S-1

As filed with the Securities and Exchange Commission on February 10, 2006

Registration No. 333-            

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AVATECH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	7372	52-2023997
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

(410) 581-8080

(Address, Including Zip Code, and Telephone Number, Including Area Code, of

Registrant’s Principal Executive Offices)

Christopher Olander

Executive Vice President and General Counsel

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

(410) 753-1587

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,

of Agent for Service)

COPY TO:

Hillel Tendler

Neuberger, Quinn, Gielen, Rubin & Gibber, P.A.

One South Street, 27^th Floor

Baltimore, Maryland 21202

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered(1)	Proposed Maximum Offering Price per Common Share (2)	Proposed Maximum Aggregate Offering Price (2)	Amount of Registration Fee
Common Stock, $0.01 par value per share	5,143,777	$1.69	$8,692,983	$930.15

(1) Pursuant to Rule 416, there are also being registered for resale such indeterminable additional shares of common stock as may be issued as a result of (i) anti-dilution provisions of the Registrant’s Series D Convertible Preferred Stock and Series E Convertible Preferred Stock, and (ii) conversion of shares of the Registrant’s Series D Convertible Preferred Stock and Series E Convertible Preferred Stock.

(2) Based on the average of the bid and asked prices of $1.69 per share of registrant’s common stock reported on the OTC Bulletin Board on February 6, 2006, within five days of the filing of this registration statement, in accordance with Rule 457(c).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where such offer is not authorized.

PROSPECTUS

AVATECH SOLUTIONS, INC.

5,143,777 SHARES OF COMMON STOCK

This Prospectus relates to the resale of an aggregate of 5,143,777 shares of the Common Stock of Avatech Solutions, Inc. (“we” or the “Company”), of which (i) 2,597,236 shares are issuable upon conversion of 1,297,537 outstanding shares of our Series D Convertible Preferred Stock, (ii) 1,832,306 shares are issuable upon conversion of 1,191 outstanding shares of our Series E Convertible Preferred Stock, (iii) 557,191 shares are issuable upon exercise of certain warrants to purchase shares of our Common Stock, including warrants to purchase 366,475 shares of common stock issued to holders of our Series E Convertible Preferred Stock, and (iv) 157,044 shares owned by other shareholders having registration rights with respect to resales of shares owned by them.

The selling stockholders identified beginning on page 7 are offering the shares of our Common Stock covered in this Prospectus. The shares of our Common Stock that may be resold by the selling stockholders constitute 31% of our issued and outstanding Common Stock on December 22, 2005 after giving effect to the conversion of all of the outstanding shares of Preferred Stock and the exercise of warrants described in this Prospectus.

The selling stockholders may sell shares of our Common Stock from time to time in the principal market on which the stock is traded at the prevailing market price, in negotiated transactions, or otherwise. The selling stockholders may be deemed to be underwriters of the shares of our Common Stock that they are offering. Please see the “Selling Stockholders” section beginning on page 7 in this Prospectus for a complete description of all of the selling stockholders.

The selling stockholders will receive all of the amounts received upon any sale by them of shares of our Common Stock, less any brokerage commissions or other expenses incurred by them. The selling stockholders will receive all sale proceeds and we will not receive any proceeds from the sale of shares of our Common Stock by the selling stockholders.

You should read this Prospectus and any supplement carefully before you invest.

Our Common Stock is traded on the Over-the-Counter Bulletin Board (OTC Bulletin Board) under the symbol “AVSO.OB”. The last sale price on February 6, 2006 was $1.70 per share.

Investing in our securities involves risks. See “ Risk Factors” beginning on page 3 to read about factors you should consider before buying shares of our Common Stock.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Date of this Prospectus is March         , 2006

TABLE OF CONTENTS [PAGE NUMBERS TO CHANGE]

Where You Can Find More Information	1
Incorporation Of Documents By Reference	1
Prospectus Summary	2
Risk Factors	3
Selling Stockholders	7
Business	11
Plan Of Distribution	11
Description Of Securities	12
Disclosure Of Commission Position On Indemnification For Securities Act Liabilities	16
Legal Matters	17
Experts	17

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WHERE YOU CAN FIND MORE INFORMATION

We file annual reports, quarterly reports, periodic reports and proxy statements with the U.S. Securities and Exchange Commission. You may read and copy any document that we file at the SEC’s public reference facilities at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for more information about its public reference facilities. Our SEC filings are also available to you free of charge at the SEC’s web site at http://www.sec.gov. Information about us may be obtained from our website www.avatechsolutions.com. Copies of our SEC filings are available free of charge on the website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investors” menu item, then click on the “SEC Filings” link.

This Prospectus is a part of the registration statement that we filed on Form S-1 with the SEC. The registration statement contains more information about us and our Common Stock than this Prospectus, including exhibits and schedules. You should refer to the registration statement for additional information about us and our Common Stock being offered in this Prospectus. Statements that we make in this Prospectus relating to any documents filed as an exhibit to the registration statement or any document incorporated by reference into the registration statement may not be complete and you should review the referenced document itself for a complete understanding of its terms.

INCORPORATION OF DOCUMENTS BY REFERENCE

The SEC allows us to incorporate by reference the information we file with them. This means that we can disclose information to you by referring you to those documents. The documents that have been incorporated by reference are an important part of the Prospectus, and you should review that information in order to understand the nature of any investment by you in our Common Stock. Information contained in this Prospectus automatically updates and supersedes previously filed information. We are incorporating by reference the documents listed below:

• Our Annual Report on Form 10-K for the fiscal year ended June 30, 2005; and

• Our Proxy Statement for our Annual Meeting of Stockholders held on November 10, 2005; and

• All of our filings pursuant to Sections 13(a) or 15(d) under the Securities Exchange Act of 1934, as amended, since the date of the filing of our Annual Report on Form 10-K for the fiscal year ended June 30, 2005.

We will provide to each person, including any beneficial owner, to whom this prospectus is delivered, a copy of any or all of the reports or documents that have been incorporated by reference into this prospectus. If you would like a copy of any of these documents, at no cost, please write or call us at:

Avatech Solutions, Inc.

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

Attn: Christopher Olander, Corporate Secretary

(410) 753-1587

You should only rely upon the information included in or incorporated by reference into this Prospectus or in any Prospectus supplement that is delivered to you. We have not authorized anyone to provide you with additional or different information. You should not assume that the information included in or incorporated by reference into this Prospectus or any Prospectus supplement is accurate as of any date later than the date on the front of the Prospectus or Prospectus supplement.

We have not authorized any person to provide you with information different from that contained or incorporated by reference in this Prospectus. The selling shareholders are offering to sell, and seeking offers to buy, shares of our Common Stock only in jurisdictions where offers and sales are permitted. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or of any sale of our Common Stock.

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PROSPECTUS SUMMARY

This summary highlights selected information from this Prospectus and may not contain all of the information that is important to you. To understand the terms of the securities we are offering, you should carefully read this document with any attached Prospectus supplement. You should also read the documents to which we have referred you in “Where You Can Find More Information” on page 1 for additional information about us and our financial statements.

Our Business

A copy of our Annual Report on Form 10-K for the fiscal year ended June 30, 2005 accompanies this Prospectus and contains information about us, including audited financial statements for our fiscal year ended June 30, 2005. Please refer to the Annual Report for additional information.

Risk Factors

Purchasers of our Common Stock should consider carefully, in addition to the other information contain in or incorporated by reference into this Prospectus or any supplement, the risk factors set forth in the Risk Factors section beginning on page 3.

Use of Proceeds

We will not receive any proceeds from the sale of our Common Stock under this Prospectus by the selling stockholders identified under “Selling Stockholders.”

Plan of Distribution

The selling stockholders will sell shares covered by this Prospectus in open-market transactions effectuated on the OTC Bulletin Board or in privately negotiated transactions.

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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, BEFORE DETERMINING WHETHER OR NOT TO INVEST IN SHARES OF OUR COMMON STOCK.

RISK FACTORS RELATING TO OUR BUSINESS GENERALLY

We have a history of significant losses and may never achieve profitability.

In the last five fiscal years of operation, we have reported a net profit only in the fiscal years ended June 30, 2001 and 2005. Although we were profitable for the fiscal year ended June 30, 2005, and believe we will continue to be profitable on a quarterly and annual basis, we may not be able to sustain or increase profitability on a quarterly or an annual basis in the future.

We have a limited operating history, which makes it difficult to evaluate our business and prospects.

We began operations in 1997, with the merger of four founding companies. Since that time, we have acquired 11 additional companies. Management believes it has successfully integrated these businesses and their disparate operations, employees and management structures and personnel. The limited history and continuing evolution of our operations makes it difficult to evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses, and difficulties frequently encountered by companies in their early stages of development. If we fail to address these risks and uncertainties, we may be unable to grow our business, increase our revenue, or continue to be profitable.

Our reliance on the sale of a single software vendor’s products could decrease our revenues and our profitability.

We derive over 90% of our net revenues from the sale and integration of Autodesk products and from providing upgrades and related services for those products. As such, if sales of Autodesk products and upgrades decrease, our revenues will decrease, which will adversely affect our profitability.

If our relationship with Autodesk is not renewed each year, our revenues would significantly decrease and such decrease would jeopardize our viability.

Our continued growth and future success are largely dependent upon maintaining our relationship with Autodesk. While our current relationship with Autodesk is good, there can be no assurance that this relationship will continue. Under the terms of the Autodesk Channel Partner Agreement, this relationship must be renewed each year. Because over 90% of our revenues are attributable to the resale of Autodesk products and related services, Autodesk’s failure to renew its relationship with us would significantly decrease our sales, revenues and overall financial condition, and would jeopardize our viability.

Our products may contain undetected errors that could harm our sales and revenue and result in increased operating expenses and liabilities.

Our business depends on complex computer software, both internally developed and licensed from third parties. Complex software often contains defects, particularly when first introduced or when new versions are released. Although we conduct extensive testing, we may not discover software defects that affect new or current products and services or enhancements until after they are deployed. In the past, we have discovered software errors in some new products and enhancements after their introduction, and we may find errors in current or future new products or releases after commencement of commercial use. If we market products and services that contain errors or that do not function properly, we may experience negative publicity, loss of or delay in market acceptance, or claims against us by customers, any of which could harm our current and future sales or result in expenses and liabilities that could reduce our operating results and adversely affect our financial condition and the market for our common stock.

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We may inadvertently infringe on third party proprietary rights, which could result in costly litigation, reduced sales and revenue and a decline in the price of our stock.

We may be subject to claims alleging that we have infringed third party proprietary rights. Litigating such claims, whether meritorious or not, is costly. The expenditure of such costs, and the accompanying diversion of management time to such litigation, may cause a decrease in attention to sales and product development and a corresponding decrease in revenue. These claims might require us to enter into royalty or license agreements with terms unfavorable to us. If we were found to have infringed upon the proprietary rights of third parties, we could be required to pay damages, cease sales of the infringing products, or redesign or discontinue such products, any of which could materially reduce our sales and revenue and cause a decline in the market price for our common stock.

If we are unable to raise additional capital on favorable terms, our ability to fund growth and otherwise operate our business will be significantly limited.

We may need to raise additional capital to develop and enhance our services and products, fund expansion, respond to competitive pressures, or acquire complementary businesses or technologies. We may not be able to raise additional financing on favorable terms, if at all. Our agreements with our lenders restrict the types of capital we can raise without the consent of our lenders. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and the securities issued may have rights, preferences, or privileges senior to those of our common stock. If we cannot raise adequate funds on acceptable terms, our ability to fund growth, take advantage of business opportunities, develop or enhance services or products, or otherwise respond to competitive pressures will be significantly limited. Insufficient funds may require us to scale-back or eliminate some or all of our plans for growth.

The terms of our indebtedness imposes significant restrictions on our ability to raise capital.

Without the consent of our senior lender, our existing outstanding indebtedness restricts our ability to, among other things:

• incur additional debt;

• repay other debt;

• pay dividends;

• make certain investments, mergers or acquisitions;

Failure to meet any of these covenants could result in an event of default under our outstanding loan arrangements. If an event of default occurs, our lenders may take one or more of the following actions:

• increase our borrowing costs;

• restrict our ability to obtain additional borrowings;

• accelerate all amounts outstanding; or

• enforce their interests against collateral pledged.

If any lender accelerates our debt payments, our assets may not be sufficient to fully repay the debt.

In addition, we cannot declare dividends or incur additional debt without the written approval from our lenders, which could significantly restrict our ability to raise additional capital. Our ability to receive the necessary approvals is largely dependent upon our relationship with our lenders and our performance, and no assurances can be given that we will be able to obtain the necessary approvals in the future. Our inability to raise additional capital could lead to working capital deficits that could have a materially adverse effect on our operations in future periods.

We may not be able to successfully expand through strategic acquisitions, which could decrease our profitability.

A key element of our strategy is to pursue strategic acquisitions that either expand or complement our business, in order to increase revenues and earnings. We may not be able to identify additional attractive acquisition candidates on terms favorable to us or in a timely manner. We may require additional debt or equity financing for future acquisitions, which may not be available on terms favorable to us, if at all. Moreover, we may not be able to successfully integrate any acquired businesses into our business or to operate any acquired businesses profitably. Each of these factors may contribute to our inability to successfully expand through strategic acquisitions, which could ultimately result in increased costs without a corresponding increase in revenues, which would result in decreased profitability.

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Our inability to efficiently complete or integrate future strategic acquisitions may divert management resources away from business operations and cause greater expenses and decreased revenues and sales.

We may find it necessary or desirable to acquire additional complementary businesses, products or technologies. Integrating product acquisitions and completing any future acquisitions could cause significant diversions of management time and resources. Managing acquired businesses entails numerous operational and financial risks. These risks include difficulty in assimilating acquired operations, diversion of management’s attention, and the potential loss of key employees or customers of acquired operations. We may not be able to effectively integrate any such acquisitions, and our failure to do so could result in significant expenses and lost revenue.

Any acquisition we make could disrupt our business and harm our financial condition and operations.

In an effort to effectively compete in the design automation solutions and facilities management markets where increasing competition and industry consolidation prevail, we may acquire complementary businesses in the future. In the event of any future acquisitions, we could:

• issue additional stock that would dilute our current shareholders’ percentage ownership;

• incur debt and assume liabilities;

• incur amortization expenses related to intangible assets; or

• incur large and immediate write-offs of intangible assets, accounts receivable or other assets.

These events could result in significant expenses and decreased revenue, or could substantially affect the market price of our common stock.

RISK FACTORS RELATING TO OUR STOCK AND CAPITAL STRUCTURE

The high volatility of our stock price could materially and adversely affect the price of our stock.

The market price of our common stock has been highly volatile and is likely to continue to be volatile. Factors affecting our stock price may include:

• fluctuations in sales or operating results;

• announcements of technological innovations or new software standards by us or our competitors;

• published reports of securities analysts;

• developments in patent or other proprietary rights;

• changes in our relationships with development partners and other strategic alliance partners; and

• general market conditions, especially regarding the general performance of comparable technology stocks.

Many of these factors are beyond our control. These factors may materially adversely affect the market price of our common stock, regardless of our operating performance.

