EXHIBIT 10.04
THIS WARRANT AND THE SHARES OF VOTING COMMON STOCK PURCHASABLE HEREUNDER HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS
WARRANT AND THE SHARES OF VOTING COMMON STOCK PURCHASABLE HEREUNDER ARE SUBJECT
TO AND HAVE THE BENEFIT OF A WARRANTHOLDERS RIGHTS AGREEMENT DATED AS OF OCTOBER
25, 2000 AMONG AVATECH SOLUTIONS, INC. AND THE WARRANTHOLDERS LISTED ON THE
SIGNATURE PAGES THEREOF, A COPY OF WHICH IS ON FILE WITH AVATECH SOLUTIONS, INC.
Dated: October 25, 2000
WARRANT
To Purchase 16,213 Shares of Voting Common Stock of
AVATECH SOLUTIONS, INC.
Expiring November 25, 2003
THIS IS TO CERTIFY THAT, for value received, THE CIT GROUP/BUSINESS CREDIT,
INC. or registered assigns ("Holder") is entitled to purchase from AVATECH
SOLUTIONS, INC., a Delaware corporation ("Avatech"), at any time or from time to
time after 9.00 a.m., Charlotte, North Carolina time, on the date hereof and
prior to 5:00 p.m., Charlotte, North Carolina time, on the earlier of November
25, 2003 and the Business Day preceding the date of redemption of this Warrant
(the "Exercise Period"), at the place where the Warrant Agency is located, at
the Exercise Price, the number of shares of Common Stock, par value $0.01 per
share (the "Voting Common Stock") of Avatech shown above, all subject to
adjustment and upon the terms and conditions hereinafter provided, and is
entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter described.
This Warrant is one of one or more warrants (the "Warrants") of the same
form and having the same terms as this Warrant, entitling the holders initially
to purchase up to an aggregate of 16,213 shares of Voting Common Stock. The
Warrant Shares following the closing of the transactions contemplated by the
Financing Agreement will constitute 0.25% of the capital stock (Common or
Preferred) of Avatech on a Fully Diluted Basis. The Warrants have been issued
pursuant to the Financing Agreement dated as of October 25, 2000 (as amended
from time to time, the "Financing Agreement") between Avatech and The CIT
Group/Business Credit, Inc. ("CIT"), as lender, and the Holder is entitled to
certain benefits as set forth therein and to certain benefits described in the
Warrantholders Rights Agreement. Avatech shall keep a copy of the Financing
Agreement and the Warrantholders Rights Agreement, and any amendments thereto,
at the Warrant Agency and shall furnish, without charge, copies thereof to the
Holder upon request.
Certain terms used in this Warrant are defined in Article VI.
ARTICLE I
EXERCISE OF WARRANTS
SECTION 1.1. METHOD OF EXERCISE.
To exercise this Warrant in whole on in part, the Holder shall deliver on
any Business Day to Avatech, at the Warrant Agency, (a) this Warrant, (b) a
written notice of such Holder's election to exercise this Warrant, which notice
shall specify the number of shares of Voting Common Stock to be purchased (which
shall be a whole number of shares if for less than all the shares then issuable
hereunder), the denominations of the share certificate or certificates desired
and the name or names in which such certificates are to be registered, and (c)
payment of the Exercise Price with respect to such shares. Such payment may be
made, at the option of the Holder, either (a) by cash, certified or bank
cashier's check or wire transfer in an amount equal to the product of (i) the
Exercise Price times (ii) the number of Warrant Shares as to which this Warrant
is being exercised or (b) by receiving from Avatech the number of Warrant Shares
equal to (i) the number of Warrant Shares as to which this Warrant is being
exercised minus (ii) the number of Warrant Shares having a value, based on the
Closing Price on the trading day immediately prior to the date of such exercise,
equal to the product of (x) the Exercise Price times (y) the number of Warrant
Shares as to which this Warrant is being exercised.
Avatech shall, as promptly as practicable and in any event within seven
days after receipt of such notice and payment, execute and deliver or cause to
be executed and delivered, in accordance with such notice, a certificate or
certificates representing the aggregate number of shares of Voting Common Stock
specified in said notice together with cash in lieu of any fractions of a share
as provided in Section 1.3. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice, and shall be
issued in the name of the Holder or such other name or names as shall be
designated in such notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
such Holder or any other Person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of shares, as of the
date the aforementioned notice and payment is received by Avatech. If this
Warrant shall have been exercised only in part, Avatech shall, at the time of
delivery of such certificate or certificates, deliver to the Holder a new
Warrant evidencing the rights to purchase the remaining shares of Voting Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of the Holder, appropriate
notation may be made on this Warrant which shall then be returned to the Holder.
Avatech shall pay all expenses, taxes and other charges payable in connection
with the preparation, issuance and delivery of share certificates and new
Warrants, except that, if share certificates or new Warrants shall be registered
in a name or names other than the name of the Holder, funds sufficient to pay
all transfer taxes payable as a result of such transfer shall be paid by the
Holder at the time of delivery of the aforementioned notice of exercise or
promptly upon receipt of a written request of Avatech for payment.
