION, the “LOAN AGREEMENT”), the maturity date of
the LOAN was extended and the terms of the ORIGINAL LOAN AGREEMENT were modified in certain
additional respects.



The maturity date of the LOAN is December 31, 2008. The BORROWERS have requested that the
LENDER extend the maturity date of the LOAN and modify the terms of the LOAN in certain additional
respects. The LENDER has agreed to the BORROWERS’ request, but only upon the terms and conditions
set forth herein. As used herein, the term “LOAN DOCUMENTS” shall collectively mean the LOAN
AGREEMENT and all other documents and agreements evidencing or securing the LOAN. Unless otherwise
defined herein, any terms appearing in all capital letters in this AGREEMENT shall have the
respective meanings ascribed to such terms in the LOAN AGREEMENT.



NOW, THEREFORE, in consideration of the foregoing premises, the terms and conditions set forth
herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:



1. Representations And Warranties Of Borrowers. To induce the LENDER to enter into
this AGREEMENT and to provide the BORROWERS with the accommodations described herein, the BORROWERS
make the representations and warranties set forth below and acknowledge the LENDER’S justifiable
right to rely upon these representations and warranties.



a. No Litigation. There is no action, suit, investigation, or proceeding pending
against either of the BORROWERS or any other assets of either of the BORROWERS, except for those
proceedings previously disclosed to the LENDER in writing.



b. Organization; Good Standing; Authorization. Each of the BORROWERS: (a) has the
power to enter into this AGREEMENT and all other documents, and agreements required to be executed
pursuant to this AGREEMENT, and has the power to perform all of its obligations hereunder and
thereunder; (b) has duly authorized the entry into and performance of this AGREEMENT and all other
documents and agreements required to be executed by such BORROWER; and (c) is in good standing in
the state of its incorporation or organization, as applicable, and is in good standing and
qualified as a foreign corporation or limited liability company, as applicable, in all other states
in which such qualification is required.



c. Valid, Binding And Enforceable. This AGREEMENT and all of the other documents and
agreements executed pursuant to this AGREEMENT are the valid and binding obligations of the
BORROWERS and are fully enforceable against each of the BORROWERS in accordance with their terms.



d. Subsidiaries. Each of AVATECH SOLUTIONS SUBSIDIARY, INC., TECHNICAL LEARNINGWARE
COMPANY, INC., a Delaware corporation, and STERLING SYSTEMS-OHIO, L.L.C., a Michigan limited
liability company is a wholly-owned subsidiary of AVATECH SOLUTIONS, INC. The BORROWERS have no
other subsidiaries. The BORROWERS represent and warrant to the LENDER that each of the following
entities, previously subsidiaries of AVATECH SOLUTIONS, INC., have been dissolved: (i) STERLING
SYSTEMS & CONSULTING, INC., a Michigan corporation, (ii) STERLING OHIO MANAGEMENT, INC., a Michigan
corporation, and (iii) STERLING SYSTEMS-INDIANA, L.L.C., a Michigan limited liability company.
Furthermore, the BORROWERS represent that AVATECH SOLUTIONS, INC. is in the process of dissolving
TECHNICAL LEARNINGWARE COMPANY, INC. and STERLING SYSTEMS-OHIO, L.L.C., and the BORROWERS covenant
to promptly complete the dissolution of such entities and to furnish evidence of such dissolution
to the LENDER within ninety (90) days after the date of this AGREEMENT.