The conversion of our Series D Convertible Preferred Stock, the conversion of our Series E Convertible Preferred Stock, and the exercise of a substantial number of warrants would increase the amount of our common stock in the trading market, which could substantially affect the market price of our common stock.

Between November 19, 2003 and December 31, 2003, we sold units consisting of one share of Series D Convertible Preferred Stock, then convertible into two shares of common stock (an aggregate of 2,597,236 shares), and a warrant to purchase a single share of common stock for $0.45. The warrants expired in December, 2004. On July 29, 2005, we sold units consisting of one share of Series E Convertible Preferred Stock, which in the aggregate are convertible into 1,832,306 shares of common stock, and warrants to purchase an aggregate of 366,475 shares of common stock, in each case for $.65 per share. In the event of the exercise of a substantial number of warrants accompanying the Series E Convertible Preferred Stock, or the conversion of a substantial number of shares of Series D or Series E Convertible Preferred Stock, the resulting increase in the amount of our common stock in the trading market could substantially affect the market price of our common stock.

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The exercise of outstanding options will dilute the percentage ownership of our stockholders, and any sales in the public market of shares of our common stock underlying such options may adversely affect prevailing market prices for our common stock.

As of the date of this Prospectus, there are outstanding options to purchase an aggregate of 2,063,136 shares of our common stock at per share exercise prices ranging from $.17 to $3.81. The exercise of such outstanding options would dilute the percentage ownership of our existing stockholders, and any sales in the public market of shares of our common stock underlying such options may adversely affect prevailing market prices for our common stock.

The Selling Stockholders may choose to sell shares at prices below the current trading price.

The Selling Stockholders are not restricted as to the prices at which they may sell their shares of our common stock. Sales of shares of our common stock below the then-current trading prices may adversely affect the market price of our common stock.

RISK FACTORS RELATING TO OUR ARTICLES OF INCORPORATION

Our certificate of incorporation and bylaws could delay or prevent the acquisition or sale of our company and prevent our shareholders from receiving any potential benefit from an offer to acquire us.

Our charter and bylaws, resulting from our merger with PlanetCAD, as well as the General Corporation Law of the State of Delaware, may deter, discourage, or make more difficult a change in control, even if such a change in control would benefit our shareholders. As a result, shareholders may be unable to receive any economic or other benefit contained in any proposal. In particular, the board of directors may issue preferred stock having such designations, rights, and preferences as they determine; only shareholders owning not less than two-thirds of the outstanding shares may call special meetings of shareholders; advance notice is required for presentation of new business and nominations of directors at meetings of shareholders; and our bylaws may be amended only by the board of directors or by the holders of two-thirds of the outstanding voting stock.

The liability of our directors is limited.

Our Articles of Incorporation limit the liability of directors to the maximum extent permitted by Delaware law.

It is unlikely that we will issue dividends on our common stock in the foreseeable future.

We have never declared or paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. The payment of dividends in the future will be at the discretion of our board of directors.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

We have made forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) in this document and in documents that are incorporated by reference in this document that are subject to risks and uncertainties. We caution you to be aware of the speculative nature of forward-looking statements. Forward-looking statements include the information concerning possible or assumed future results of our operations. Also, statements including words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are forward-looking statements. These statements reflect our good faith belief based on current expectations, estimates and projections about (among other things) the industry and the markets in which we operate, but they are not guarantees of future performance. Purchasers of shares offered hereby should note that many factors, some of which are discussed elsewhere in this document and in the documents incorporated by reference in this document, could affect our future financial results and could cause actual results to differ materially from those expressed in forward-looking statements contained or incorporated by reference in this document. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements in this Prospectus include, among others, the factors set forth under the caption “Risk Factors,” general economic, business and market conditions, changes in laws, and increased competitive pressure. We can give no assurances that the actual results we anticipate will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. Except as required by

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applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise.

SELLING STOCKHOLDERS

This Prospectus relates to the resale of an aggregate of 5,143,777 shares of the Common Stock of Avatech Solutions, Inc. (“we” or the “Company”), of which (i) 2,597,236 shares are issuable upon conversion of 1,297,537 outstanding shares of our Series D Convertible Preferred Stock, (ii) 1,832,306 shares are issuable upon conversion of 1,191 outstanding shares of our Series E Convertible Preferred Stock, (iii) 557,191 shares are issuable upon exercise of certain warrants to purchase shares of our Common Stock, including warrants issued to holders of our Series E Convertible Preferred Stock to purchase 366,475 shares of our Common Stock, and (iv) 157,044 shares held by certain other stockholders to which we granted registration rights. In accordance with our contractual obligations to most of these stockholders, we filed a Registration Statement on Form S-1, of which this Prospectus constitutes a part, in order to permit the Selling Stockholders to resell to the public the shares of our Common Stock issued to them.

The following table, to our knowledge, sets forth information as of December 22, 2005 regarding the beneficial ownership of shares of our Common Stock held by each Selling Stockholder or which may be acquired by conversion of outstanding shares of our Series D and Series E Convertible Preferred Stock, and by exercise of certain outstanding warrants to purchase our common stock, and the number of shares being offered hereby by each Selling Stockholder. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to shares, as well as any shares as to which the selling stockholder has the right to acquire beneficial ownership within sixty (60) days after December 22, 2005. Unless otherwise indicated below, each selling stockholder has sole voting and investment power with respect to its shares of common stock. The inclusion of any shares in this table does not constitute an admission of beneficial ownership by the Selling Stockholder. We will not receive any of the proceeds from the sale of our common stock by the Selling Stockholders. None of these Selling Stockholders are, or are affiliates of, a broker-dealer registered under the Securities Exchange Act of 1934.

	Shares Beneficially Owned Prior to Offering				Shares Beneficially Owned Following Offering
Name	Shares	%		Shares Offered	Shares	%
Vincent and Norma Arioso1	289,582	1.8	%	165,697	123,885	*
Vincent Arioso, II2	214,582	1.3	%	165,697	48,885	*
Evelyn Bukowitz 3	33,359	*		33,359	0	*
Paul Feinberg & Cynthia Hindman4	312,594	1.9	%	83,397	229,197	1.4	%
Henry Felton5	992,479	6.0	%	255,280	737,199	4.5	%

¹ Vincent and Norma Arioso are offering 112,760 shares of common stock that they may acquire as a result of the conversion of shares of Series D Convertible Preferred Stock, 38,462 shares they may acquire upon conversion of shares of Series D Convertible Preferred Stock, and 7,693 shares they may acquire upon exercise of stock purchase warrants issued to them at the time they purchased our Series E Convertible Preferred Stock.

² Mr. Vincent Arioso II is offering 73,389 shares of common stock he may acquire upon conversion of shares of our Series D Convertible Preferred Stock, 76,923 shares he may acquire upon conversion of shares of our Series E Convertible Preferred Stock, and 15,385 shares he may acquire upon exercise of stock purchase warrants issued to him when he purchased shares of our Series E Convertible Preferred Stock.

³ Ms. Bukowitz is offering 33,359 shares of common stock she may acquire upon conversion of shares of our Series D Convertible Preferred Stock. Ms. Bukowitz is Aaron Bukowitz’ and Wendi Bukowitz’ mother.

⁴ Dr. Feinberg and Cynthia Hindman are offering 83,397 shares they may acquire upon conversion of shares of our Series D Convertible Preferred Stock. Ms. Hindman is the adult child of W. James Hindman, Chairman of our Board of Directors, and is a co-trustee of the Hindman Family Dynasty Trust.

⁵ Mr., Felton is offering 162,972 shares of common stock he may acquire upon conversion of shares of our Series D Convertible Preferred Stock, 76,923 shares he may acquire upon conversion of shares of our Series E Convertible

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Richard and Marlyce Larson6	83,397	*		83,397	0	0	%
Gary and Sarah Loney7	83,397	*		83,397	0	0	%
Mrs. Donna. Oldorf	84,570	*		84,570	0	0	%
Trustee, Dennis L. Oldorf Trust
Richard and Geraldine Singleton8	83,397	*		83,397	0	0	%
Robert Stafford9	345,841	2.1	%	169,141	176,700	1.0	%
Stafford Family Trust
Garnett Y. Clark, Jr.10	211,708	1.3	%	175,708	36,000	*
Albert J. Daniels11	50,041	*		50,041	0	0	%
Capstone Ventures SBIC, L.P.12	1,348,408	8.2	%	1,139,299	209,109	1.3	%
W.J. Hindman13	592,093	3.6	%	592,093	0	0	%

Preferred Stock, and 15,385 shares he may acquire upon exercise of stock purchase warrants issued to him when he purchase shares of our Series E Convertible Preferred Stock.

⁶ Mr. and Mrs. Larson are offering 83,397 shares they may acquire upon conversion of shares of our Series D Convertible Preferred Stock

⁷ Mr and Mrs. Loney are offering 83,397 shares they may acquire upon conversion of shares of our Series D Convertible Preferred Stock.

⁸ Mr. and Mrs. Singleton are offering 83,397 shares they may acquire upon conversion of shares of our Series D Convertible Preferred Stock.

⁹ The Stafford Family Trust is offering 169,141 shares it may acquire upon conversion of shares of our Series D Convertible Preferred Stock. Mr. Stafford has sole voting and dispositive power over the shares held by the Stafford Family Trust.

¹⁰ Mr. Clark is offering an aggregate of 83,400 shares of common stock he may acquire upon conversion of shares of our Series D Convertible Preferred Stock; 50,041 of which shares are issuable upon conversion of our Series D Convertible Preferred Stock held by the Garnett Y. Clark, Jr. Super Simplified 401(k) Plan; 33, 359 of which shares of common stock are issuable upon conversion of shares of our Series D Convertible Preferred Stock held by the Garnett Y. Clark, Jr. SEP IRA; 38,462 shares issuable upon conversion of shares of our Series E Convertible Preferred Stock held by the Garnett Y. Clark, Jr. SEP IRA; 7,693 shares issuable upon exercise of stock purchase warrants issued to the Garnett Y. Clark, Jr. SEP IRA in connection with its purchase of shares of our Series E Convertible Preferred Stock; 38,462 shares Mr. Clark may acquire upon conversion of shares of our Series E Convertible Preferred Stock; and 7,693 shares Mr. Clark may acquire upon exercise of stock purchase warrants issued to him in connection with his purchase of shares of our Series E Convertible Preferred Stock. Mr. Clark’s beneficial ownership includes 6,000 shares of our Common Stock and options exercisable within 60 days of February 10, 2006 to purchase 30,000 shares of our Common Stock.

¹¹ Mr. Daniels is offering 50,041 shares of common stock he may acquire upon conversion of shares of our Series D Convertible Preferred Stock.

¹² Capstone is offering 91,491 shares of common stock it acquired as a result of the conversion of shares of our Series B Convertible Preferred Stock; 1,000,837 shares of common stock it may acquire upon conversion of shares of our Series D Convertible Preferred Stock; 115,385 shares of common stock it may acquire upon conversion of shares of our Series E Convertible Preferred Stock; and 23,077 shares of common stock it may acquire upon exercise of stock purchase warrants issued to it in connection with its purchase of shares of our Series E Convertible Preferred Stock. Capstone’s beneficial ownership also includes 20,250 shares of common stock subject to options that are exercisable within 60 days of December 20, 2005, and 45,652 shares of common stock issuable upon exercise of warrants held by Capstone. Mr. Eugene Fischer is the President of the General Partner of Capstone, a member of our Board of Directors, the Chairman of our Board’s Compensation Committee, and shares voting and dispositive power with respect to the shares held by Capstone with Barbra L. Santry. Mr. Fischer is the beneficial owner of 30,000 shares of common stock subject to options that are exercisable within 60 days of February 10, 2006.

¹³ Mr. Hindman is offering 265,716 shares of common stock he may acquire upon conversion of shares of our Series D Convertible Preferred Stock and 265,716 shares he may acquire upon exercise of certain stock purchase warrants. Mr. Hindman serves as Chairman of our Board of Directors. His beneficial ownership also includes 30,000 shares of common stock subject to stock options that are exercisable within 60 days of December 20, 2005, and 181,350 shares of common stock held by a trust over which Mr. Hindman holds a power of substitution. Mr. Hindman disclaims beneficial ownership of 458,801 shares held by the Hindman Family Dynasty Trust, over which Mr. Hindman exercises no power of substitution and of which he is not a trustee or beneficiary.

In August, 2002, Mr. Hindman loaned us $500,000. The loan bore simple interest at the rate of 15%, with interest payable quarterly, and a maturity of July 1, 2003. Since then, Mr. Hindman extended the maturity of this loan and

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Lundy Family Partners,	175,709	1.0	%	175,709	0	0	%
LLP14
Eric L. Pratt15	83,401	*		83,401	0	0	%
Robert Schaftel**	46,155	*		46,155	0	0	%
Mary D. Cohen**	18,462	*		18,462	0	0	%
Joseph Lepski**	18,462	*		18,462	0	0	%
Charles S. Fax**	46,155	*		46,155	0	0	%
James R. Moxley, Jr**	46,155	*		46,155	0	0	%
Linda Hankin**	18,462	*		18,462	0	0	%
Edwin Hankin**	18,462	*		18,462	0	0	%
Arthur H. Rosenfeld**	46,155	*		46,155	0	0	%
Joan S. Harris**	18,462	*		18,462	0	0	%
James H. Wooden16	57,155	*		46,155	11,000	*
Robert Del Bagno**	46,155	*		46,155	0	0	%
Sally A. Lawrence**	18,462	*		18,462	0	0	%
Adrian H. Van Hofwegen**	20,308	*		20,308	0	0	%
Mary Ann Holda**	46,155	*		46,155	0	0	%
Wendi R. Bukowitz**	18,462	*		18,462	0	0	%
Beth M. Meaney**	46,155	*		46,155	0	0	%
William Zempolich**	46,155	*		46,155	0	0	%
Eric D. Meany**	18,462	*		18,462	0	0	%
Legg Mason, as Custodian under IRA FBO Alfred A. Lucco**	46,155	*		46,155	0	0	%
Aaron M. Bukowitz & Maxine Bukowitz**	18,462	*		18,462	0	0	%

loaned us an additional $500,000, which aggregate of $1,000,000 in loans bore interest at 12%, with interest to be paid quarterly. Both loans are subordinate to our senior lender and another lender. As additional consideration for the making or extension of these loans, we issued warrants to Mr. Hindman for a five year term, upon the exercise of which Mr. Hindman will receive 97,200 shares of our common stock for $.27 per share. On April 1, 2004, Mr. Hindman agreed to accept a single senior subordinated note in principal amount of $902,168.80, which was equal to the remaining balance of our debt to him on that date, bearing simple interest at 12% payable quarterly, and maturing on July 1, 2005, in exchange for the two previously issued notes. On April 21, 2004, our Board authorized, and a disinterested majority ratified, the issuance to Mr. Hindman of warrants to purchase 51,828 shares of our common stock, with an exercise price of $.45 per share, expiring on March 31, 2009, in consideration for his agreement to extend the maturity of the consolidated loan to July 1, 2005. On July 1, 2005, Mr. Hindman extended the due date on the loan for one year, in consideration for which we issued to him a warrant to purchase 38,878 shares on or before July 1, 2010 at a price of $.60 per share. In addition, on October 28, 2004, Mr. Hindman guaranteed for one year a supplemental line of credit with our senior lender in the amount of $700,000, in consideration for which we paid Mr. Hindman $28,000 and issued to him a warrant to purchase 100,000 shares, with an exercise price of $.35 per share, which expires on December 6, 2007. Mr. Hindman provided another guaranty of this $700,000 line of credit, which currently is for the benefit of a new senior lender under a $5 million accounts receivable credit facility, in consideration for a payment to Mr. Hindman of $28,000 and issuance of another warrant to purchase 100,000 shares of our common stock, at an exercise price of $1.02 per share, which expires on October 21, 2008.