SECTION 1.2. SHARES TO BE FULLY PAID AND NONASSESSABLE.
All shares of Voting Common Stock issued upon the exercise of this Warrant
and all shares of Voting Common Stock issued upon the conversion of such Voting
Common Stock shall be validly issued, fully paid and nonassessable and, if such
class of Common Stock is then listed on any national securities exchange (as
defined in the Exchange Act) or quoted on NASDAQ, shall be duly listed or quoted
thereon, as the case may be.
SECTION 1.3. NO FRACTIONAL SHARES REQUIRED TO BE ISSUED.
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Avatech shall not be required to issue fractions of shares of Voting Common
Stock upon exercise of this Warrant. If any fraction of a share would, but for
this Section, be issuable upon final exercise of this Warrant, in lieu of such
fractional share Avatech shall pay to the Holder, in cash, an amount equal to
the same fraction of the Fair Market Value of Avatech per share of outstanding
Common Stock on the Business Day immediately prior to the date of such exercise.
SECTION 1.4. SHARE LEGEND.
Each certificate for shares of Voting Common Stock issued upon exercise of
this Warrant, unless at the time of exercise such shares are registered under
the Securities Act, shall bear the following legend:
"This security has not been registered under the Securities Act of
1933 and may not be sold or offered for sale unless registered under said
Act and any applicable state securities laws or unless an exemption from
such registration is available. This security is also subject to and has
the benefit of a Warrantholders Rights Agreement dated as of October 25,
2000 among Avatech Solutions, Inc. and the Warrantholders listed on the
signature pages thereof, copies of which are on file with Avatech
Solutions, Inc."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public offering pursuant to a registration statement under the Securities
Act) shall also bear such legend unless, in the opinion of counsel selected by
the holder of such certificate (who may be an employee of such holder) and
reasonably acceptable to Avatech, the securities represented thereby need no
longer be subject to restrictions on resale under the Securities Act.
SECTION 1.5. RESERVATION.
Avatech has duly reserved and will keep available for issuance upon
exercise of the Warrants the total number of Warrant Shares deliverable from
time to time upon exercise of all Warrants from time to time outstanding and the
total number of shares of Voting Common Stock deliverable upon conversion of
such Warrant Shares to Voting Common Stock. Avatech will not change the Voting
Common Stock from par value $0.01 per share to any higher par value which
exceeds the Exercise Price then in effect, and will reduce the par value of the
Voting Common Stock upon any event described in Article IV that provides for an
increase in the number of shares of Voting Common Stock subject to purchase upon
exercise of this Warrant, in inverse proportion to and effective at the same
time as such number of shares is increased, but only to the extent that such
increase in the number of shares, together with all other such increases after
the date hereof, causes the aggregate Exercise Price of all Warrants (without
giving effect to any exercise or redemption thereof) to be greater than $1,000.
ARTICLE II
WARRANT AGENCY;
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
SECTION 2.1. WARRANT AGENCY.
As long as any of the Warrants remain outstanding, Avatech shall perform
the obligations of and be the warrant agency with respect to the Warrants (the
"Warrant Agency") at its address set forth in the Financing Agreement or at such
other address as Avatech shall specify by notice to all Warrantholders.
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SECTION 2.2. OWNERSHIP OF WARRANT.
Avatech may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by any person other than Avatech) for all
purposes and shall not be affected by any notice to the contrary, until due
presentment of this Warrant for registration of transfer as provided in this
Article II.
SECTION 2.3. TRANSFER OF WARRANT.
Avatech agrees to maintain at the Warrant Agency books for the registration
of transfers of the Warrants, and transfer of this Warrant and all rights
hereunder shall be registered, in whole or in part, on such books, upon
surrender of this Warrant at the Warrant Agency, together with a written
assignment of this Warrant duly executed by the Holder or its duly authorized
agent or attorney, with (if the Holder is a natural person) signatures
guaranteed by a bank or trust company or a broker or dealer registered with the
NASD, and funds sufficient to pay any transfer taxes payable upon such transfer.
Upon surrender and, if required, such payment, Avatech shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in the instrument of assignment (which shall be whole
numbers of shares only) and shall issue to the assignor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant shall promptly be
canceled.
SECTION 2.4. DIVISION OF COMBINATION OF WARRANTS.
This Warrant may be divided or combined with other Warrants upon
presentment hereof and of any Warrant or Warrants with which this Warrant is to
be combined at the Warrant Agency, together with a written notice specifying the
names and denominations (which shall be whole numbers of shares only) in which
the new Warrant or Warrants are to be issued, signed by the holders hereof and
thereof or their respective duly authorized agents or attorneys. Subject to
compliance with Section 2.3 as to any transfer or assignment which may be
involved in the division or combination, Avatech shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
SECTION 2.5. LOSS, THEFT, DESTRUCTION OF WARRANT CERTIFICATES.