2. Amendments To Loan Agreement. The LOAN AGREEMENT is hereby modified and amended as
follows:



a. Amendments to Definitions. The definitions contained in Article 1 of the LOAN
AGREEMENT are hereby modified as follows:



i. The following definitional sections are hereby deleted: Section 1.3, “Adjusted Base Rate”,
Section 1.7, “Applicable Margin”, Section 1.9, “Base Rate”, Section 1.10, “Base Rate Borrowing”,
Section 1.15, “Calculation Date”, Section 1.43, “Federal Funds Rate”, Section 1.56, “Interest
Period”, and Section 1.79, “Prime Rate”.



ii. The definitions of “ADJUSTED LIBOR RATE,” “LIBOR BORROWING,” “LIBOR RATE” and “MINIMUM
BORROWING AMOUNT” set forth in Sections 1.4, 1.63, 1.64 and 1.72 of the LOAN AGREEMENT are modified
by replacing the existing provisions with the following:



Section 1.4 Adjusted Libor Rate. The term “ADJUSTED LIBOR
RATE” means a variable rate per annum equal to the sum of the LIBOR
RATE plus two hundred twenty-five (225) BASIS POINTS.



Section 1.63 LIBOR Borrowing. The term “LIBOR BORROWING”
means each advance of principal sums made under the LOAN.



Section 1.64. LIBOR Rate. The term “LIBOR RATE” means the
rate per annum determined by the LENDER by dividing (the resulting
quotient rounded upwards, if necessary, to the nearest
1/100th of 1%) (x) the Published Rate by (y) a number equal
to 1.00 minus the percentage prescribed by the Federal Reserve for
determining the maximum reserve requirements with respect to any
Eurocurrency funding by banks on such day (“LIBOR”). “Published Rate”
shall mean the rate of interest published each BUSINESS DAY in The
Wall Street Journal “Money Rates” listing under the caption “London
Interbank Offered Rates” for a one month period (or, if no such rate
is published therein for any reason, then the Published Rate shall be
the Eurodollar rate for a one month period as published in another
publication determined by the LENDER).



Section 1.72. Minimum Borrowing Amount. The term “MINIMUM
BORROWING AMOUNT” means Five Thousand Dollars ($5,000.00).



iii. The definition of “LOAN DOCUMENTS” contained in Section 1.66 of the LOAN AGREEMENT shall
also include, without limitation, this AGREEMENT.



iv. The definition of “MATURITY DATE” contained in Section 1.70 of the LOAN AGREEMENT is
modified by replacing “December 31, 2008” with “December 31, 2010”.



v. The definition of “RESTRICTED PAYMENTS” contained in Section 1.87 of the LOAN AGREEMENT is
modified by inserting the following additional sentence at the end of such Section:




	 	 	 	Notwithstanding the foregoing, the term RESTRICTED PAYMENTS shall not
include payments made by AVATECH in the maximum amount of Five
Hundred Thousand Dollars ($500,000.00) plus accrued dividends per
quarter, for the redemption by AVATECH of all of its issued and
outstanding Series F Convertible Preferred Stock, plus accrued
dividends, commencing on July 1, 2008 and continuing on each
October 1, January 1, April 1 and July 1 thereafter until paid in
full, so long as there does not exist, and the making of any such
payment will not cause there to exist, any event or circumstance
which is or which with the passage of time, the giving of notice,
or both will constitute an EVENT OF DEFAULT.	 





b. Procedure for Loan Borrowings. Section 2.1.2 of the LOAN AGREEMENT is hereby
modified by replacing the existing provision with the following:



Section 2.1.2. Procedure For Loan Borrowings. Subject to the
terms and conditions set forth in this AGREEMENT and in that certain
Working Cash, Line of Credit, Investment Sweep Rider (the “WORKING
CASH SWEEP RIDER”), the BORROWERS may borrow proceeds of the LOAN
until (but not including) the MATURITY DATE. Each borrowing under the
LOAN shall be in a principal amount of not less than the MINIMUM
BORROWING AMOUNT. Advances under the LOAN shall be made by the LENDER
crediting the COMMERCIAL ACCOUNT in accordance with the procedures of
the WORKING CASH SWEEP RIDER, the terms of which shall control over
any contrary provisions contained in this AGREEMENT or any of the
other LOAN DOCUMENTS.



c. Interest Terms Applicable to the Loan. Sections 2.2.1-2.2.3 of the LOAN AGREEMENT
are hereby modified by replacing the existing provisions with the following:



Section 2.2.1. Interest Rate. The LOAN shall bear interest
at the ADJUSTED LIBOR RATE.