¹⁴ The Lundy Family Partnership LLLP is offering 83,401 shares of common stock it may acquire upon conversion of shares of our Series D Convertible Preferred Stock; 76,923 shares of common stock it may acquire upon conversion of shares of our Series E Convertible Preferred Stock; and 15,385 shares of common stock it may acquire upon exercise of warrants issued to it in connection with its purchase of shares of our Series E Convertible Preferred Stock. Harry L. Lundy, Jr. and Cathryn G. Lundy share voting and dispositive power over the shares held by this partnership.

¹⁵ Mr. Pratt is offering 83,401 shares of common stock he may acquire upon conversion of shares of our Series D Convertible Preferred Stock. Mr. Pratt served as our President and Chief Operating Officer until June 18, 2004. Mr. Pratt’s beneficial ownership includes 120,005 shares of common stock subject to stock options that are exercisable within 60 days of February 10, 2006.

¹⁶ Includes 46,155 shares Mr. Wooden may acquire upon conversion of our Series E Convertible Preferred Stock and the exercise of warrants issued in connection therewith; in addition, Mr. Wooden owns 10,000 shares of our common stock and his wife owns 1,000 shares of our common stock.

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Lawrence Rychlak17	79,488	*		46,155	33,333	*
Edgar D. Aronson18	158,311	*		27,693	130,618	*
Menke Family LLLP**	46,155	*		46,155	0	0	%
Menke Farm Trust**	46,155	*		46,155	0	0	%
W. Scott Harris19	595,844	3.6	%	184,616	411,228	2.5	%
Robert J. Post20	41,923	*		36,923	5,000	*
George W. Cox21	199,812	1.2	%	18,462	181,350	1.0	%
Ira Guttentag**	36,923	*		36,923	0	0	%
Kingdon Gould, Jr**	461,538	2.8	%	461,538	0	0	%
Lundy Family Partners**	92,308	*		92,308	0	0	%
Victor Frenkil Jr.**	92,308	*		92,308	0	0	%
Dassault Systemes Corp.22	124,635	*		52,281	72,354	*
J.F. Shea Co., Inc., as Nominee	60,123	*		60,123	0	0	%
Hindman Family Dynasty Trust23	458,801	2.8	%	257,016	201,785	1.2	%
Gilbert Campbell24	25,000	*		25,000	0	0	%
Jean Schaeffer25	787,419	4.8	%	44,640	742,770	4.5	%
TOTAL				5,143,777

* Less than 1%.

¹⁷ Mr. Rychlak is offering 38,462 shares of common stock he may acquire upon conversion of shares of our Series E Convertible Preferred Stock, and 7,693 shares he may acquire upon exercise of warrants issued to him in connection with his purchase of shares of our Series E Convertible Preferred Stock. Mr. Rychlak serves as our Vice President-Finance and Chief Financial Officer. Mr. Rylak’s beneficial ownership also includes 33,333 shares of common stock subject to options exercisable within 60 days of February 10, 2006.

¹⁸ Mr. Aronson is offering 23,077 shares that may be acquired upon conversion of shares of our Series E Convertible Preferred Stock, and 4,616 shares he may acquire upon exercise of warrants issued to him in connection with his purchase of shares of our Series E Convertible Preferred Stock. The beneficial ownership of Mr. Aronson, who serves as a member of our Board of Directors and is a member of its Compensation, Audit, and Executive Committees, includes 30,000 shares of common stock subject to stock options that are exercisable within 60 days of February 10, 2006.

¹⁹ Mr. Harris is offering 153,846 shares that may be acquired upon conversion of shares of our Series E Convertible Preferred Stock, and 30,770 shares that he may acquire upon exercise of warrants issued to him in connection with his purchase of shares of our Series E Convertible Preferred Stock. Mr. Harris’ beneficial ownership includes 58,333 shares of common stock subject to stock options that are exercisable within 60 days of February 10, 2006. Mr. Harris currently serves as our President and Chief Operating Officer.

²⁰ Mr. Post is offering 30,769 shares that may be acquired upon conversion of shares of our Series E Convertible Preferred Stock, and 6,154 shares that he may acquire upon exercise of warrants issued to him in connection with his purchase of shares of our Series E Convertible Preferred Stock. Mr. Post currently serves as a member of our Board of Directors.

²¹ Mr. Cox, a member of our Board of Directors, Chairman of our Audit Committee, and member of the Compensation Committee of our Board of Directors, is offering 15,385 shares that may be acquired upon conversion of shares of our Series E Convertible Preferred Stock, and 3,077 shares that he may acquire upon exercise of warrants issued to him in connection with his purchase of shares of our Series E Convertible Preferred Stock. Mr. Cox’s beneficial ownership includes 181,350 owned by the W. J. Hindman Revocable Trust, for which he serves as trustee with sole share voting and dispositive power. Mr. W. James Hindman, our Chairman, is a grantor under the Trust.

²² We were indebted to Dassault Systemes Corp. under a loan agreement dated July 1, 2005, as amended, which loan was paid and discharged in January, 2006.

²³ The trustees of the trust, Cynthia Hindman and Peter Baldine, possess sole voting and dispositive power over these shares. Ms. Hindman is the adult daughter of W. James Hindman, who disclaims beneficial ownership of these shares.

²⁴ Mr. Campbell is offering shares that he may acquire upon exercise of warrants issued to Mr. Campbell.

²⁵ Ms. Schaeffer, our Director of Marketing, is the wife of Brice Schaeffer, and the number of shares indicated as beneficially owned by her before and after the offering includes 371,376 shares owned by Mr. Schaeffer.

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** These selling shareholders purchased shares of our Series E Convertible Preferred Stock on July 29, 2005, and shares that may be issued upon conversion of the Series E Convertible Preferred Stock, as well as shares that may be issued upon exercise of stock purchase warrants issued to holders of the Series E Convertible Preferred Stock, are included in the foregoing table. Approximately 83.3% of the number of shares shown as being offered hereby represents shares to be issued upon conversion, and approximately 16.7% represents shares issuable upon exercise of the stock purchase warrants.

BUSINESS

Our Annual Report on Form 10-K for the fiscal year ended June 30, 2005, and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005, incorporated by reference into this Prospectus, contain information about us, including audited financial statements for our fiscal year ended June 30, 2005 and unaudited financial statements for our fiscal year ended September 30, 2005. Please refer to these reports for additional information.

PLAN OF DISTRIBUTION

The Selling Stockholders and their successors by the laws of descent and distribution may, from time to time, sell any or all of the shares covered by this prospectus. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner, and size of each sale.

The Selling Stockholders may sell shares of common stock directly to purchasers from time to time. Alternatively, they may from time to time offer the common stock to or through broker–dealers or agents, who may receive compensation in the form of concessions or commissions from the Selling Stockholders or the purchasers of such common stock for whom they may act as agents.

Such sales may be made on any stock exchange, quotation system, market, or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• an exchange distribution in accordance with the rules of the applicable exchange;

• settlement of short sales entered into after the date of this prospectus;

• broker-dealers may agree with a Selling Stockholder to sell a specified number of such shares at a stipulated price per share;

• through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

• a combination of any such methods of sale; or

• any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by any Selling Stockholder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from a Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts relating to his sales of shares of our common stock to exceed what is customary in the types of transactions involved.

In connection with the sale of our common stock or interests therein, a Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. A Selling Stockholder may also sell shares of

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our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities.

Upon us being notified in writing by a Selling Stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which the shares of Common Stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon us being notified in writing by the personal representative of a Selling Stockholder that distributions from the Selling Stockholder’s estate have been made and a beneficiary intends to sell more than 500 shares covered by this prospectus, a supplement to this prospectus will be filed if then required in accordance with applicable securities laws.

A Selling Stockholder and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of the shares will be paid by the Selling Stockholder and/or the purchasers. The Selling Stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock. There is no underwriter or coordinating broker acting in connection with the proposed sale of our common stock by the Selling Stockholders. Because the Selling Stockholders may be deemed to be an “underwriter” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. We have informed the Selling Stockholders of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares.

We have agreed to keep this prospectus effective until all shares offered hereby have been sold.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, a Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the Selling Stockholder or any other person.

DESCRIPTION OF SECURITIES

As of the date of Prospectus, we have the authority to issue an aggregate of 100,000,000 shares of capital stock, consisting of 80,000,000 shares of our Common Stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share, issuable from time to time by our board of directors in one or more classes or series. As of December 22, 2005, there were 11,354,330 shares of our Common Stock outstanding, 1,297,537 shares of our Series D Convertible Preferred Stock outstanding, and 1,191 shares of our Series E Convertible Preferred Stock outstanding.

Common Stock

Shares of our Common Stock are currently quoted on the OTC Bulletin Board under the symbol “AVSO.OB”. Holders of our Common Stock are entitled to one vote for each share held of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted can elect all of the directors then being elected. The holders of our Common Stock are entitled to receive dividends when, as and if declared by the Board of directors out of funds legally available. In the event of our liquidation, dissolution, or winding up, holders of our Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over our Common Stock. Holders of

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shares of our Common Stock, as such, have no redemption, preemptive or other subscription rights, and there are no conversion provisions applicable to our Common Stock. All of the outstanding shares of our Common Stock are fully paid and nonassessable.

Preferred Stock

Our Board of Directors is authorized, without further action by the shareholders, to issue series of preferred stock from time to time, and to designate the rights, preferences, limitations and restrictions of and upon shares of each series including dividend, voting, redemption and conversion rights. The Board of Directors also may designate par value, preferences in liquidation, and the number of shares constituting any series. We believe that the availability of preferred stock issuable in series will provide increased flexibility for structuring possible future financings and acquisitions, if any, and in meeting other corporate needs. The rights and privileges of holders of preferred stock could adversely affect the voting power of holders of common stock, and the authority of our Board of Directors to issue preferred stock without further shareholder approval could have the effect of delaying, deferring, or preventing a change in control of the Company Our board of directors currently has one class of preferred stock designated under our Charter; the Series D Convertible Preferred Stock. In addition, the board of directors has the authority to designate additional classes or series of preferred stock in the future with rights that may adversely affect the rights of the holders of our common stock or its market price.

The following is a summary of the material terms of the Series D Convertible Preferred Stock

Par Value. The par value of Series D Convertible Preferred Stock is $0.01 per share.

Number of Shares. We designated 1,297,537 shares of our preferred stock, par value $0.01 as Series D Convertible Preferred Stock, of which 1,297,537 shares of Series D Convertible Preferred Stock are issued and outstanding.

Voting Rights. Each holder of our Series D Convertible Preferred Stock is entitled to attend all special and annual meetings of our shareholders and to vote on all actions to be taken by our shareholders, including, without limitation, the election of directors, and any other matter properly brought for consideration before the shareholders. The holders of Series D Convertible Preferred Stock shall vote together with all other classes and series of our stock, and are entitled to one vote per share of common stock into which the preferred stock is then convertible.

Dividends. The Series D Convertible Preferred Stock is eligible for 10% annual, cumulative dividends, payable quarterly when and as declared by our Board of Directors. These dividends have priority over any declaration or payment of any dividend or other distribution on our Common Stock or any other class or series of stock that is junior to the Series D Convertible Preferred Stock. Dividends on our Series D Convertible Preferred Stock rank pari passu with any other shares of Preferred Stock entitled to participate pari passu with the Series D Convertible Preferred Stock with respect to dividends and are subject to the rights of any series of Preferred Stock that ranks, with respect to dividends, senior to the Series D Convertible Preferred Stock. Currently, there are no outstanding shares of stock that rank senior to or pari passu with the Series D Convertible Preferred Stock.

Liquidation Rights. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, after payment or provision for payment of the debts and other liabilities and obligations of the Corporation, the holders of Series D Convertible Preferred Stock shall be entitled to receive from the distribution of any of our assets remaining after we have paid all of our debts and liabilities and after we have paid, or set aside for payment, to the holders of any future class or series of stock with a liquidation preference over the Series D Convertible Preferred Stock, an amount equal to the purchase price for and any accrued and unpaid dividends on such stock, an amount equal to the original issue price of Series D Convertible Preferred Stock ($0.60 per share) plus an amount equal to all accumulated but unpaid dividends on the Series D Convertible Preferred Stock, pari passu with any other shares of Preferred Stock under the terms of which holders thereof shall be entitled to participate pari passu with the Series D Convertible Preferred Stock.

Conversion Rights. Holders of our Series D Convertible Preferred Stock may convert all, but not less than all, of their shares of Series D Convertible Preferred Stock into shares of our common stock at any time beginning 120 days after the original issuance date of their shares of Series D Convertible Preferred Stock. The first purchasers will be eligible to convert their shares of Series D Convertible Preferred Stock on March 18, 2004 and all of the issued and outstanding shares of Series D Convertible Preferred Stock will become freely convertible by their holders on April 29, 2004. Holders of shares of Series D Convertible Preferred Stock must convert all of their shares

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of Series D Convertible Preferred Stock if our common stock trades on the NASDAQ National Market System at or in excess of $2.25 per share for 60 consecutive trading days. Our common stock is not currently eligible for trading on the NASDAQ National Market System. We must redeem all of the outstanding shares of Series D Convertible Preferred Stock for its initial purchase price plus any accrued but unpaid dividends if we merge with another corporation.

Each share of Series D Convertible Preferred Stock is convertible into the greatest whole number of shares of common stock obtained by multiplying the number of shares of Series D Convertible Preferred Stock being converted by the original purchase price of each share of Series D Convertible Preferred Stock ($0.60 per share) plus any accrued but unpaid dividends, and divided by the “Conversion Price” in effect at the time of election.

The Conversion Price will be proportionally increased or decreased if we effect a stock dividend, distribution or split. In addition, if we issue common stock or rights to purchase our common stock for consideration of less than the then-existing Conversion Price (a “Diluting Issue”), we must adjust the Conversion Price. However, we do not need to adjust the Conversion Price if we issue common stock in any of the following circumstances:

• in a registered public offering;

• in connection with a bank financing;

• pursuant to an equity compensation plan approved by the Board of Directors; or

• in the course of a merger or combination approved by a majority of holders of Series D Convertible Preferred Stock.

If we must adjust the Conversion Price for a Diluting Issue, the Conversion Price in effect immediately after the Diluting Issue will be the Conversion Price immediately prior to the Diluting Issue multiplied by a fraction, as follows:

The numerator will be	(1) the number of shares of Common Stock outstanding immediately prior to the Diluting Issue plus (2) the aggregate consideration received by us in the Diluting Issue divided by the Conversion Price in effect immediately prior to the Diluting Issue; and
The denominator will be	the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of common stock issued (or which may be issued pursuant to options, warrants or other rights) in the Diluting Issue.