Upon receipt of evidence satisfactory to Avatech of the ownership of and
the loss, theft, destruction or mutilation of any Warrant and, in the case of
any such loss, theft or destruction, upon receipt of indemnity or security
satisfactory to Avatech (it being understood and agreed that if the holder of
such Warrant is CIT, then a written agreement of indemnity given by CIT alone
shall be satisfactory to Avatech and no further security shall be required) or,
in the case of any such mutilation, upon surrender and cancellation of such
Warrant, Avatech will make and deliver, in lieu of such lost, stolen, destroyed
or mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Voting Common Stock.
SECTION 2.6. EXPENSES OF DELIVERY OF WARRANTS.
Avatech shall pay all expenses, taxes (other than transfer taxes) and other
charges payable in connection with the preparation, issuance and delivery of
Warrants hereunder.
ARTICLE III
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CERTAIN RIGHTS
SECTION 3.1. RIGHTS AND OBLIGATIONS UNDER THE WARRANTHOLDERS RIGHTS
AGREEMENT.
This Warrant is entitled to the benefits and subject to the terms of the
Warrantholders Rights Agreement dated as of October 25, 2000 among Avatech and
the Warrantholders listed on the signature pages thereof (as amended from time
to time, the "Warrantholders Rights Agreement"). Avatech shall keep or cause to
be kept a copy of the Warrantholders Rights Agreement, and any amendments
thereto, at the Warrant Agency and shall furnish, without charge, copies thereof
to the Holder upon request.
SECTION 3.2. DETERMINATION OF FAIR MARKET VALUE.
Each determination of Fair Market Value hereunder shall be made in good
faith by Avatech. Upon each determination of Fair Market Value by Avatech
hereunder, Avatech shall promptly give notice thereof to all Warrantholders,
setting forth in reasonable detail the calculation of such Fair Market Value and
the method and basis of determination thereof (the "Avatech Determination").
ARTICLE IV
ANTIDILUTION PROVISIONS
SECTION 4.1. ADJUSTMENT GENERALLY.
The Exercise Price and the number of shares of Voting Common Stock (or
other securities or property) issuable upon exercise of this Warrant shall be
subject to adjustment from time to time upon the occurrence of certain events as
provided in this Article IV; PROVIDED that notwithstanding anything to the
contrary contained herein, the Exercise Price shall not be less than the par
value of the Voting Common Stock, as such par value is reduced from time to time
in accordance with Section 1.5.
SECTION 4.2. COMMON STOCK REORGANIZATION.
If Avatech shall subdivide its outstanding shares of Common Stock (or any
class thereof) into a greater number of shares or consolidate its outstanding
shares of Common Stock (or any class thereof) into a smaller number of shares
(any such event being called a "Common Stock Reorganization"), then (a) the
Exercise Price shall be adjusted, effective immediately after the effective date
of such Common Stock Reorganization, to a price determined by multiplying the
Exercise Price in effect immediately prior to such effective date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
on such effective date before giving effect to such Common Stock Reorganization
and the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such Common Stock Reorganization, and (b) the
number of shares of Voting Common Stock subject to purchase upon exercise of
this Warrant shall be adjusted, effective at such time, to a number determined
by multiplying the number of shares of Voting Common Stock subject to purchase
immediately before such Common Stock Reorganization by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding after giving
effect to such Common Stock Reorganization and the denominator of which shall be
the number of shares of Common Stock outstanding immediately before such Common
Stock Reorganization.
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SECTION 4.3. COMMON STOCK DISTRIBUTION.
(a) If Avatech shall issue, sell or otherwise distribute any shares of
Common Stock, other than pursuant to a Common Stock Reorganization (which is
governed by Section 4.2 hereof) (any such event, including any event described
in paragraphs (b) and (c) below, being herein called a "Common Stock
Distribution"), for a consideration per share less than the Exercise Price then
in effect or less than the Fair Market Value of Avatech per share of outstanding
Common Stock on a Fully Diluted Basis on the date of such Common Stock
Distribution (before giving effect to such Common Stock Distribution), then,
effective upon such Common Stock Distribution, the Exercise Price shall be
reduced, if such consideration per share shall be less than the Exercise Price
then in effect but not less than such Fair Market Value per share, to the lower
of the prices (calculated to the nearest one-thousandth of one cent) determined
as provided in clauses (i) and (ii) below or, if such consideration per share
shall be less than such Fair Market Value per share, to the lowest of the prices
(calculated to the nearest one-thousandth of one cent) determined as provided in
clauses (i) and (ii) below:
(i) by dividing (A) an amount equal to the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such Common
Stock Distribution multiplied by the then existing Exercise Price, plus (2)
the consideration, if any, received by Avatech upon such Common Stock
Distribution by (B) the total number of shares of Common Stock outstanding
immediately after such Common Stock Distribution; and
(ii) by multiplying the Exercise Price in effect immediately prior
to such Common Stock Distribution by a fraction, the numerator of which
shall be the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such Common Stock Distribution multiplied by such Fair
Market Value per share on the date of such Common Stock Distribution, plus
(B) the consideration, if any, received by Avatech upon such Common Stock
Distribution, and the denominator of which shall be the product of (1) the
total number of shares of Common Stock outstanding immediately after such
Common Stock Distribution multiplied by (2) such Fair Market Value per
share on the date of such Common Stock Distribution.