Section 2.2.2. Adjustments To Interest Rate. The rate of
interest charged shall be adjusted as of each BUSINESS DAY based on
changes in the LIBOR RATE without notice to the BORROWER, and shall be
applicable to the then outstanding balance under the LOAN from the
effective date of any such change.



Section 2.2.3. Calculation Of Interest. All calculations of
interest on the LOAN will be computed on the basis of a year of 360
days and paid on the actual number of days elapsed.



d. Voluntary Prepayments. Section 2.4 of the LOAN AGREEMENT is hereby modified by
replacing the existing provision with the following:



Section 2.4. Voluntary Prepayments. Any principal balance of
the LOAN may be prepaid in whole or in part at any time without
penalty or premium.



e. Financial Statements. Section 5.12.3 of the LOAN AGREEMENT is hereby modified by
replacing the existing provision with the following:



Section 5.12.3. Quarterly Financial Statements. As soon as
available and in any event within forty–five (45) calendar days after
the end of each quarter of each FISCAL YEAR, AVATECH shall submit to
the LENDER a consolidated balance sheet of AVATECH and its
SUBSIDIARIES as of the end of such quarter and a consolidated
statement of income and retained earnings of AVATECH and its
SUBSIDIARIES for such quarter, and a consolidated statement of cash
flow of AVATECH and its SUBSIDIARIES for such quarter, all in
reasonable detail and stating in comparative form the respective
consolidated figures for the corresponding date and period in the
previous FISCAL YEAR and all prepared in accordance with G.A.A.P. and
certified by the Chief Financial Officer of each of the BORROWERS
(subject to year-end adjustment).



f. Financial Covenants. Sections 5.22, 5.24 and 5.25 of the LOAN AGREEMENT are hereby
deleted, and Sections 5.18, 5.20, 5.21 and 5.23 of the LOAN AGREEMENT are hereby modified by
replacing the existing provisions with the provisions set forth below:



5.18. Current Ratio. The BORROWERS, on a consolidated
basis, shall maintain at all times a current ratio of greater than
        .90:1.00, measured quarterly at the end of each quarter.



5.20. Minimum Tangible Net Worth. The BORROWERS, on a
consolidated basis, shall at all times maintain TANGIBLE NET WORTH in
an amount greater than Two Million Dollars ($2,000,000.00), measured
quarterly.



5.21. Leverage Ratio. The BORROWERS, on a consolidated
basis, shall maintain a LEVERAGE RATIO, measured quarterly, of less
than 4:1 as of the end of each fiscal quarter.



5.23. EBITDA Ratio. The BORROWERS, on a consolidated basis,
shall maintain a ratio of (a) EBITDA to (b) INTEREST EXPENSE
plus the total amount of cash payments of principal on account
of LONG TERM DEBT, of greater than 1.25:1.00, measured quarterly on a
trailing rolling four-quarter basis.



3. No Novation; No Refinance; No Adverse Effect On Liens. The parties hereto do not
intend that a novation of the LOAN or any of the LOAN DOCUMENTS shall be created or effected
because of the modification of the LOAN AGREEMENT, as described herein. The parties hereto do not
intend that the execution of this AGREEMENT, and the amendments and modifications to be made to the
LOAN AGREEMENT, as described herein, shall: (a) constitute a refinance of the LOAN; or (b) affect
or impair the validity, enforceability, or priority of any of the liens or security interests
imposed by or granted in the LOAN DOCUMENTS.



4. Other Terms; Confirmation Of Obligations. Other than the foregoing, all other
terms and conditions of the LOAN DOCUMENTS shall remain in full force and effect and are
incorporated herein by reference. The BORROWERS acknowledge, ratify and confirm their respective
obligations under the LOAN DOCUMENTS and further acknowledge and confirm that the BORROWERS are and
shall remain absolutely and unconditionally obligated to pay the LENDER all present and future
indebtedness that is owed to the LENDER under the LOAN DOCUMENTS, as modified hereby, in the manner
provided therein, notwithstanding the LENDER’S execution of this AGREEMENT and any documents to be
executed pursuant to this AGREEMENT, and notwithstanding the various agreements the LENDER has set
forth herein and therein.