For the purpose of this calculation, if we issue rights to purchase common stock, such as options or warrants, we must calculate any adjustment as though these rights have been fully exercised and we have received the exercise price of such rights. The number of shares of Common Stock outstanding immediately prior to the Diluting Issue must be calculated as if any convertible securities had been fully converted into shares of common stock and all outstanding options, warrants, and similar rights had been exercised.

Initially, the Conversion Price was $0.30 per share; each share of Series D Convertible Preferred Stock was convertible into two shares of common stock. On January 1, 2004, we issued warrants to purchase a total of 45,000 shares of our common stock at $0.21 per share to the holders of certain notes issued by our wholly-owned subsidiary, Avatech Solutions Subsidiary, Inc. If fully exercised, we would receive approximately $9,450 from the exercise of these warrants and issue 45,000 shares of common stock. These warrants were a Diluting Issue under the terms of the Series D Convertible Preferred Stock, and we adjusted the Conversion Price of the Series D Preferred Stock to approximately $0.2997, as follows:

				$9,450
New Conversion Price	=  $	0.30  x	16,079,744        +	0.30
			16,079,744 + 45,000

As of the date of this Prospectus, the 1,297,537 outstanding shares of Series D Convertible Preferred Stock are currently convertible into 2,597,236 shares of our common stock.

The following is a summary of the material terms of the Series E Convertible Preferred Stock

Par Value. The par value of Series E Convertible Preferred Stock is $0.01 per share.

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Number of Shares. We designated 1,191 shares of our preferred stock, par value $0.01 as Series E Convertible Preferred Stock, of which 1,191 shares of Series E Convertible Preferred Stock are issued and outstanding.

Voting Rights. Each holder of our Series E Convertible Preferred Stock is entitled to attend all special and annual meetings of our shareholders and to vote on all actions to be taken by our shareholders, including, without limitation, the election of directors, and any other matter properly brought for consideration before the shareholders. The holders of Series E Convertible Preferred Stock shall vote together with all other classes and series of our stock, and are entitled to one vote per share of common stock into which the preferred stock is then convertible.

Dividends. The Series E Convertible Preferred Stock is eligible for 10% annual, cumulative dividends, payable quarterly when and as declared by our Board of Directors. These dividends have priority over any declaration or payment of any dividend or other distribution on our Common Stock or any other class or series of stock that is junior to the Series E Convertible Preferred Stock. Dividends on our Series E Convertible Preferred Stock rank pari passu with any other shares of Preferred Stock entitled to participate pari passu with the Series E Convertible Preferred Stock with respect to dividends and are subject to the rights of any series of Preferred Stock that ranks, with respect to dividends, senior to the Series E Convertible Preferred Stock. Currently, there are no outstanding shares of stock that rank senior to or pari passu with the Series E Convertible Preferred Stock.

Liquidation Rights. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, after payment or provision for payment of the debts and other liabilities and obligations of the Corporation, the holders of Series E Convertible Preferred Stock shall be entitled to receive from the distribution of any of our assets remaining after we have paid all of our debts and liabilities and after we have paid, or set aside for payment, to the holders of any future class or series of stock with a liquidation preference over the Series E Convertible Preferred Stock, an amount equal to the purchase price for and any accrued and unpaid dividends on such stock, an amount equal to the original issue price of Series E Convertible Preferred Stock ($1,000 per share) plus an amount equal to all accumulated but unpaid dividends on the Series E Convertible Preferred Stock, pari passu with any other shares of Preferred Stock under the terms of which holders thereof shall be entitled to participate pari passu with the Series E Convertible Preferred Stock.

Conversion Rights. Holders of our Series E Convertible Preferred Stock may convert all, but not less than all, of their shares of Series E Convertible Preferred Stock into shares of our common stock at any time beginning 180 days after the original issuance date of their shares of Series E Convertible Preferred Stock. Holders of shares of Series E Convertible Preferred Stock must convert all of their shares of Series E Convertible Preferred Stock if our common stock trades on the NASDAQ National Market System at or in excess of $2.25 per share for 60 consecutive trading days. Our common stock is not currently eligible for trading on the NASDAQ National Market System. We must redeem all of the outstanding shares of Series E Convertible Preferred Stock for its initial purchase price plus any accrued but unpaid dividends if we merge with another corporation.

Each share of Series E Convertible Preferred Stock is convertible into the greatest whole number of shares of common stock obtained by dividing the face amount of Series E Convertible Preferred Stock being converted, plus any accrued but unpaid dividends, by $0.65 per share.

The Conversion Price will be proportionally increased or decreased if we effect a stock dividend, distribution or split. In addition, if we issue common stock or rights to purchase our common stock for consideration of less than the then-existing Conversion Price (a “Diluting Issue”), we must adjust the Conversion Price. However, we do not need to adjust the Conversion Price if we issue common stock in any of the following circumstances:

• in a registered public offering;

• in connection with a bank financing;

• pursuant to an equity compensation plan approved by the Board of Directors; or

• in the course of a merger or combination approved by a majority of holders of Series E Convertible Preferred Stock.

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If we must adjust the Conversion Price for a Diluting Issue, the Conversion Price in effect immediately after the Diluting Issue will be the Conversion Price immediately prior to the Diluting Issue multiplied by a fraction, as follows:

The numerator will be	(1) the number of shares of Common Stock outstanding immediately prior to the Diluting Issue plus (2) the aggregate consideration received by us in the Diluting Issue divided by the Conversion Price in effect immediately prior to the Diluting Issue; and
The denominator will be	the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of common stock issued (or which may be issued pursuant to options, warrants or other rights) in the Diluting Issue.

For the purpose of this calculation, if we issue rights to purchase common stock, such as options or warrants, we must calculate any adjustment as though these rights have been fully exercised and we have received the exercise price of such rights. The number of shares of Common Stock outstanding immediately prior to the Diluting Issue must be calculated as if any convertible securities had been fully converted into shares of common stock and all outstanding options, warrants, and similar rights had been exercised.

Certain Provisions Relating to a Change of Control

Provisions Related To The Election Of Directors And Stockholder Action. Our certificate of incorporation requires the affirmative vote of two-thirds of the shareholders to remove a director from the board of directors without cause. The certificate of incorporation also provides that our remaining directors may fill any and all board vacancies, unless the remaining directors approve a stockholder vote to fill a vacancy. Our bylaws prohibit less than two-thirds of our shareholders from calling a special meeting, whether for the purpose of replacing directors or for any other purpose. Therefore, a third party interested in taking control of Avatech quickly will not be able to do so unless the third party acquires two-thirds or more of our voting securities at the time of the acquisition. In addition, our certificate of incorporation and bylaws prohibit shareholders from taking action by written consent in lieu of a meeting.

Certain Statutory Provisions. We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, this provision prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

• prior to such date, the corporation’s board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

• upon consummation of the transaction that resulted in such person becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding, shares owned by certain directors or certain employee stock plans; and

• on or after the date the stockholder became an interested stockholder, the business combination is approved by the corporation’s board of directors and authorized by the affirmative vote, and not by written consent, of at least two-thirds of the outstanding voting stock of the corporation excluding that owned by the interested stockholder.

A “business combination” includes a merger, asset sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person, other than the corporation and any direct or indirect wholly-owned subsidiary of the corporation, who together with the affiliates and associates, owns or, as an affiliate or associate, within three years prior, did own 15% or more of the corporation’s outstanding voting stock.

Section 203 expressly exempts from the requirements described above any business combination by a corporation with an interested stockholder who becomes an interested stockholder in a transaction approved by the corporation’s board of directors.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

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LEGAL MATTERS

Certain legal matters will be passed upon for us by Christopher Olander, Esq., our Executive Vice President and General Counsel.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements and schedule included in our Annual Report on Form 10-K for the year ended June 30, 2005, as set forth in their reports, which are incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements and schedule are incorporated by reference in reliance on Ernst & Young LLP’s reports, given on their authority as experts in accounting and auditing.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution

The following table sets forth the fees and expenses, other than any underwriting discounts and commissions incurred by us in connection with the issue and distribution of our Common Stock being registered. Items marked with asterisks (*) are estimated fees as of the date of this filing.

Item	Cost
Accounting Fees	$	5,000	*
Legal Fees	$	2,500	*
Registration Fees	$	1,739
Blue Sky Fees	$	1,500	*

Item 14.  Indemnification of Directors and Officers

The Company’s By-laws provide that the Company shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto.

Section 145 of the General Corporation Law of the State of Delaware permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

Article Seventh of the Company’s Certificate of Incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages resulting from breaches of their fiduciary duty as directors except (a) for any breach of the duty of loyalty to us or our stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of the State of Delaware, which makes directors liable for unlawful dividends or unlawful stock repurchases or redemptions, or (d) for transactions from which directors derive improper personal benefit.

The Company also maintains director and officer insurance coverage.

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Item 15. Recent Sales of Unregistered Securities

In December, 2003, the Company sold 1,297,537 shares of its Series D 10% Convertible Preferred Stock and warrants, which subsequently expired, to purchase shares of the Company’s common stock, in an offering made in reliance upon the exemption from registration provided by Regulation D under the Securities Act of 1933 (the “Act”). In July, 2005, the Company sold 1,191 shares of its Series E 10% Convertible Preferred Stock, and warrants to purchase 366,47 shares of the Company’s common stock, in an offering made in reliance upon the exemption from registration provided by Regulation D under the Act.

On April 1, 2004, in consideration for a loan to the Company in the amount of approximately $1million, the Company issued to W. James Hindman, Chairman of the Company’s Board of Directors, a warrant to purchase 51,828 shares of common stock on or before March 31, 2009, at a price of $.45 per share. On October 28, 2004, in consideration of his guaranty of the Company’s supplemental $700,000 line of credit with its senior lender, the Company issued to Mr. Hindman warrants to purchase 100,000 shares on or before December 6, 2007, at a price of $.35 per share, and on October 21, 2005, in consideration for extending this guaranty until October 21, 2007, the Company issued to Mr. Hindman another warrant to purchase 100,000 shares on or before October 21, 2008, at a price of $1.02 per share. In each of these warrant issuances to Mr. Hindman, the Company relied upon the exemption from registration provided by Section 4(2) of the Act.

3. Item 16.  Exhibits required to be filed by Item 601 of Regulation S-K

Exhibit No.	Description of Exhibit
2.1	Agreement and Plan of Merger a
3.1	Restated Certificate of Incorporation b
3.2	First Amendment to Restated Certificate of Incorporation b
3.3	Reverse Split Amendment to Restated Certificate of Incorporation a
3.4	Amendment of PlanetCAD’s Certificate of Incorporation to change the name of PlanetCAD, Inc. to Avatech Solutions, Inc. a
3.5	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock c
3.6	Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock d
3.7	Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock e
3.8	Certificate of Amendment to Certificate of Designation of Series C Convertible Preferred Stock f
3.9	Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock f
3.10	Certificate of Elimination of Series A Junior Participating Preferred Stock f
3.11	Certificate of Elimination of Series C Convertible Preferred Stock f
3.12	Certificate of Amendment to Certificate of Designation of Series D Convertible Preferred Stock f
3.13	Certificate of Amendment to Amended and Restated Certificate of Incorporation k
3.14	By-Laws b
10.01	Autodesk Authorized Channel Partner Agreement by and among Avatech Solutions, Inc. and Autodesk, Inc. effective as of February 1, 2003 e
10.02	Autodesk Authorized Channel Partner Agreement by and among Avatech Solutions, Inc. and Autodesk, Inc. effective as of February 1, 2004 f
10.03	Loan Agreement by and between Avatech Solutions Subsidiary, Inc. and a Strategic Partner dated July 22, 2003, as amended (portions of this exhibit have been omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment) g

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10.04	Security Agreement by and between Avatech Solutions Subsidiary, Inc. and a Strategic Partner dated July 22, 2003 (portions of this exhibit have been omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment) g
10.05	Demand Promissory Note by and between Avatech Solutions Subsidiary, Inc. and Key Bank and Trust in the amount of $2,000,000 dated September 11, 2003 g
10.06	Loan and Security Agreement by and between Avatech Solutions Subsidiary, Inc. and Key Bank and Trust dated September 11, 2003 g
10.07	Lease by and between Merritt-DM1, LLC and Avatech Solutions, Inc. effective June 1, 2004 k
10.08	Form of Promissory Note, principal amount $500,000.00, issued by Avatech Solutions, Inc. in favor of W. James Hindman dated May 28, 2003 g
10.09	Warrants to purchase up to 32,400 shares of common stock issued by Avatech to W. James Hindman dated May 28, 2003 g
10.10	Affidavit and Discharge of Indebtedness by W. James Hindman g
10.11	Form of 10% Subordinated Note with attached Warrant issued by Avatech Solutions, Inc. to certain note holders in connection with Avatech Solutions Subsidiary, Inc.’s 1998 $2,600,000 Subordinated Debt Offering, dated January 1, 2004 f
10.12	Form of 12 % Subordinated Note issued by Avatech Solutions, Inc. to certain note holders in connection with Avatech Solutions Subsidiary, Inc.’s 1998 $2,600,000 Subordinated Debt Offering dated January 1, 2004 f
10.13	Form of Purchase Agreement for Series D Convertible Preferred Stock f
10.14	2002 Stock Option Plan a
10.15	Restricted Stock Award Plan e
10.16	Avatech Solutions, Inc. Employee Stock Purchase Plan i
10.17	Employment Agreement by and between Eric L. Pratt and Avatech Solutions, Inc. effective April 15, 2003 h
10.18	Employment Agreement by and between Scott N. Fischer and Avatech Solutions, Inc. dated as of March 17, 2003 g
10.19	Separation Agreement between Scott Fischer and Avatech Solutions, Inc. dated as of March 10, 2004 j
10.20	Employment Agreement by and between Donald R. “Scotty” Walsh and Avatech Solutions, Inc. dated July 1, 2003 g
10.21	Employment Agreement by and between Beth O. MacLaughlin and Avatech Solutions Subsidiary, Inc. dated as of August 7, 2003 k
10.22	Employment Agreement by and between W. Scott Harris and Avatech Solutions Subsidiary, Inc. dated as of June 1, 2004 k
10.23	Employment Agreement by and between Christopher D. Olander and Avatech Solutions Subsidiary, Inc. dated June 18, 2004 k
10.24	Form of Promissory Note, principal amount $902,168.80, issued by Avatech Solutions, Inc. in favor of W. James Hindman dated April 1, 2004 j
10.25	Warrants to purchase up to 51,828 shares of common stock issued by Avatech to W. James Hindman dated April 1, 2004 k
10.26	Employment Agreement by and between Eric L. Pratt and Avatech Solutions Subsidiary, Inc. dated June 1, 2004. k
10.27	Asset Purchase Agreement by and among Avatech Solutions, Inc., Comtrex Corp., Richard L. Aquino, and Stanton L. Hilburn dated April 8, 2005 l
10.28	Autodesk Authorized Channel Partner Agreement with Avatech Solutions, Inc., dated February 1, 2005 l