If any Common Stock Distribution shall require an adjustment to the
Exercise Price pursuant to the foregoing provisions of this paragraph (a),
including by operation of paragraph (b) or (c) below, then, effective at the
time such adjustment is made, the number of shares of Voting Common Stock
subject to purchase upon exercise of this Warrant shall be increased to a number
determined by multiplying the number of shares of Voting Common Stock subject to
purchase immediately before such Common Stock Distribution by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately after giving effect to such Common Stock Distribution and the
denominator of which shall be the sum of the number of shares outstanding
immediately before giving effect to such Common Stock Distribution (both
calculated on a Fully Diluted Basis) plus the number of shares of Common Stock
which the aggregate consideration received by Avatech with respect to such
Common Stock Distribution would purchase at the Fair Market Value of Avatech per
share of outstanding Common Stock on a Fully Diluted Basis on the date of such
Common Stock Distribution (before giving effect to such Common Stock
Distribution). In computing adjustments under this paragraph, fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth of a share.
The provisions of this paragraph (a), including by operation of paragraph
(b) or (c) below, shall not operate to increase the Exercise Price or reduce the
number of shares of Voting Common Stock subject to purchase upon exercise of
this Warrant.
(b) If Avatech shall issue, sell, distribute or otherwise grant in any
manner (including by assumption) any rights to subscribe for or to purchase, or
any warrants or options for the purchase of
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Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (such rights, warrants or options being herein called "Options" and
such convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such Options or the rights to convert
or exchange any such Convertible Securities in respect of such Options are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities in respect of such Options (determined by dividing
(i) the aggregate amount, if any, received or receivable by Avatech as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to Avatech upon the exercise of all
such Options, plus, in the case of Options to acquire Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable upon
the issuance or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Exercise Price then in effect or less than the Fair
Market Value of Avatech per share of outstanding Common Stock on a Fully Diluted
Basis on the date of granting such Options (before giving effect to such grant),
then, for purposes of paragraph (a) above, the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to have been issued as of the
date of granting of such Options and thereafter shall be deemed to be
outstanding and Avatech shall be deemed to have received as consideration such
price per share, determined as provided above, therefor. Except as otherwise
provided in paragraph (d) below, no additional adjustment of the Exercise Price
shall be made upon the actual exercise of such Options or upon conversion or
exchange of such Convertible Securities.
(c) If Avatech shall issue, sell or otherwise distribute (including by
assumption) any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the aggregate amount received or receivable by Avatech as
consideration for the issuance, sale or distribution of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to Avatech upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the Exercise
Price then in effect or less than the Fair Market Value of Avatech per share of
outstanding Common Stock on a Fully Diluted Basis on the date of such issuance,
sale or distribution (before giving effect to such issuance, sale or
distribution), then, for purposes of paragraph (a) above, the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued as of the date
of the issuance, sale or distribution of such Convertible Securities and
thereafter shall be deemed to be outstanding and Avatech shall be deemed to have
received as consideration such price per share, determined as provided above,
therefor. Except as otherwise provided in paragraph (d) below, no additional
adjustment of the Exercise Price shall be made upon the actual conversion or
exchange of such Convertible Securities.
(d) If (i) the purchase price provided for in any Option referred to in
paragraph (d) above or the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in paragraph
(b) or (c) above or the rate at which any Convertible Securities referred to in
paragraph (b) or (c) above are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution upon an event which results in a related adjustment
pursuant to this Article IV), or (ii) any of such Options or Convertible
Securities shall have terminated, lapsed or expired, the Exercise Price then in
effect shall forthwith be readjusted (effective only with respect to any
exercise of this Warrant after such readjustment) to the Exercise Price which
would then be in effect had the adjustment made upon the
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issuance, sale, distribution or grant of such Options or Convertible Securities
been made based upon such changed purchase price, additional consideration or
conversion rate, as the case may be (in the case of any event referred to in
clause (i) of this paragraph (d)) or had such adjustment not been made (in the
case of any event referred to in clause (ii) of this paragraph (d)).
(e) If Avatech shall pay a dividend or make any other distribution upon
any capital stock of Avatech payable in Common Stock, Options or Convertible
Securities, then, for purposes of paragraph (a) above, such Common Stock,
Options or Convertible Securities shall be deemed to have been issued or sold
without consideration.
(f) If any shares of Common Stock, Options or Convertible Securities
shall be issued, sold or distributed for cash, the consideration received
therefor shall be deemed to be the amount received by Avatech therefor, after
deduction therefrom of any expenses incurred in connection therewith. If any
shares of Common Stock, Options or Convertible Securities shall be issued sold
or distributed for a consideration other than cash, the amount of the
consideration other than cash received by Avatech shall be deemed to be the Fair
Market Value of such consideration, after deduction of any expenses incurred in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which Avatech is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the Fair Market Value of such portion of the assets and business of the
non-surviving corporation as shall be attributable to such Common Stock, Options
or Convertible Securities, as the case may be. If any Options shall be issued in
connection with the issuance and sale of other securities of Avatech, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration.
SECTION 4.4. SPECIAL DIVIDENDS.