5. Security. Except as expressly modified herein, the BORROWERS’ obligations under
the LOAN DOCUMENTS, as modified hereby, shall continue to be secured by all of the liens,
assignments, and security interests provided in the LOAN DOCUMENTS.



6. Miscellaneous.



a. Incorporation. The terms and conditions of the LOAN DOCUMENTS are incorporated
herein by reference and made a part hereof as if fully set forth herein. In the event of any
inconsistencies between the terms and conditions of this AGREEMENT and any of the terms and
conditions of the other LOAN DOCUMENTS (except as to the specific modifications contained herein),
the LENDER shall determine, in its sole discretion, which of the terms and conditions shall
control.



b. Integration. This AGREEMENT, the LOAN DOCUMENTS (as modified), and any other
documents executed pursuant to or in connection with this AGREEMENT, if any, constitute the entire
agreement between the LENDER and the BORROWERS with respect to the subject matter hereof, and any
term or condition not expressed therein does not constitute a part of the agreement of the LENDER
and the BORROWERS with respect to such subject matter.



c. Severability. If any provision or part of any provision of this AGREEMENT shall
for any reason be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this AGREEMENT and this
AGREEMENT shall be construed as if such invalid, illegal or unenforceable provision or part thereof
had never been contained herein, but only to the extent of its invalidity, illegality, or
unenforceability.



d. Number, Gender, And Captions. As used herein, the singular shall include the
plural and the plural may refer to only the singular. The use of any gender shall be applicable to
all genders. The captions contained herein are for purposes of convenience only and are not a part
of this AGREEMENT.



e. Further Assurances. As part of this AGREEMENT, and in consideration for the
agreements of the LENDER as set forth therein, each BORROWER agrees to execute and deliver to the
LENDER such other and further documents as may, from time to time, in the sole opinion of the
LENDER and the LENDER’S counsel, be necessary or appropriate to carry out the terms and conditions
of this AGREEMENT and the LOAN DOCUMENTS. If either BORROWER fails to execute any such documents
within ten (10) days of being requested to do so by the LENDER, such BORROWER hereby appoints the
LENDER or any officer of the LENDER as the attorney in fact for such BORROWER for purposes of
executing such documents in the name, place and stead of such BORROWER, which power of attorney
shall be considered as coupled with an interest and irrevocable.



f. Waivers. No failure or delay by the LENDER in the exercise or enforcement of any
of its rights under any LOAN DOCUMENT shall be a waiver of such right or remedy, nor shall a single
or partial exercise or enforcement thereof preclude any other or further exercise or enforcement
thereof or the exercise or enforcement of any other right or remedy. The LENDER may at any time or
from time to time waive all or any rights under this AGREEMENT or any of the LOAN DOCUMENTS, but
any such waiver must be specific and in writing and no such waiver shall constitute, unless
specifically so expressed by the LENDER in writing, a future waiver of performance or exact
performance by either BORROWER. No notice to or demand upon either BORROWER in any instance shall
entitle such BORROWER (or the other BORROWER) to any other or further notice or demand in the same,
similar or other circumstance.



g. Choice Of Law. The laws of the State of Maryland (excluding, however, conflict of
law principles) shall govern and be applied to determine all issues relating to this AGREEMENT and
the rights and obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this AGREEMENT and its various provisions and the
consequences and legal effect of all transactions and events which resulted in the execution of
this AGREEMENT or which occurred or were to occur as a direct or indirect result of this AGREEMENT
having been executed.