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10.29	Change in Terms Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated November 22, 2004 m
10.30	Amendment to Loan and Security Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated December 15, 2004 m
10.31	Amendment to Subordination Agreement between Avatech Solutions Subsidiary, Inc., K Bank, and Dassault Systemes, dated December 15, 2004 m
10.32	Letter Agreement between Avatech Solutions, Inc. and W. James Hindman, with stock purchase warrant, dated December 6, 2004 m
10.33	Employment Agreement between Avatech Solutions Subsidiary, Inc. and Catherine Dodson, dated November 15, 2004 m
10.34	Software Transfer Agreement between Avatech Solutions, Inc. and Autodesk, Inc. dated January 26, 2005 m
10.35	Amended and Restated Demand Promissory Note from Avatech Solutions Subsidiary, Inc. to K Bank, dated November 24, 2004 m
10.36	Modification Agreement between Avatech Solutions Subsidiary, Inc., K Bank, Avatech Solutions, Inc. and Technical Learningware Company, dated November 24, 2004 n
10.37	Second Amended and Restated Demand Promissory Note from Avatech Solutions Subsidiary, Inc. to K Bank dated October 22, 2004 n
10.38	Second Modification Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated October 22, 2004 n
10.39	Business Loan Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated October 28, 2004 n
10.40	$700,000 Promissory Note from Avatech Solutions Subsidiary, Inc. to K Bank, dated October 28, 2004 n
10.41	Commercial Security Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated October 28, 2004 n
10.42	Commercial Guaranty from Avatech Solutions, Inc. to K Bank, dated October 28, 2004 n
10.43	Commercial Guaranty from W. James Hindman to K Bank, dated October 28, 2004 n
10.44	Asset Purchase Agreement by and among Avatech Solutions Subsidiary, Inc., Comtrex Corporation, Stanton L. Hilburn, and Richard L. Aquino, dated April 8, 2005. p
10.45	Form of Promissory Note, principal amount of $902,168.80, issued by Avatech Solutions, Inc. in favor of W. James Hindman, dated July 1, 2005. q
10.46	Warrants to urchse up to 38,88 shares of common stock issued by Avatech Solutions, Inc. to W. James Hindman, dated July 1, 2005. q
10.47	Amendment to Avatech Solutions, Inc. Restricted Stock Award Plan, dated August 23, 2005 q
10.48	Promissory Note of Avatech Solutions Subsidiary, Inc. to K Bank, in principal amount of $700,000, dated October 22, 2005 with Guaranty of Avatech Solutions, Inc. and W. James Hindman *
10.49	Warrant to purchase up to 100,000 shares of common stock issued by Avatech to W. James Hindman, dated October 22, 2005. *
10.50	Promissory Note issued by Avatech Solutions Subsidiary, Inc. to Mercantile Bank & Trust Co. dated January 27, 2006. *
10.51	Loan and Security Agreement by and between Avatech Solutions Subsidiary, Inc and Mercantile Bank & Trust Co., dated January 27, 2006. *
10.52	Guaranty Agreement by and between W. James Hindman and Mercantile Bank & Trust Co., dated January 27, 2006. *
10.53	Channel Partner Agreement, dated February 1, 2006, by and between Avatech Solutions Subsidiary, Inc. and Autodesk, Inc. *

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21.1	Subsidiaries of the Registrant i
23.1	Consent of Ernst & Young LLP *
24.1	Power of Attorney o

* Filed herewith

^a. Incorporated by reference to our Registration Statement on form S-4 filed on May 30, 2002, File No. 333-89386.

^b. Incorporated by reference to our Registration Statement on form SB-2 filed on November 21, 2000, File No. 333-50426.

^c. Incorporated by reference to our Registration Statement on form 8-A filed on March 11, 2002, File No. 001-31265.

^d. Incorporated by reference to our Current Report on form 8-K, filed on May 28, 2002, File No. 001-31265.

^e. Incorporated by reference to our Amended Registration Statement on form S-1, filed on April 11, 2003, File No. 333-104035.

^f. Incorporated by reference to our Quarterly Report on form 10-Q, filed on February 13, 2004, File No. 001-31265.

^g. Incorporated by reference to our Annual Report on form 10-K, filed on October 3, 2003, File No. 001-31265.

^h. Incorporated by reference to our Amended Registration Statement on form S-1, filed on June 4, 2003, File No. 333-104035.

ⁱ. Incorporated by reference to our Definitive Proxy Statement on form 14A, filed on May 7, 2004, File No. 001-31265.

^j. Incorporated by reference to our Quarterly Report on form 10-Q, filed on May 17, 2004, File No. 001-31265.

^k. Incorporated by reference to our Registration Statement on form S-1, filed on July 19, 2004, File No. 333-114230.

^l. Incorporated by reference to our Quarterly Report on form 10-Q, filed on May 13, 2005, File No. 001-31265.

^m. Incorporated by reference to our Quarterly Report on form 10-Q, filed on February 15, 2005, File No. 001-31265

ⁿ. Incorporated by reference to our Quarterly Report on form 10-Q, filed on November 15, 2004, File No. 001-31265

^o. Incorporated by reference to our Annual Report on form 10-K, filed on September 28, 2004, File No. 001-31265.

^p. Incorporated by reference to our Quarterly Report on Form 10-Q, filed on May 13, 2005, File No. 001-31265.

^q. Incorporated by reference to our Annual Report on Form 10-K, filed on November 14, 2005, File No. 001-31265.

Item 17.  Undertakings

The undersigned registrant hereby undertakes:

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii) To include any material information with respect to any plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

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2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Owings Mills, State of Maryland on February 10, 2006.

AVATECH SOLUTIONS, INC.
By:	/s/ Donald R. (Scotty) Walsh
	Donald R. (Scotty) Walsh
	Chief Executive Officer

The officers and directors of Avatech Solutions, Inc. whose signatures appear below, hereby constitute and appoint Donald R. Walsh and Christopher Olander as their true and lawful attorneys-in-fact and agents, with full power of substitution, with power to act alone, to sign and execute on behalf of the undersigned any amendment or amendments to this registration statement on Form S-1, and each of the undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or their substitutes, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated:

Name	Title	Date
/s/ Donald R. (Scotty) Walsh Donald R. (Scotty) Walsh	Chief Executive Officer and Director	February 10, 2006
/s/ Lawrence Rychlak Lawrence Rychlak	Vice President, Chief Financial Officer, and Principal Accounting Officer	February 10, 2006
/s/ W. James Hindman* W. James Hindman	Director and Chairman of the Board	February 10, 2006
/s/ George Cox* George Cox	Director	February 10, 2006
/s/ Garnett Y. Clark* Garnett Y. Clark	Director	February 10, 2006
/s/ Eugene Fischer* Eugene Fischer	Director	February 10, 2006
/s/ Robert Post* Robert Post	Director	February 10, 2006

* By Christopher Olander, attorney-in-fact

//Christopher Olander

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EX-10.48

Exhibit 10.48

Baltimore, Maryland	$	3,000,000.00
October 22nd, 2004

SECOND AMENDED AND RESTATED

DEMAND PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned, AVATECH SOLUTIONS SUBSIDIARY, INC., a Delaware corporation (“BORROWER”), promises to pay to the order of K BANK, formerly known as KEY BANK AND TRUST (“LENDER”), at the LENDER’S offices at 7F Gwynns Mill Court, Owings Mills, Maryland 21117, or at such other places as the holder of this Promissory Note may from time to time designate, the principal sum of Three Million Dollars ($3,000,000.00), or so much as may have been advanced to the BORROWER as proceeds of the “LOAN,” as such term is defined and described in the Loan And Security Agreement (“AGREEMENT”) dated September 11, 2003 the LENDER and the BORROWER, together with interest thereon at the rate or rates hereafter specified until paid in full and any and all other sums which may be owing to the holder of this Promissory Note by the BORROWER pursuant to this Promissory Note. The following terms shall apply to this Promissory Note.

1. Interest Rate. Interest shall accrue on the unpaid principal balance of this Promissory Note until paid in full at the higher of: (a) seven and one-half percent (7.5%); or (b) the annual fluctuating rate of interest which shall equal the rate obtained by adding two percent (2.0%) to the “PRIME RATE OF INTEREST” of the LENDER in effect from time to time. The term “PRIME RATE OF INTEREST” means the highest prime rate of interest on corporate loans at large U.S. Money Center Banks as presently published by The Wall Street Journal (Eastern Edition) under the heading or column entitled “Money Rates” or in a future substitute heading, column, or subheading published by The Wall Street Journal, or succeeding nationally recognized publication selected by the LENDER. Changes in the applicable interest rate shall be made as of, and immediately upon, the occurrence of changes in the PRIME RATE OF INTEREST.

2. Calculation Of Interest. Interest shall be calculated on the basis of a three hundred sixty (360) days per year factor applied to the actual days on which there exists an unpaid balance hereunder.

3. Repayment. Accrued and unpaid interest, plus any then due applicable late payment charges or default interest, shall be paid in consecutive monthly payments beginning on the fifteenth calendar day of the first month immediately following the date of this Promissory Note and continuing on the fifteenth calendar day of each succeeding month. ALL SUMS OUTSTANDING HEREUNDER, INCLUDING PRINCIPAL, INTEREST, CHARGES AND FEES, ARE PAYABLE IN FULL ON THAT DAY OCCURRING SIXTY (60) CALENDAR DAYS AFTER THE DEMAND OF THE HOLDER OF THIS PROMISSORY NOTE; PROVIDED, HOWEVER, THAT IF THERE IS AN “EVENT OF DEFAULT” (AS SUCH TERM IS DEFINED IN THE AGREEMENT) ALL SUMS OUTSTANDING HEREUNDER ARE PAYABLE IN FULL IMMEDIATELY UPON THE DEMAND OF THE LENDER. DEMAND FOR PAYMENT IN FULL OF ALL SUMS DUE HEREUNDER MAY BE MADE AT ANY TIME BY THE HOLDER OF THIS PROMISSORY NOTE, WITHOUT PRIOR NOTICE AND WITHOUT REGARD AS TO WHETHER OR NOT A DEFAULT OR VIOLATION OF ANY OF THE BORROWER’S OBLIGATIONS UNDER THIS PROMISSORY NOTE IS THEN EXISTING OR CONTINUING.

4. Late Payment Charge. If any payment due hereunder, other than any principal payment due on acceleration or demand, is not received by the holder within fifteen (15) calendar

days after its due date, the BORROWER shall pay a late payment charge equal to five percent (5%) of the amount (excluding any principal due as a result of acceleration or demand) then due and payable. The late payment charge shall be due whether or not the holder declares this Promissory Note in default or accelerates and demands immediate payment of the sums due hereunder. The existence of the right by the holder to receive a late payment charge shall not constitute a grace period or provide any right in the BORROWER to make a payment other than on its due date.

5. Application Of Payments. All payments made hereunder shall be applied first to late payment charges or other sums owed to the holder, next to accrued interest, and then to principal, or in such other order or proportion as the holder, in the holder’s sole discretion, may elect from time to time.

6. Prepayment. The BORROWER may prepay this Promissory Note in whole or in part at any time without premium or additional interest. All prepayments made upon the unpaid principal balance of this Promissory Note shall be applied to the unpaid principal balance in the inverse order of scheduled maturities.

7. Rights Upon Occurrence Of An Event Of Default. Upon the occurrence of an “EVENT OF DEFAULT,” as such term is defined in the AGREEMENT, the holder of this Promissory Note shall have the following rights in addition to such other rights and remedies as are authorized by the AGREEMENT or otherwise available to the holder under applicable laws:

7.1. Acceleration. The holder of this Promissory Note, in the holder’s sole discretion and without notice or demand, may accelerate and declare due and immediately owing the entire unpaid principal balance plus accrued interest and all other sums payable to the holder in accordance with the terms of any of the “LOAN DOCUMENTS,” as such term is defined in the AGREEMENT.

7.2. Default Interest Rate. The holder of this Promissory Note, in the holder’s sole discretion and without notice or demand, may raise the rate of interest accruing on the unpaid principal balance by two (2) percentage points above the rate of interest otherwise applicable, independent of whether the holder elects to accelerate the unpaid principal balance as a result of such default, unless prior to the imposition of the default rate of interest, the BORROWER cures such event to the satisfaction of the holder hereof. Any individual waiver of the holder’s right to impose the default rate of interest shall not be considered a waiver of this section or any future right of the holder to impose the default rate of interest pursuant to this Section.

7.3. Confession Of Judgment. The BORROWER authorizes any attorney admitted to practice before any court of record in the United States to appear on its behalf in any court in one or more proceedings, or before any clerk thereof or prothonotary or other court official, and to confess judgment against the BORROWER in favor of the holder of this Promissory Note in the full amount due on this Promissory Note (including principal, accrued interest and any and all charges, fees and costs) plus attorneys’ fees equal to fifteen percent (15%) of the amount due, plus court costs, all without prior notice or opportunity of the BORROWER for prior hearing. The BORROWER agrees and consents that venue and jurisdiction shall be proper in the Circuit Court of any County of the State of Maryland or of Baltimore City, Maryland, or in the United States District Court for the District of Maryland. The BORROWER waives the benefit of any and every statute, ordinance, or rule of court which may be lawfully waived conferring upon it any right or privilege of exemption, homestead rights, stay of execution, or supplementary proceedings, or other relief from the enforcement or immediate enforcement of a judgment or related proceedings on a judgment.

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The authority and power to appear for and enter judgment against the BORROWER shall not be exhausted by one or more exercises thereof, or by any imperfect exercise thereof, and shall not be extinguished by any judgment entered pursuant thereto; such authority and power may be exercised on one or more occasions from time to time, in the same or different jurisdictions, as often as the holder shall deem necessary, convenient, or proper. In the event that the holder receives, as a result of execution on a judgment confessed hereunder, attorneys’ fees which exceed the actual legal fees incurred by the holder in connection with the unpaid balance due to the holder pursuant to this Promissory Note, then, upon full and final payment of all other sums due and owing to the holder pursuant to this Promissory Note and payment of the actual attorneys’ fees incurred by the holder, the holder shall remit such excess amount of attorneys’ fees to the BORROWER.

8. Expenses Of Collection And Attorneys’ Fees. Should this Promissory Note be referred to an attorney for collection, whether or not judgment has been confessed or suit has been filed, the BORROWER shall pay all of the holder’s reasonable costs, fees and expenses, including reasonable attorneys’ fees, resulting from such referral.

9. Waiver Of Defenses. In the event any one or more holders of this Promissory Note transfer this Promissory Note for value, the BORROWER agrees that all subsequent holders of this Promissory Note who take for value and without actual knowledge of a claim or defense of the BORROWER against a prior holder shall not be subject to any claims or defenses which the BORROWER may have against a prior holder, all of which are waived as to the subsequent holder, and that all such subsequent holders shall have all rights of a holder in due course with respect to the BORROWER even though the subsequent holder may not qualify, under applicable law, absent this section, as a holder in due course. The BORROWER shall retain all rights and claims which the BORROWER may have against prior holders despite any such transfers and the waiver of defenses provided in this section as to subsequent holders.

10. Waiver Of Protest. The BORROWER, and all other parties to this Promissory Note, whether maker, indorser, or guarantor, waive presentment, notice of dishonor and protest.