If Avatech shall issue or distribute to any holder or holders of shares of
Common Stock evidences of indebtedness, any other securities of Avatech or any
cash, property or other assets (excluding a Common Stock Reorganization or a
Common Stock Distribution), whether or not accompanied by a purchase, redemption
or other acquisition of shares of Common Stock (any such nonexcluded event being
herein called a "Special Dividend"), (a) the Exercise Price shall be decreased,
effective immediately after the effective date of such Special Dividend, to a
price determined by multiplying the Exercise Price then in effect by a fraction,
the numerator of which shall be the Fair Market Value of Avatech per share of
outstanding Common Stock as of such effective date less any cash and the then
Fair Market Value of any evidences of indebtedness, securities or property or
other assets issued or distributed in such Special Dividend with respect to one
share of Common Stock, and the denominator of which shall be such Fair Market
Value per share and (b) the number of shares of Voting Common Stock subject to
purchase upon exercise of this Warrant shall be increased to a number determined
by multiplying the number of shares of Voting Common Stock subject to purchase
immediately before such Special Dividend by a fraction, the numerator of which
shall be the Exercise Price in effect immediately before such Special Dividend
and the denominator of which shall be the Exercise Price in effect immediately
after such Special Dividend. A reclassification of Common Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by Avatech to the holders of such Common stock of
such shares of such other class of stock and, if the outstanding shares of
Common Stock shall be changed into a larger or smaller number of shares of
Common Stock as part of such reclassification, a Common Stock Reorganization.
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SECTION 4.5. CAPITAL REORGANIZATIONS.
If there shall be (i) any consolidation or merger to which Avatech is a
party, other than a consolidation or a merger of which Avatech is the continuing
corporation and which does not result in any reclassification of, or change
(other than a Common Stock Reorganization) in, outstanding shares of Common
Stock, or (ii) any sale or conveyance of the property of Avatech as an entirety
or substantially as an entirety, or (iii) any recapitalization of Avatech (any
such event being called a "Capital Reorganization"), then, effective upon the
effective date of such Capital Reorganization, the Holder shall no longer have
the right to purchase Voting Common Stock, but shall have instead the right to
purchase, upon exercise of this Warrant, the kind and amount of shares of stock
and other securities and property (including cash) which the Holder would have
owned or have been entitled to receive pursuant to such Capital Reorganization
if this Warrant had been exercised immediately prior to the effective date of
such Capital Reorganization. As a condition to effecting any Capital
Reorganization, Avatech or the successor or surviving corporation, as the case
may be, shall (a) execute and deliver to each Warrantholder and to the Warrant
Agency an agreement as to the Warrrantholders' rights in accordance with this
Section 4.5, providing, to the extent of any right to purchase equity securities
hereunder, for subsequent adjustments as nearly equivalent as may be practicable
to the adjustments provided for in this Article IV and (b) provide each
Regulated Holder with an opinion of counsel reasonably satisfactory to such
Regulated Holder and such other assurances as any Regulated Holder may
reasonably request to the effect that the ownership and exercise by any
Regulated Holder of this Warrant after giving effect to such Capital
Reorganization shall not be prohibited by the BHC Act or the regulations
thereunder. The provisions of this Section 4.5 shall similarly apply to
successive Capital Reorganizations.
SECTION 4.6. ADJUSTMENT RULES.
Any adjustments pursuant to this Article IV shall be made successively
whenever an event referred to herein shall occur, except that, notwithstanding
any other provision of this Article IV, no adjustment shall be made to the
number of shares of Voting Common Stock to be delivered to each Holder (or to
the Exercise Price) if such adjustment represents less than 1% of the number of
shares previously required to be so delivered, but any lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amounts to 1% or more of the number of shares to be so delivered. No
adjustment shall be made pursuant to this Article IV in respect of (x) the
issuance of stock options or Common Stock to employees of Avatech pursuant to
employee stock ownership plans or otherwise, or the exercise of any such
options, PROVIDED that the aggregate amount of all such Common Stock and Common
Stock for which such options are exercisable does not exceed 15% of the Common
Stock on a Fully Diluted Basis on the date hereof and (y) the issuance from time
to time of shares of Common Stock upon the exercise of any of the Warrants. If
Avatech shall take a record of the holders of its Common Stock for any purpose
referred to in this Article IV, then (i) such record date shall be deemed to be
the date of the issuance, sale, distribution or grant in question and (ii) if
Avatech shall legally abandon such action prior to effecting such action, no
adjustment shall be made pursuant to this Article IV in respect of such action.
SECTION 4.7. PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT.
As a condition precedent to the taking of any action which would require an
adjustment pursuant to this Article IV, Avatech shall take any action which may
be necessary, including obtaining regulatory approvals or exemptions, in order
that (a) Avatech may thereafter validly and legally issue as fully paid and
nonassessable all shares of Voting Common Stock which the holders of Warrants
are entitled to receive upon exercise thereof and (b) the ownership and exercise
of any Warrant by any Regulated Holder shall not be prohibited by any Regulatory
Requirement.
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SECTION 4.8. NOTICE OF ADJUSTMENT.