h. Consent To Jurisdiction; Agreement As To Venue. Each BORROWER irrevocably consents
to the non-exclusive jurisdiction of the courts of the State of Maryland and of the United States
District Court For The District Of Maryland, if a basis for federal jurisdiction exists. Each
BORROWER agrees that venue shall be proper in any circuit court of the State of Maryland selected
by the LENDER or in the United States District Court For The District Of Maryland if a basis for
federal jurisdiction exists and waive any right to object to the maintenance of a suit in any of
the state or federal courts of the State of Maryland on the basis of improper venue or of
inconvenience of forum.



i. Binding Effect; No Oral Modification. This AGREEMENT shall be binding upon and
shall inure to the benefit of the parties and their respective personal representatives, successors
and assigns. This AGREEMENT may not be altered, modified or amended unless such alteration,
modification or amendment is in writing and executed by the LENDER.



j. Time. Time is of the essence with respect to all of the obligations of the
BORROWERS under this AGREEMENT and the LOAN DOCUMENTS.



k. Costs Of Transaction. All costs of the transactions contemplated by this
AGREEMENT, including without limitation all of attorneys’ fees and expenses incurred by the LENDER,
shall be paid by the BORROWER, regardless of whether such costs are incurred before or after the
execution and delivery of this AGREEMENT.



7. Release; Waiver. As part of the agreements set forth herein, and in consideration
of the same, each BORROWER hereby releases the LENDER and all of the LENDER’S past, present and
future directors, officers, employees, agents and attorneys from any and all claims, causes of
action, suits and damages (including claims for attorneys’ fees) which either of the BORROWERS,
jointly or severally or otherwise, ever had or now have against the LENDER or any of the LENDER’S
past, present and future directors, officers, employees, agents or attorneys. Without limiting the
generality of the foregoing, each BORROWER acknowledges and agrees that there exists no offset or
defense to the obligations of any BORROWER as stated in the LOAN DOCUMENTS.



8. Waiver Of Jury Trial. The parties hereto agree that any suit, action, or
proceeding, whether claim or counterclaim, brought or instituted by any party to this AGREEMENT, or
any of their successors or assigns, on or with respect to this AGREEMENT or any LOAN DOCUMENT or
which in any way relates, directly or indirectly, to the obligations of the BORROWERS to the LENDER
under this AGREEMENT or any LOAN DOCUMENT, or the dealings of the parties with respect thereto,
shall be tried only by a court and not by a jury. THE PARTIES EXPRESSLY WAIVE ANY RIGHT TO A TRIAL
BY JURY IN ANY SUCH ACTION OR PROCEEDINGS. The parties acknowledge and agree that this provision
is a specific and material aspect of the agreement between the parties and that the parties would
not enter into this AGREEMENT if this provision were not contained herein.



IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the date first above




written with the specific intention of creating a document under seal.



	 	 	 	 	 	 	 
	WITNESS/ATTEST:
	 	BORROWERS:
	 	


	 	

	 	 	AVATECH SOLUTIONS, INC.,	 	 
	 	 	A Delaware Corporation	 	 
	/s/ Jacqueline Geary
	 	By:
	 	/s/ Lawrence Rychlak

	 	(SEAL)
	 
	 	 	 	 

	 	

	 	 	 	 	Lawrence Rychlak,

Executive Vice President and

Chief Financial Officer

	 	











AVATECH SOLUTIONS SUBSIDIARY, INC.,



A Delaware Corporation



	 	 	 	 	 
	/s/ Jacqueline Geary
	 	By:/s/ Lawrence Rychlak

	 	(SEAL)
	 
	 	 

	 	

	 	 	Lawrence Rychlak,

Executive Vice President and

Chief Financial Officer

	 	











1




	 	 	 	 	 
	 	 	LENDER:

	 	







PNC BANK, NATIONAL ASSOCIATION,



Successor by merger to



Mercantile-Safe Deposit and Trust Company



	 	 	 	 	 
	/s/ Lawrence Rychlak
	 	By:
	 	/s/ Stephen D. Palmer—(SEAL)

	 
	 	 	 	 

	 	 	 	 	Stephen D. Palmer, Senior Vice President








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