11. Extensions Of Maturity. All parties to this Promissory Note, whether maker, indorser, or guarantor, agree that the maturity of this Promissory Note, or any payment due hereunder, may be extended at any time or from time to time without releasing, discharging, or affecting the liability of such party.

12. Manner And Method Of Payment. All payments called for in this Promissory Note shall be made in lawful money of the United States of America. If made by check, draft, or other payment instrument, such check, draft, or other payment instrument shall represent immediately available funds. In the holder’s discretion, any payment made by a check, draft, or other payment instrument shall not be considered to have been made until such time as the funds represented thereby have been collected by the holder. Should any payment date fall on a non-banking day, the BORROWER shall make the payment on the next succeeding banking day.

13. Maximum Rate Of Interest. Any provision contained in any of the LOAN DOCUMENTS to the contrary notwithstanding, the holder of this Promissory Note shall not be entitled to receive or collect, nor shall the BORROWER be obligated to pay, interest hereunder in excess of the maximum rate of interest permitted by the laws of any state determined to be applicable thereto or the laws of the United States of America applicable to loans in such applicable state or states, and if any provisions of this Promissory Note or of any of the other LOAN DOCUMENTS shall ever be construed or held to permit or require the charging, collection or payment of any amount of interest

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in excess of that permitted by such laws applicable thereto, the provisions of this paragraph shall control and shall override any contrary or inconsistent provision. The intention of the parties is to at all times conform strictly with all applicable usury laws, and other applicable laws regulating the rates of interest which may be lawfully charged upon the credit facility evidenced by this Promissory Note. The interest to be paid in accordance with the terms of this Promissory Note shall be held subject to reduction to the amount allowed under any usury or other laws as now or hereafter construed by the courts having jurisdiction, and any sums of money paid in excess of the interest rate allowed by law shall be applied in reduction of the principal amounts owing under this Promissory Note.

14. Notices. Any notice or demand required or permitted by or in connection with this Promissory Note shall be given in the manner specified in the AGREEMENT for the giving of notices under the AGREEMENT. Notwithstanding anything to the contrary, all notices and demands for payment from the holder actually received in writing by the BORROWER shall be considered to be effective upon the receipt thereof by the BORROWER regardless of the procedure or method utilized to accomplish delivery thereof to the BORROWER.

15. Assignability. This Promissory Note may be assigned by the LENDER or any holder at any time or from time to time without notice to or consent from the BORROWER.

16. Binding Nature. This Promissory Note shall inure to the benefit of and be enforceable by the LENDER and the LENDER’S successors and assigns and any other person to whom the LENDER or any holder may grant an interest in the BORROWER’S obligations hereunder, and shall be binding and enforceable against the BORROWER and the BORROWER’S successors and assigns.

17. Invalidity Of Any Part. If any provision or part of any provision of this Promissory Note shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Promissory Note and this Promissory Note 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.

18. 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 Promissory Note and the rights and obligations of the parties hereto, including the validity, construction, interpretation, and enforceability of this Promissory Note and its various provisions and the consequences and legal effect of all transactions and events which resulted in the issuance of this Promissory Note or which occurred or were to occur as a direct or indirect result of this Promissory Note having been executed.

19. Consent To Jurisdiction; Agreement As To Venue. The 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. The 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 waives 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.

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20. Unconditional Obligations. The BORROWER’S obligations under this Promissory Note shall be the unconditional duty and obligation of the BORROWER and shall be independent of any rights of set-off, recoupment or counterclaim which the BORROWER might otherwise have against the holder of this Promissory Note. The BORROWER shall pay absolutely the payments of principal, interest, fees and expenses required hereunder, free of any deductions and without abatement, diminution or set-off.

21. Seal And Effective Date. This Promissory Note is an instrument executed under seal and is to be considered effective and enforceable as of the date set forth on the first page hereof, independent of the date of actual execution and delivery.

22. Tense; Gender; Defined Terms; Section Headings. As used herein, the singular includes the plural and the plural includes the singular. A reference to any gender also applies to any other gender. Defined terms are entirely capitalized throughout. The section headings are for convenience only and are not part of this Promissory Note.

23. Actions Against Lender. Any action brought by the BORROWER against the LENDER which is based, directly or indirectly, on this Promissory Note or any matter in or related to this Promissory Note, including but not limited to the making of the loan evidenced hereby or the administration or collection thereof, shall be brought only in the courts of the State of Maryland. The BORROWER may not file a counterclaim against the LENDER in a suit brought by the LENDER against the BORROWER in a state other than the State of Maryland unless under the rules of procedure of the court in which the LENDER brought the action the counterclaim is mandatory, and not merely permissive, and will be considered waived unless filed as a counterclaim in the action instituted by the LENDER. The BORROWER agrees that any forum other than the State of Maryland is an inconvenient forum and that a suit brought by the BORROWER against the LENDER in a court of any state other than the State of Maryland should be forthwith dismissed or transferred to a court located in the State of Maryland by that Court.

24. Waiver Of Jury Trial. The BORROWER (by execution of this Promissory Note) and the LENDER (by acceptance of this Promissory Note) agree that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by or against the BORROWER or the LENDER, or any successor or assign of the BORROWER or the LENDER, on or with respect to this Promissory Note or any of the other LOAN DOCUMENTS, or which in any way relates, directly or indirectly, to the obligations of the BORROWER to the LENDER under this Promissory Note or any of the other LOAN DOCUMENTS, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. THE BORROWER AND THE LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

25. Amendment and Restatement. This Promissory Note amends and restates in its entirety the Amended and Restated Demand Promissory Note dated November 24^th, 2003 in the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) (“ORIGINAL NOTE”). This Promissory Note does not constitute a novation of the BORROWER’S obligations under the ORIGINAL NOTE but an amendment and restatement of such obligations and an increase in the maximum amount of such obligations.

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IN WITNESS WHEREOF, the BORROWER has duly executed this Promissory Note under seal as of the date first above written.

WITNESS/ATTEST:	THE BORROWER:
	AVATECH SOLUTIONS SUBSIDIARY, INC.,
	A Delaware Corporation
/s/ W. Scott Harris	By:	/s/ Christopher Olander	(SEAL)
W. Scott Harris		Name: Christopher Olander
		Title: Exec. V.P.

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EX-10.49

Exhibit 10.49

THIS WARRANT, AND THE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE (“SHARES”) ISSUABLE BY AVATECH SOLUTIONS, INC. UPON EXERCISE HEREOF, ARE “RESTRICTED SECURITIES” AS DEFINED IN RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, AS SUCH, CANNOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED, OR HYPOTHECATED, WITH OR WITHOUT CONSIDERATION, FOR A PERIOD OF ONE YEAR FROM THE DATE OF ISSUANCE THEREOF (OR, IN THE CASE OF SHARES ISSUABLE UPON EXERCISE HEREOF, ONE YEAR FROM THE DATE OF EXERCISE), AND THEN ONLY IN COMPLIANCE WITH RULE 144, UNLESS (1) AN EFFECTIVE REGISTRATION STATEMENT IS IN EFFECT WITH RESPECT TO THE RESALE THEREOF, OR (2) AVATECH SOLUTIONS, INC. HAS RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO AVATECH SOLUTIONS, INC. TO THE EFFECT THAT SUCH SHARES MAY BE SOLD OR TRANSFERRED WITHOUT REGISTRATION AND IN COMPLIANCE WITH FEDERAL AND APPLICABLE STATE SECURITIES LAWS.

No.W-300 100,000 Shares

Avatech Solutions, Inc.

A Delaware Corporation

Common Stock, Par Value $.01 per Share

Stock Purchase Warrant

Hindman Family Dynasty Trust, or its assigns, or the bearer of this warrant, is entitled, upon presentation of this Warrant and surrender of this Warrant at the offices of Avatech Solutions, Inc. (the “Company”), to subscribe for, purchase, and receive One Hundred Thousand (100,000) shares of the Company’s Common Stock for a purchase price of One Dollar and Two Cents ($1.02) per share, provided, however, that no fractional shares will be issued and provided that the Company’s Board of Directors must approve this warrant. Upon such payment, the Company agrees to cause to be issued, in the name of such person, assignee, or bearer, the shares so purchased.

In the event of the declaration and payment of share dividends by the Company on its Common Stock, or any split-up of the Common Stock, or recapitalization of the Company which changes the issued and outstanding shares of Common Stock, additional shares of Common Stock may be deliverable to the holder hereof upon its exercise without additional consideration, or the exercise price per share may be adjusted in the appropriate manner.

The purchase privilege herein contained shall expire on October 21, 2008.

Dated as of October 21, 2005.

Avatech Solutions, Inc.
By:	/s/ Donald R. (Scotty) Walsh
	Donald R. (Scotty) Walsh
	Chief Executive Officer

EX-10.50

Exhibit 10.50

Baltimore, Maryland	$	5,000,000.00
January 27, 2006

REVOLVING LOAN PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned AVATECH SOLUTIONS, INC., a Delaware corporation, and AVATECH SOLUTIONS SUBSIDIARY, INC., a Delaware corporation, jointly and severally (collectively, the “BORROWERS”), promise to pay to the order of MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY (the “LENDER”), 2 Hopkins Plaza, 21^ST Floor, Baltimore, Maryland 21201, or at such other places as the holder of this Revolving Loan Promissory Note may from time to time designate, the principal sum of Five Million Dollars ($5,000,000.00), or the unpaid portion thereof as has been advanced to the BORROWERS for the account of the LENDER as the “LOAN,” as such term is defined and described in the Loan And Security Agreement dated of even date herewith (the “AGREEMENT”) between the BORROWERS and the LENDER, together with interest on the unpaid principal balance from time to time outstanding at the rate or rates specified in the AGREEMENT until paid in full and any and all other sums which may be owing to the holder of this Revolving Loan Promissory Note by the BORROWERS pursuant to this Revolving Loan Promissory Note, on or before the “MATURITY DATE” as such term is defined in the AGREEMENT, or such earlier date as required by the AGREEMENT. This Revolving Loan Promissory Note is the “NOTE,” as such term is defined in the AGREEMENT. The following terms shall apply to this Revolving Loan Promissory Note.

1. Interest Rates, Calculation Of Interest, Obligations And Terms Of Repayment; And Rights Of Prepayment. Each of the BORROWERS, jointly and severally, agrees to pay principal and all interest which accrues on the unpaid balance of this Revolving Loan Promissory Note from the date of this Revolving Loan Promissory Note until such time as the obligations evidenced hereunder have been paid in full, at the times and in accordance with the covenants, procedures and requirements set forth in the AGREEMENT. Interest shall accrue, be payable, and shall be calculated as provided for in the AGREEMENT. Each of the BORROWERS, jointly and severally, further promises to pay all default interest, late payment charges, fees, and other expenses, costs and payment obligations as are required by the AGREEMENT to be made by the BORROWERS to or for the account of the LENDER. The principal balance of this Revolving Loan Promissory Note, together with all other unpaid interest, fees, expenses and other sums due to the holder, shall be paid in full on or before the MATURITY DATE. The BORROWERS’ right to prepay any or all sums due pursuant to this Revolving Loan Promissory Note shall be governed by the terms and conditions of the AGREEMENT.

2. Rights Upon Occurrence Of An Event Of Default. Upon the occurrence of an “EVENT OF DEFAULT,” as such term is defined in the AGREEMENT, the holder of this Promissory Note shall have the following rights in addition to such other rights and remedies as are authorized by the AGREEMENT or otherwise available to the holder under applicable laws:

2.1. Acceleration. The holder of this Promissory Note, in the holder’s sole discretion and without notice or demand, may accelerate and declare due and immediately owing the entire unpaid principal balance plus accrued interest and all other sums payable to the holder in accordance with the terms of any of the “LOAN DOCUMENTS,” as such term is defined in the AGREEMENT.

2.2. Confession Of Judgment. Each of the BORROWERS authorizes any attorney admitted to practice before any court of record in the United States to appear on its behalf in any court in one or more proceedings, or before any clerk thereof or prothonotary or other court official, and to confess judgment against the BORROWERS in favor of the holder of this Promissory Note in the full amount due on this Promissory Note (including principal, accrued interest and any and all charges, fees and costs) plus attorneys’ fees equal to fifteen percent (15%) of the amount due, plus court costs, all without prior notice or opportunity of the BORROWERS for prior hearing. Each of the BORROWERS agrees and consents that venue and jurisdiction shall be proper in the Circuit Court of any County of the State of Maryland or of Baltimore City, Maryland, or in the United States District Court for the District of Maryland. Each of the BORROWERS waives the benefit of any and every statute, ordinance, or rule of court which may be lawfully waived conferring upon it any right or privilege of exemption, homestead rights, stay of execution, or supplementary proceedings, or other relief from the enforcement or immediate enforcement of a judgment or related proceedings on a judgment. The authority and power to appear for and enter judgment against the BORROWERS shall not be exhausted by one or more exercises

thereof, or by any imperfect exercise thereof, and shall not be extinguished by any judgment entered pursuant thereto; such authority and power may be exercised on one or more occasions from time to time, in the same or different jurisdictions, as often as the holder shall deem necessary, convenient, or proper. In the event that the holder receives, as a result of execution on a judgment confessed hereunder, attorney’s fees which exceed the actual legal fees incurred by the holder in connection with the upaid balance due to the holder pursuant to this Promissory Note, then, upon full and final payment of all other sums due and owing to the holder pursuant to this Promissory Note and payment of the actual attorneys’ fees incurred by the holder, the holder shall remit such excess amount of attorneys’ fees to the BORROWERS.

3. Interest Rate After Judgment. If judgment is entered against the BORROWERS on this Revolving Loan Promissory Note, the amount of the judgment entered (which may include principal, interest, fees, and costs) shall bear interest at the higher of the maximum interest rate imposed upon judgments by applicable law or the default interest rate set forth in the AGREEMENT, to be determined on the date of the entry of the judgment.

4. Expenses Of Collection And Attorneys’ Fees. Should this Revolving Loan Promissory Note be referred to an attorney for collection, whether or not judgment is confessed or suit is filed, the BORROWERS shall pay all of the holder’s costs, fees and expenses, including attorneys’ fees, resulting from such referral.

5. Waiver Of Defenses. In the event any one or more holders of this Revolving Loan Promissory Note transfer this Revolving Loan Promissory Note for value, the BORROWERS agree that, except as otherwise provided herein, all subsequent holders of this Revolving Loan Promissory Note who take for value and without actual knowledge of a claim or defense of any of the BORROWERS against a prior holder shall not be subject to any claims or defenses which any of the BORROWERS may have against a prior holder, all of which are waived as to the subsequent holder, and that all such subsequent holders shall have all rights of a holder in due course with respect to each of the BORROWERS even though the subsequent holder may not qualify, under applicable law, absent this section, as a holder in due course. The BORROWERS shall retain all rights and claims which the BORROWERS may have against prior holders despite any such transfers and the waiver of defenses provided in this section as to subsequent holders. Notwithstanding the foregoing, nothing herein shall represent the waiver by the BORROWERS of any defense based upon any payment hereof made to any former holder hereof prior to the BORROWERS having been notified of the transfer of this Revolving Loan Promissory Note to any subsequent holder.