Not less than 10 nor more than 30 days prior to the record date or
effective date, as the case may be, of any action which requires or might
require an adjustment or readjustment pursuant to this Article IV, Avatech shall
give notice to each Warrantholder of such event, describing such event in
reasonable detail and specifying the record date or effective date, as the case
may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, Avatech shall give notice to each Warrantholder of such adjustment and
computation promptly after such adjustment becomes determinable.
ARTICLE V
PURCHASE, REDEMPTION AND CANCELLATION OF WARRANTS
SECTION 5.1. PURCHASE OF WARRANTS BY AVATECH.
Avatech shall have the right or obligation to purchase or otherwise acquire
Warrants at such times, in such manner and for such consideration as set forth
below.
SECTION 5.2. MANDATORY REDEMPTION OF WARRANTS.
The Holder may at the earlier to occur of (a) on or within 30 days after
the repayment in full of all principal of and premium and interest on the Notes
(as defined in the Financing Agreement) and the termination of the Commitments
under the Financing Agreement, (b) on or within 30 days after the date on which
Avatech shall have delivered a Refinancing Notice, by notice to Avatech (any
such redemption pursuant to this clause (b), a "Refinancing Redemption"), or (c)
on or within 30 days after the third (3rd) anniversary of the date hereof,
demand a determination of the Redemption Price (a "Determination Notice") for
purposes of this Section 5.2. Within 30 days (or, in the case of a Refinancing
Redemption, 5 days) after the receipt of any Determination Notice from the
Holder, Avatech shall give to the Holder notice of the Redemption Price,
including a reasonably detailed description of the method of calculation
thereof, determined as of the day preceding such notice of the Redemption Price.
At any time within 30 days (or, in the case of a Refinancing Redemption, 15
days) after receipt of notice of the Redemption Price the Holder may demand
redemption of this Warrant, in whole or in part, at the Redemption Price by
notice to Avatech, payable on the third Business Day after receipt of notice of
such demand (or, in the case of a Refinancing Redemption, on the closing date of
such refinancing) (any such date, the "Redemption Due Date") in immediately
available funds to the Holder upon surrender of this Warrant at the Warrant
Agency or, if requested by the Holder, without surrender of this Warrant, by
wire transfer to any account in Charlotte, North Carolina, specified by notice
to Avatech. Thereupon, the right to purchase shares of Voting Common Stock
theretofore represented by this Warrant as to which the Holder has demanded (and
Avatech may effect) redemption shall terminate, and this Warrant shall represent
the right of the Holder to receive the full Redemption Price from Avatech in
accordance with this Section. The Holder's right to demand redemption of this
Warrant pursuant to this Section 5.2 shall be referred to hereinafter as the
Holder's "Mandatory Redemption Right".
SECTION 5.3. OPTIONAL REDEMPTION.
At any time and from time to time prior to the completion of a Qualified
IPO but after the later to occur of (a) the fourth (4th) anniversary of the
Closing Date (as defined in the Financing Agreement) and (b) the date on which
all amounts outstanding under the Financing Agreement have been paid in full and
the Commitments thereunder have been terminated, Avatech shall have the right to
redeem up to one-
10
hundred percent (100%) of the outstanding Warrants at the Optional Redemption
Price, determined as of the day preceding the notice of redemption. Irrevocable
notice of such right of redemption shall be given by Avatech to all
Warrantholders not more than 30 days nor less than 15 days prior to the date
scheduled for redemption, stating the date and price, including a reasonably
detailed description of the method of calculation thereof, of redemption.
Warrantholders may exercise Warrants until 5:00 p.m., Charlotte, North Carolina
time, on the Business Day preceding the date of redemption set forth in a valid
notice of redemption, at which time the right to purchase shares of Voting
Common Stock theretofore represented by this Warrant shall terminate, and this
Warrant shall represent the right of the Holder to receive the Optional
Redemption Price from Avatech in immediately available funds upon surrender of
this Warrant at the Warrant Agency.
SECTION 5.4. CANCELLATION OF WARRANTS.
All Warrants purchased, redeemed or otherwise acquired by Avatech shall
thereupon be canceled and retired. The Warrant Agency shall cancel any Warrant
surrendered for exercise or registration of transfer or exchange and deliver
such canceled Warrants to Avatech.
SECTION 5.5. NOTICE OF REFINANCING.
Avatech shall give notice to each of the Warrantholders of any intent by
Avatech to refinance in their entirety the Notes (as defined in the Financing
Agreement) not less than 60 days prior to the proposed closing date of such
refinancing, setting forth such proposed closing date and notifying each
Warrantholder of its rights under Section 5.2 (such notice, the "Refinancing
Notice").
ARTICLE VI
DEFINITIONS
The following terms, as used in this Warrant, have the following meanings:
"Avatech" has the meaning set forth in the first paragraph of this Warrant.
"Avatech Determination" has the meaning set forth in Section 3.2.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" means any day excluding Saturday, Sunday and any day on
which banking institutions located in Charlotte, North Carolina or New York City
are authorized by law or other governmental action to be closed, unless there
shall have been an offering of Common Stock registered under the Securities Act,
in which case "Business Day" means (a) if Common Stock is listed or admitted to
trading on a national securities exchange, a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for business or (b) if Common Stock is not so listed or admitted to
trading, a day on which the New York Stock Exchange is open for business.