6. Waiver Of Protest. The BORROWERS, and all parties to this Revolving Loan Promissory Note, whether maker, indorser, or guarantor, waive presentment, notice of dishonor and protest.

7. Extensions Of Maturity. All parties to this Revolving Loan Promissory Note, whether maker, indorser, or guarantor, agree that the maturity of this Revolving Loan Promissory Note, or any payment due hereunder, may be extended at any time or from time to time without releasing, discharging, or affecting the liability of such party.

8. Manner And Method Of Payment. All payments called for in this Revolving Loan Promissory Note shall be made in lawful money of the United States of America. If made by check, draft, or other payment instrument, such check, draft, or other payment instrument shall represent immediately available funds. In the holder’s discretion, any payment made by a check, draft, or other payment instrument shall not be considered to have been made until such time as the funds represented thereby have been collected by the holder. Should any payment date fall on a non-banking day, the BORROWERS shall make the payment on the next succeeding banking day.

9. Notices. Any notice or demand required or permitted by or in connection with this Revolving Loan Promissory Note shall be given in the manner specified in the AGREEMENT for the giving of notices under the AGREEMENT. Notwithstanding anything to the contrary, all notices and demands for payment from the holder actually received in writing by any of the BORROWERS shall be considered to be effective upon the receipt thereof by such BORROWER regardless of the procedure or method utilized to accomplish delivery thereof to the BORROWERS.

10. Assignability. This Revolving Loan Promissory Note may only be assigned by the LENDER or by any holder to the extent permitted by the stated terms of the AGREEMENT.

11. Binding Nature. This Revolving Loan Promissory Note shall inure to the benefit of and be enforceable by the LENDER and the LENDER’S successors and assigns and any other person to whom the LENDER or any holder

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may grant an interest in the BORROWERS’ obligation hereunder, and shall be binding and enforceable against each of the BORROWERS and its respective successors and assigns.

12. Invalidity Of Any Part. If any provision or part of any provision of this Revolving Loan Promissory Note shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Revolving Loan Promissory Note and this Revolving Loan Promissory Note 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.

13. 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 Revolving Loan Promissory Note and the rights and obligations of the parties hereto, including the validity, construction, interpretation, and enforceability of this Revolving Loan Promissory Note and its various provisions and the consequences and legal effect of all transactions and events which resulted in the issuance of this Revolving Loan Promissory Note or which occurred or were to occur as a direct or indirect result of this Revolving Loan Promissory Note having been executed.

14. Consent To Jurisdiction; Agreement As To Venue. Each of the BORROWERS 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 of the BORROWERS 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 waives 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.

15. Unconditional Obligations. The BORROWERS’ obligations pursuant to this Revolving Loan Promissory Note shall be the joint and several, absolute and unconditional duty and obligation of each of the BORROWERS and shall be independent of any rights of set-off, recoupment or counterclaim which any of the BORROWERS might otherwise have against the holder of this Revolving Loan Promissory Note. The BORROWERS, jointly and severally, shall pay absolutely the payments of principal, interest, fees and expenses required hereunder, free of any deductions and without abatement, diminution or set-off.

16. Seal And Effective Date. This Revolving Loan Promissory Note is an instrument executed under seal and is to be considered effective and enforceable as of the date set forth on the first page hereof, independent of the date of actual execution and delivery.

17. Tense; Gender; Defined Terms; Section Headings. As used herein, the singular includes the plural and the plural includes the singular. A reference to any gender also applies to any other gender. Defined terms are entirely capitalized throughout, and defined terms not specifically defined herein shall have the same meaning as provided by the terms of the AGREEMENT. The section headings are for convenience only and are not part of this Revolving Loan Promissory Note.

18. Actions Against Holder. Any action brought by any of the BORROWERS against the holder of this Revolving Loan Promissory Note which is based, directly or indirectly, on this Revolving Loan Promissory Note or any matter in or related to this Revolving Loan Promissory Note, including but not limited to the making of the loan evidenced hereby or the administration or collection thereof, shall be brought only in the courts of the State of Maryland. Each of the BORROWERS agrees that any forum other than the State of Maryland is an inconvenient forum and that a suit brought by any of the BORROWERS against the holder of this Revolving Loan Promissory Note in a court of any state other than the State of Maryland should be forthwith dismissed or transferred to a court located in the State of Maryland by that Court.

19. Waiver Of Jury Trial. Each of the BORROWERS (by execution of this Revolving Loan Promissory Note) and the holder of this Revolving Loan Promissory Note (by acceptance of this Revolving Loan Promissory Note) agree that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by or against any of the BORROWERS or the holder of this Revolving Loan Promissory Note, or any successor or assign of any of the BORROWERS or the holder of this Revolving Loan Promissory Note, on or with respect to this Revolving Loan Promissory Note or any of the other “LOAN DOCUMENTS,” as such term is defined in the AGREEMENT, or which in any way relates, directly or indirectly, to the obligations of any of the BORROWERS to the holder of this Revolving

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Loan Promissory Note under this Revolving Loan Promissory Note or any of the other LOAN DOCUMENTS, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. EACH OF THE BORROWERS AND THE HOLDER OF THIS REVOLVING LOAN PROMISSORY NOTE HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

IN WITNESS WHEREOF, the BORROWERS have duly executed this Revolving Loan Promissory Note under seal as of the date first above written.

WITNESS:	THE BORROWERS:
	AVATECH SOLUTIONS, INC.,
	A Delaware Corporation
/s/ Stephen Palmer	By:	/s/ Lawrence Rychlak	(SEAL)
		Name: Lawrence Rychlak
		Title: CFO
	AVATECH SOLUTIONS SUBSIDIARY, INC., A Delaware Corporation
/s/ Stephen Palmer	By:	/s/ Lawrence Rychlak	(SEAL)
		Name: Lawrence Rychlak
		Title: CFO

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EX-10.51

Exhibit 10.51

LOAN AND SECURITY AGREEMENT

between

AVATECH SOLUTIONS, INC.,

A Delaware Corporation

and

AVATECH SOLUTIONS SUBSIDIARY, INC.,

A Delaware Corporation

Collectively, “Borrowers”

and

MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY,

“Lender”

$5,000,000.00 REVOLVING LINE OF CREDIT

Dated: January 27, 2006

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT is dated as of January 27, 2006 by and between AVATECH SOLUTIONS, INC, a Delaware corporation (“AVATECH”), and AVATECH SOLUTIONS SUBSIDIARY, INC, a Delaware corporation, (“AVATECH SUBSIDIARY,” and together with AVATECH, collectively, “BORROWERS”); and MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY (“LENDER”).

RECITALS

The BORROWERS have requested that the LENDER extend various credit accommodations to the BORROWERS. The LENDER is willing to provide the requested credit accommodations upon the terms and conditions of this Loan And Security Agreement, and upon the granting by the BORROWERS to the LENDER of the security interests, liens, and other assurances of payment provided for in this Loan And Security Agreement.

The BORROWERS’ businesses are a mutual and collective enterprise and the BORROWERS believe that the consolidation of their facilities and other financial accommodations in accordance with the terms of this Loan And Security Agreement will enhance the aggregate borrowing powers of the BORROWERS and ease the administration of their loan relationship with the LENDER, all to the mutual advantage of the BORROWERS. In order to utilize the financial powers of the BORROWERS in the most efficient and economical manner, and in order to facilitate the administration of their financing needs, the LENDER will, at the request of a BORROWER, extend financial accommodations to any of the BORROWERS on a combined basis in accordance with the provisions set forth in this Loan And Security Agreement. The LENDER’S willingness to extend credit to the BORROWERS and to administer the collateral security therefor on a combined basis as more fully set forth in this Loan And Security Agreement is done solely as an accommodation to the BORROWERS and at the BORROWERS’ joint request and in furtherance of the BORROWERS’ mutual and collective enterprise.

NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1.

DEFINITIONS

As used in this Loan And Security Agreement, the terms set forth in this Article 1 have the meanings set forth below, unless the specific context of this Loan And Security Agreement clearly requires a different meaning. Terms defined in this Article 1 or elsewhere in this Loan And Security Agreement are in all capital letters throughout this Loan And Security Agreement. The singular use of any defined term includes the plural and the plural use includes the singular.

Section 1.1. Account Debtor. The term “ACCOUNT DEBTOR” means collectively each PERSON: (a) to or for whom any or all of the BORROWERS has provided or has agreed to provide any goods or services; or (b) which owes any or all of the BORROWERS any sum of money as a result of goods sold or services provided by any or all of the BORROWERS; or (c) which is the maker or endorser on any INSTRUMENT payable to any or all of the BORROWERS or otherwise owes any or all of the BORROWERS any sum of money on account of any loan or other payment obligation. With respect to each RECEIVABLE which is payable by any governmental authority, “ACCOUNT DEBTOR” includes, without limitation, the agency, instrumentality or official which has the duty of remitting or causing the remittance of the amounts owing on such ACCOUNT or other RECEIVABLE.

Section 1.2. Account, Chattel Paper, Commodity Account, Commodity Contract, Deposit Account, Document. Equipment, Fixtures, General Intangibles, Goods, Instrument, Investment Property, Letter-Of-Credit Right, Payment Intangible, Promissory Notes, And Software. The terms “ACCOUNT,” “CHATTEL PAPER,” “COMMODITY ACCOUNT,” “COMMODITY CONTRACT,” “DEPOSIT ACCOUNT,” “DOCUMENT,” “EQUIPMENT,” “FIXTURES,” “GENERAL INTANGIBLES,” “GOODS,” “INSTRUMENT,” “INVESTMENT PROPERTY,” “LETTER-OF-CREDIT RIGHT,” “PAYMENT INTANGIBLE,” “PROMISSORY NOTES,” and

“SOFTWARE” shall have the same respective meanings as are given to those terms in the Uniform Commercial Code, as adopted and in effect in the State of Maryland.

Section 1.3. Adjusted Base Rate. The term “ADJUSTED BASE RATE” means for any BASE RATE BORROWING that rate of interest equal to the BASE RATE plus the APPLICABLE MARGIN.

Section 1.4. Adjusted LIBOR Rate. The term “ADJUSTED LIBOR RATE” means, for any LIBOR BORROWING for any INTEREST PERIOD thereof, that rate per annum, rounded upwards, if necessary, to the nearest one hundredth of one percent (.01%), determined by the LENDER to be equal to the sum of: (a) the quotient obtained by dividing (i) the LIBOR RATE for such LIBOR BORROWING for such INTEREST PERIOD by (ii) 1.00, and if elected by the LENDER, minus the RESERVE REQUIREMENT for such LIBOR BORROWING for such INTEREST PERIOD; plus (b) the APPLICABLE MARGIN.

Section 1.5. Affiliate. The term “AFFILIATE” means collectively any PERSON: (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with any or all of the BORROWERS, including, without limitation, the officers, managers and directors of the BORROWERS; (b) that directly or beneficially owns or holds ten percent (10%) or more of any equity interests in any or all of the BORROWERS; or (c) ten percent (10%) or more of whose equity interests are owned directly or controlled by any or all of the BORROWERS. As used herein, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) shall mean possession, directly or indirectly, of the power to direct the management or policies of a PERSON, whether through ownership of equity interests, by contract or otherwise.

Section 1.6. Agreement. The term “AGREEMENT” means this Loan And Security Agreement, as amended, extended, or modified from time to time by the parties hereto, as well as all schedules, exhibits and attachments hereto.

Section 1.7. Applicable Margin. The term “APPLICABLE MARGIN” means the following percentages corresponding to the AVATECH CAPITAL LEVEL and CAPITAL LEVERAGE RATIO in effect as of the most recent CALCULATION DATE.

Tier Level	AVATECH CAPITAL LEVEL		CAPITAL LEVERAGE RATIO		APPLICABLE MARGIN FOR BASE RATE BORROWINGS		APPLICABLE MARGIN FOR LIBOR BORROWINGS
1	<$	0.00	N/A		2.00	%	4.75	%
2	>$	0.00	>10	x	1.75	%	4.50	%
3	>$	1,000,000	<10	x	1.50	%	4.25	%
4	>$	2,000,000	<5	x	1.25	%	4.00	%
5	>$	3,000,000	<4	x	1.00	%	3.75	%
6	>$	3,000,000	<3.5	x	0.50	%	3.25	%
7	>$	4,000,000	<3	x	0.25	%	3.00	%

The initial APPLICABLE MARGINS shall be based on Tier Level 1. Beginning with the CALCULATION DATE immediately following the fiscal quarter of the BORROWER ending on December 31, 2005 and quarterly thereafter, the APPLICABLE MARGINS shall be determined and adjusted by the then current AVATECH CAPITAL LEVEL and CAPITAL LEVERAGE RATIO as determined in accordance with the quarterly COMPLIANCE CERTIFICATES to be provided by the BORROWER in accordance with Section 5.12.7 of this AGREEMENT. The lowest tier at which the BORROWER must satisfy both the CAPITAL level and the CAPITAL LEVERAGE RATIO for such tier shall be applicable. If the BORROWER fails to timely provide a COMPLIANCE CERTIFICATE for any fiscal quarter of the BORROWER as required by and within the time limitations set forth in Section 5.12.7, the APPLICABLE MARGIN from the applicable date of such failure shall be based on Tier Level 1 until five (5) BUSINESS DAYS after a COMPLIANCE CERTIFICATE has been provided, whereupon the Tier Level shall be determined by the AVATECH CAPITAL LEVEL and CAPITAL LEVERAGE RATIO set forth in such COMPLIANCE CERTIFICATE. Except as set

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forth above, each APPLICABLE MARGIN shall be effective from a CALCULATION DATE until the next CALCULATION DATE.

Section 1.8. Avatech Capital Level. The term “AVATECH CAPITAL LEVEL” means the TANGIBLE NET WORTH of the BORROWERS, plus the principal balance outstanding under the HINDMAN NOTE to the extent that the same has been subordinated to the OBLIGATIONS on terms and conditions satisfactory to the LENDER.

Section 1.9. Base Rate. The term “BASE RATE” means, for any day, the rate per annum equal to the higher of: (d) the FEDERAL FUNDS RATE for such day plus fifty(50) BASIS POINTS; or (e) the PRIME RATE for such day. Any change in the BASE RATE due to a change in the PRIME RATE or the FEDERAL FUNDS RATE shall be effective on the effective date of such change in the PRIME RATE or the FEDERAL FUNDS RATE.

Section 1.10. Base Rate Borrowing. The term “BASE RATE BORROWING” means each amount of the unpaid principal balance of the LOAN which in accordance with the terms of this AGREEMENT accrues interest at the BASE RATE.

Section 1.11. Basis Point. The term “BASIS POINT” means one one-hundredth (.01) of one percent.

Section 1.12. Borrowing Base. The term “BORROWING BASE” means an amount equal to: (a) (i) from the date of CLOSING through June 30, 2006, seventy percent (70%), and (ii) on July 1, 2006 (or such later date as the BORROWERS have submitted to the LENDER evidence that the BORROWERS are in compliance with the revised financial covenants set forth in Sections 5.20 and 5.21 below) and thereafter, eighty percent (80%) of the face amount (less maximum discounts, credits and allowances which may be taken by or are granted to ACCOUNT DEBTORS in connection therewith) of billed ELIGIBLE ACCOUNTS of the BORROWERS; including without limitation, reserves determined by the LENDER to be appropriate with respect to bankers’ acceptances, GUARANTY INDEBTEDNESS, INTEREST RATE PROTECTION AGREEMENTS, and other obligations of the BORROWERS.