"Capital Reorganization" has the meaning set forth in Section 4.5.
"CIT" has the meaning set forth in the second paragraph of this Warrant.
11
"Closing Price" on any day means (a) if Common Stock is listed or admitted
for trading on a national securities exchange, the reported last sales price
regular way or, if no such reported sale occurs on such day, the average of the
closing bid and asked prices regular way on such day, in each case on the
principal national securities exchange on which Common Stock is listed or
admitted to trading, or (b) if Common Stock is not listed or admitted to trading
on any national securities exchange, the average of the closing bid and asked
prices in the over-the-counter market on such day as reported by NASDAQ or any
comparable system or, if not so reported, as reported by any New York Stock
Exchange member firm selected by Avatech for such purpose.
"Common Stock" means the Voting Common Stock.
"Common Stock Distribution" has the meaning set forth in Section 4.3(a).
"Common Stock Reorganization" has the meaning set forth in Section 4.2.
"Consolidated Total Debt" has the meaning specified in the Financing
Agreement.
"Convertible Securities" has the meaning set forth in Section 4.3(b).
"Determination Notice" has the meaning set forth in Section 5.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission (or its successor) thereunder, all as the small shall be
in effect at the time.
"Exercise Period" has the meaning specified in the first paragraph of this
Warrant.
"Exercise Price" means $.01 per share of the Voting Common Stock, subject
to adjustment pursuant to Article IV.
"Financing Agreement" has the meaning set forth in the second paragraph of
this Warrant.
"Fair Market Value" as at any date of determination means the fair market
value of the business or property or services in question as of such date, as
determined in good faith by the Board of Directors of Avatech. The Fair Market
Value of Avatech as at any date of determination shall be the greatest of (i)
the Fair Market Value at such date of Avatech and its Subsidiaries as a going
concern, (ii) the liquidation value at such date of Avatech and its
Subsidiaries, and (iii) the consolidated net worth of Avatech and its
Subsidiaries as shown on its latest available consolidated balance sheet.
Notwithstanding the foregoing, if, at any date of determination of the Fair
Market Value of Avatech, the Common Stock shall then be publicly traded, the
Fair Market Value of Avatech on such date shall be the greater of (a) the amount
determined in accordance with the immediately preceding sentence and (b) the
Market Price on such date multiplied by the number of shares of Common Stock
then outstanding. Determination of the Fair Market Value of Avatech per share of
Common Stock shall be made without giving effect to any discount for (i)
minority interest or (ii) any lack of liquidity of the Common Stock due to the
fact that there may be no public market for the Common Stock.
"Fully Diluted Basis" means, with respect to any determination or
calculation, that such determination or calculation is performed on a fully
diluted basis determined in accordance with generally accepted accounting
principles as in effect from time to time.
"Holder" has the meaning set forth in the first paragraph of this Warrant.
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"Mandatory Redemption Right" has the meaning set forth in Section 5.2.
"Market price" as at any date of determination means the average of the
daily Closing Prices of a share of Common Stock for the shorter of (i) the 20
consecutive Business Days ending on the most recent Business Day prior to the
Time of Determination and (ii) the period commencing on the date next succeeding
the first public announcement of the issuance, sale, distribution, grant or
exercise in question through such most recent Business Day prior to the Time of
Determination. "Time of Determination" means the time and date of the earliest
of (x) the determination of the stockholders entitled to receive such issuance,
sale, distribution or grant, (y) the determination of the Holders or Avatech to
exercise their respective rights set forth in Sections 5.2 or 5.3 hereof and (z)
the commencement of "ex-dividend" trading in respect thereof.
"NASD" means The National Association of Securities Dealers, Inc.
"NASDAQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"Optional Redemption Price" means, as of any date of determination, a price
for each share of Voting Common Stock issuable upon exercise of the Warrants
equal to 110% of the Redemption Price, determined as of such date.
"Options" has the meaning set forth in Section 4.3(b).
"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company, joint venture, association, company,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, and any government agency or political
subdivision thereof.
"Qualified IPO" means any sale of shares of Common Stock by and for the
account of Avatech pursuant to an underwritten initial public offering
registered under the Securities Act; PROVIDED that the proceeds to Avatech (net
of underwriters' discount, fees and other expenses incurred by Avatech in
connection therewith) from such sale of shares exceeds $3,000,000.
"Redemption Due Date" has the meaning set forth in Section 5.2 hereof.
"Redemption Price" means, as of any date of determination, a price for each
share of Voting Common Stock issuable upon exercise of the Warrants equal to the
excess of (a) (i) the Fair Market Value of Avatech plus the aggregate Exercise
Price of all Warrants either being redeemed or then outstanding and not being
redeemed divided by (ii) the number of shares of Common Stock outstanding on a
Fully Diluted Basis over (b) the Exercise Price then in effect.
"Refinancing Notice" has the meaning set forth in Section 5.5 hereof.
"Regulated Holder" means the Holder or a holder of Warrant Shares, if such
Holder or holder of Warrant Shares is effectively restricted or prohibited from
holding, exercising or transferring, in whole or in part, this Warrant or
Warrant Shares by reason of any Regulatory Requirement, including without
limitation if such Holder or holder of Warrant Shares is a bank holding company
within the meaning of the BHC Act or a subsidiary thereof subject to Regulation
Y under the BHC Act.
13
"Regulatory Requirement" means any existing or future Federal or state
statute, rule, regulation, guideline, order, request or directive (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful), including without limitation, the BHC Act and the regulations
thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and rules
and regulations of the Securities and Exchange Commission thereunder.
"Special Dividend" has the meaning set forth in Section 4.4.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, association, limited liability company or other business entity of
which more than 50% of the total voting power of shares of stock or other
interests therein entitled to vote in the election of members of the board of
directors, partnership committee, board of managers or trustees or other
managerial body thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person or a combination thereof. Unless otherwise specified, "Subsidiary" means
a Subsidiary of Avatech and "Subsidiaries" means all Subsidiaries of Avatech.
"Voting Common Stock" has the meaning set forth in the first paragraph of
this Warrant, subject to change pursuant to Article IV.
"Warrant Agency" has the meaning set forth in Section 2.1.
"Warrant Shares" means the shares of Voting Common Stock issuable upon the
exercise of the Warrants.
"Warrantholder" means a holder of a Warrant.
"Warrantholders Rights Agreement" has the meaning set forth in Section 3.1.
"Warrants" has the meaning set forth in the second paragraph of this
Warrant.
All references herein to "days" shall mean calendar days unless otherwise
specified.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NOTICES.
Notices and other communications provided for herein shall be in writing
and may be given by mail, courier, confirmed telex or facsimile transmission and
shall, unless otherwise expressly required, be deemed given when received or, if
mailed, four Business Days after being deposited in the United States mail with
postage prepaid and properly addressed. In the case of the Holder, such notices
and communications shall be addressed to its address as shown on the books
maintained by the Warrant Agency, unless the Holder shall notify the Warrant
Agency that notices and communications should be sent to a different address (or
telex or facsimile number), in which case such notices and communications shall
be sent to the address (or telex or facsimile number) specified by the Holder.
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SECTION 7.2. WAIVERS; AMENDMENTS.
No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. No notice or demand on
Avatech in any case shall entitle Avatech to any other or future notice or
demand in similar or other circumstances. The rights and remedies of the Holder
are cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified, or
waived with (and only with) the written consent of Avatech and the
Warrantholders. The provisions of the Financing Agreement and the Warrantholders
Rights Agreement may be amended, modified or waived only in accordance with the
respective provisions thereof.
Any such amendment, modifications or waiver effected pursuant to and in
accordance with the provisions of this Section or the applicable provisions of
the Financing Agreement or the Warrantholders Rights Agreement shall be binding
upon the holders of all Warrants and Warrant Shares, upon each future holder
thereof and upon Avatech. In the event of any such amendment, modifications or
waiver Avatech shall give prompt notice thereof to all holders of Warrants and
Warrant shares and, if appropriate, notation thereof shall be made on all
Warrants thereafter surrendered for registration of transfer or exchange.
SECTION 7.3. GOVERNING LAW.
THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
SECTION 7.4. TRANSFER; COVENANTS TO BIND SUCCESSOR AND ASSIGNS.
All covenants, stipulations, promises and agreements in this Warrant
contained by or on behalf of Avatech or the Holder shall bind its successors and
assigns, whether so expressed or not. This Warrant shall be transferable and
assignable by the Holder hereof in whole or from time to time in part of any
other Person and the provisions of this Warrant shall be binding upon and inure
to the benefit of the Holder hereof and its successors and assigns.
SECTION 7.5. SEVERABILITY.
In case any one or more of the provisions contained in this Warrant shall
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 7.6. SECTION HEADINGS.
The section headings used herein are for convenience of reference only, are
not part of this Warrant and are not to affect the construction of or be taken
into consideration in interpreting this Warrant.
15
SECTION 7.7. TAX BASIS.
Avatech and the Holder agree pursuant to Proposed Treasury Regulation
Section 1.1273-2 that, for Federal income tax purposes, the aggregate issue
price of the Loans (as defined in the Financing Agreement) is $3,987,500 and the
aggregate purchase price for the Warrants is $12,500. Neither Avatech nor the
Holder hereof shall voluntarily take any action inconsistent with the agreement
set forth in this Section 7.7.
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IN WITNESS WHEREOF, Avatech has caused this Warrant to be executed in its
corporate name by one of its officers thereunto duly authorized, and its
corporate seal to be hereunto affixed, attested by its Secretary or an Assistant
Secretary, all as of the day and year first above written.
AVATECH SOLUTIONS, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxx
-------------------------------
Title: Chairman & Chief Executive Officer
-------------------------------------
[Corporate Seal]
ATTEST:
/s/ Xxxx Xxxxx
---------------------------
Name: Xxxx Xxxxx
Title: Assistant Secretary.