Section 1.13. Borrowing Date. The term “BORROWING DATE” means any BUSINESS DAY specified in a notice issued by the BORROWERS in accordance with Section 2.1.2 of this AGREEMENT as a date on which the BORROWERS have requested that the LENDER advance the proceeds of the LOAN to or for the account of the BORROWERS.

Section 1.14. Business Day. The term “BUSINESS DAY” means any day other than a Saturday, Sunday, or other day on which commercial banking institutions in the State of Maryland are required to be closed.

Section 1.15. Calculation Date. The term “CALCULATION DATE” means each of the dates upon which the APPLICABLE MARGINS are to be determined and adjusted, which adjustment shall be made quarterly on the date occurring five (5) BUSINESS DAYS after the date on which the LENDER receives the quarterly COMPLIANCE CERTIFICATE in accordance with the provisions of Section 2.1.2 of this AGREEMENT, or otherwise as required by the terms of this AGREEMENT.

Section 1.16. Capital Adequacy Requirement. The term “CAPITAL ADEQUACY REQUIREMENT” means any LAW imposing any capital adequacy requirement or any other similar requirement (including but not limited to the capital adequacy regulations contained in Parts 3,208 and 225 of Title 12 of the Code of Federal Regulations, as amended), any change in such LAWS or in the interpretation or application thereof, and any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or government authority.

Section 1.17. Capital Lease. The term “CAPITAL LEASE” means a lease with respect to which the lessee’s obligations thereunder should, in accordance with G.A.A.P., be capitalized and reflected as a liability on the balance sheet of the lessee.

Section 1.18. Capital Lease Obligations. The term “CAPITAL LEASE OBLIGATIONS” means any indebtedness incurred as a lessee pursuant to a CAPITAL LEASE.

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Section 1.19. Capital Leverage Ratio. The term “CAPITAL LEVERAGE RATIO” means the ratio of (a) total liabilities of the BORROWERS, less the principal balance outstanding under the HINDMAN NOTE to the extent that the same has been subordinated to the OBLIGATIONS on terms and conditions satisfactory to the LENDER, to (b) the AVATECH CAPITAL LEVEL.

Section 1.20. Change Of Control. The term “CHANGE OF CONTROL” means, with respect to any PERSON, an event or series of events by which: (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of ten percent (10%) or more of the equity securities of such PERSON entitled to vote for members of the board of directors or equivalent governing body of such PERSON on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or (b) during any period of twelve (12) consecutive months, a majority of the members of the board of directors or other equivalent governing body of such PERSON cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors). A change of control shall not include the issuance of capital stock of the BORROWERS in connection with a transaction to which the LENDER has consented in accordance with the requirements of Article 6 hereof.

Section 1.21. Closing. The term “CLOSING” means the execution and delivery of this AGREEMENT, the NOTE, and various other LOAN DOCUMENTS. The date of CLOSING is the date written above as the date of this AGREEMENT.

Section 1.22. Code. The term “CODE” means the Internal Revenue Code of 1986, as amended, and all Treasury regulations, revenue rulings, revenue procedures or announcements issued thereunder.

Section 1.23. Collateral. The term “COLLATERAL” means all of the tangible and intangible assets and real and personal property of any or all of the BORROWERS, wherever located, whether now owned or hereafter acquired by the BORROWERS, together with all substitutions therefor, and all replacements and renewals thereof, and all accessions, additions, replacement parts, manuals, warranties and packaging relating thereto, including but not limited to the following tangible and intangible assets and property rights of any of the BORROWERS: (a) ACCOUNTS; (b) CHATTEL PAPER; (c) COMMODITY ACCOUNTS; (d) COMMODITY CONTRACTS; (e) DEPOSIT ACCOUNTS; (f) DOCUMENTS; (g) EQUIPMENT; (h) FIXTURES; (i) GENERAL INTANGIBLES; (j) GOODS; (k) INSTRUMENTS; (l) INVENTORY, including returned, rejected, or repossessed INVENTORY and rights of reclamation and stoppage in transit with respect to INVENTORY; (m) INVESTMENT PROPERTY; (n) LETTER-OF-CREDIT RIGHTS; (o) PAYMENT INTANGIBLES; (p) PROMISSORY NOTES; (q) RECEIVABLES; (r) SOFTWARE; (s) copyrights, trademarks, patents, and all pending applications thereof; and (t) all RECORDS relating to or pertaining to any of the above listed COLLATERAL.

Section 1.24. Collection Account. The term “COLLECTION ACCOUNT” means a bank account designated by the LENDER from which the LENDER alone has power of access and withdrawal.

Section 1.25. Commercial Account. The term “COMMERCIAL ACCOUNT” means the commercial checking account to be established and maintained by any or all of the BORROWERS with the LENDER and which may be utilized as the means of advancing funds under the LOAN.

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Section 1.26. Compliance Certificate. The term “COMPLIANCE CERTIFICATE” has the meaning given such term provided to such term in Section 5.12.7 of this AGREEMENT.

Section 1.27. Current Assets. The term “CURRENT ASSETS” means, at any time, the aggregate amount of all current assets, including but not limited to cash, cash equivalents, marketable securities, ACCOUNTS and other RECEIVABLES maturing within twelve (12) months from such time, and INVENTORY, all as determined in accordance with G.A.A.P.

Section 1.28. Current Liabilities. The term “CURRENT LIABILITIES” means, at any time, the aggregate amount of all liabilities of the BORROWERS which are due and payable within twelve (12) months from such time, or should be properly reflected as attributable to such twelve (12) month period in accordance with G.A.A.P., less any portion of the outstanding principal balance of the HINDMAN NOTE, to the extent that the HINDMAN NOTE is classified as a CURRENT LIABILITY.

Section 1.29. Current Ratio. The term “CURRENT RATIO” means, at any time, the ratio of CURRENT ASSETS to CURRENT LIABILITIES.

Section 1.30. Default. The term “DEFAULT” means any event, occurrence or omission which, with the giving of notice, the passage of time, or both, would constitute an EVENT OF DEFAULT.

Section 1.31. Dollar Cap. The term “DOLLAR CAP” means Five Million Dollars ($5,000,000.00).

Section 1.32. EBIT. The term “EBIT” means with respect to any period, the earnings of the BORROWER before interest and tax expenses, and without regard to gains or losses arising from asset sales not in the ordinary course of business, all as determined in accordance with G.A.A.P.

Section 1.33. EBITDA. The term “EBITDA” means with respect to any period, the earnings of the BORROWER before interest, tax, depreciation and amortization expenses, and without regard to gains or losses arising from asset sales not in the ordinary course of business, all as determined in accordance with G.A.A.P.

Section 1.34. Eligible Accounts. The term “ELIGIBLE ACCOUNTS” means those ACCOUNTS which are acceptable to the LENDER. The criteria for eligibility may be fixed and revised from time to time by the LENDER in its discretion. An ACCOUNT in no event shall be deemed eligible unless: (a) the ACCOUNT arises from goods sold or leased or from services performed in the ordinary course of business of any or all of the BORROWERS; (b) the delivery of the goods or the performance of the services has been completed; (c) no return, rejection, or repossession has occurred; (d) the goods delivered or the services performed have been finally and unconditionally accepted by the ACCOUNT DEBTOR without dispute, objection, complaint, offset, defense, counterclaim, adjustment or allowance; (e) the ACCOUNT DEBTOR’S obligation to pay the ACCOUNT is not subject to any repurchase obligation or return right, as with sales made on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval (except with respect to ACCOUNTS in connection with which ACCOUNT DEBTORS are entitled to return INVENTORY solely on the basis of the quality of such INVENTORY) or consignment basis; (f) no more than ninety (90) days have elapsed from the billing or invoice date and no more than sixty (60) days have elapsed from the due date; (g) no prior, contemporaneous, or subsequent assignment, claim, lien, or security interest, other than that of the LENDER, applies to the ACCOUNT; (h) no bankruptcy or insolvency proceedings or payment moratoriums of any kind apply to the ACCOUNT; (i) the ACCOUNT DEBTOR is not, in the LENDER’S sole opinion, unlikely to pay because of death, incompetency, disappearance, potential bankruptcy, insolvency, damage to or disposition of the goods, default, or any other reason whatsoever; (j) the LENDER has not, by notice to any or all of the BORROWERS, in the LENDER’S sole discretion, deemed the ACCOUNT unsatisfactory for any reason; (k) no bonding company or surety asserts or has the ability to assert any claim based upon the legal doctrine of equitable subrogation, or under any other right to claim a lien into or right to payment of the ACCOUNT; (l) the ACCOUNT does not arise from or pertain to any transaction with any AFFILIATE; (m) the ACCOUNT is not payable from any ACCOUNT DEBTOR located outside of the geographic boundaries of the United States of America (unless such ACCOUNT is fully secured by a letter of credit or credit insurance acceptable to the LENDER); (n) the BORROWER is legally empowered to collect the ACCOUNT against the ACCOUNT DEBTOR in the jurisdiction in which the ACCOUNT DEBTOR is located; (o) the ACCOUNT is not

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payable by an ACCOUNT DEBTOR with respect to which more than forty percent (40%) of the dollar amount of that ACCOUNT DEBTOR’S RECEIVABLES to any or all of the BORROWERS are more than ninety (90) days due from the date of invoice or more than sixty (60) days due from the due date; (p) the ACCOUNT does not arise from any contract or agreement with any federal, state, local or foreign government unless such governmental authority is the United States of America or an agency or representative thereof and the LENDER has obtained full compliance to its complete satisfaction with all provisions necessary to protect the LENDER’S interests under The Assignment of Claims Act of 1940, as amended, and all regulations promulgated thereunder, and all other applicable federal procurement laws and regulations; and (q) the LENDER has a perfected first priority security interest therein. An ACCOUNT which otherwise satisfies the LENDER’S criteria for eligibility shall also be subject to the following eligibility limitations: (i) if the ACCOUNT is payable by an ACCOUNT DEBTOR to whom any or all of the BORROWERS owes money, only the portion of the ACCOUNT in excess of the amount owed by any or all of the BORROWERS to the ACCOUNT DEBTOR may be eligible; (ii) if the ACCOUNT is due from an ACCOUNT DEBTOR whose ACCOUNTS in the aggregate constitute in excess of ten percent (10%) of all of the ACCOUNTS of any or all of the BORROWERS, only the portion of the aggregate amount of the ACCOUNTS from that ACCOUNT DEBTOR which does not exceed ten percent (10%) of all of the ACCOUNTS of any or all of the BORROWERS may be eligible; and (iii) to the extent the ACCOUNT contains finance charges, delivery charges or sales taxes, such finance charges, delivery charges or sales taxes shall not be eligible.

Section 1.35. Employee Benefit Plan. The term “EMPLOYEE BENEFIT PLAN” means an “employee benefit plan” as defined in Section 3(3) of ERISA.

Section 1.36. Environmental Laws. The term “ENVIRONMENTAL LAWS” means individually or collectively any local, state or federal LAW, statute, rule, regulation, order, ordinance, common law, permit or license term or condition, or state superlien or environmental clean-up or disclosure statutes pertaining to the environment or to environmental contamination, regulation, management, control, treatment, storage, disposal, containment, removal, cleanup, reporting, or disclosure, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as now or hereafter amended (including, but not limited to, the Superfund Amendments and Reauthorization Act); the Resource Conservation and Recover Act, as now or hereafter amended (including, but not limited to, the Hazardous and Solid Waste Amendments of 1984); the Toxic Substances Control Act, as now or hereafter amended; the Clean Water Act, as now or hereafter amended; the Safe Drinking Water Act, as now or hereafter amended; or the Clean Air Act, as now or hereafter amended.

Section 1.37. EPA Permit. The term “EPA PERMIT” has the meaning given that term in Section 4.23 of this AGREEMENT.

Section 1.38. ERISA. The term “ERISA” means the Employee Retirement Income Security Act of 1974 and regulations issued thereunder, as amended from time to time and any successor statute.

Section 1.39. ERISA Affiliate. The term “ERISA AFFILIATE” means, in relation to any PERSON, any trade or business (whether or not incorporated) which is a member of a group of which that PERSON is a member and which is under common control within the meaning of the regulations promulgated under Section 414 of the CODE.

Section 1.40. ERISA Liabilities. The term “ERISA LIABILITIES” means the aggregate of all unfunded vested benefits under any employee pension benefit plan, within the meaning of Section 3(2) of ERISA, of any of the BORROWERS or any ERISA AFFILIATE of any of the BORROWERS under any plan covered by ERISA that is not a MULTIEMPLOYER PLAN and all potential withdrawal liabilities of any of the BORROWERS or any ERISA AFFILIATE under all MULTIEMPLOYER PLANS.

Section 1.41. Event Of Default. The term “EVENT OF DEFAULT” means any of the events set forth in Article 7 of this AGREEMENT, provided that any requirement for the giving of notice, the lapse of time, or both, or any other expressly stated condition, has been satisfied.

Section 1.42. Facilities. The term “FACILITIES” means all real property and the improvements thereon used or occupied or leased by any of the BORROWERS or otherwise used at any time by any of the BORROWERS in the operation of its business or for the manufacture, storage, or location of any of the COLLATERAL.

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Section 1.43. Federal Funds Rate. The term “FEDERAL FUNDS RATE” means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined (which determination shall be conclusive and binding, absent manifest error) by the LENDER to be equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the BUSINESS DAY next succeeding such day; provided that: (a) if such day is not a BUSINESS DAY, the FEDERAL FUNDS RATE for such day shall be such rate on such transactions on the next preceding BUSINESS DAY as so published on the next succeeding BUSINESS DAY; and (b) if no such rate is so published on such next succeeding BUSINESS DAY, the FEDERAL FUNDS RATE for such day shall be the average rate charged to the LENDER (in its individual capacity) on such day on such transactions as determined by the LENDER (which determination shall be conclusive and binding, absent manifest error).

Section 1.44. Fiscal Year. The term “FISCAL YEAR” means the fiscal year of AVATECH and its SUBSIDIARIES, including but not limited to AVATECH SUBSIDIARY, which is the twelve (12) month accounting period commencing July 1 and ending June 30 of each calendar year.

Section 1.45. G.A.A.P. The term “G.A.A.P.” means, with respect to any date of determination, generally accepted accounting principles as used by the Financial Accounting Standards Board and/or the American Institute of Certified Public Accountants consistently applied and maintained throughout the periods indicated.

Section 1.46. Governmental Authority. The term “GOVERNMENTAL AUTHORITY” means any nation or government, any union of nations or governments (including without limitation the European Union), any state, region, province, or other political subdivision of any nation, government or union of nations or governments, and any municipality, court or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

Section 1.47. Guaranteed Pension Plan. The term “GUARANTEED PENSION PLAN” means any pension plan maintained by any of the BORROWERS or an ERISA AFFILIATE of any of the BORROWERS, or to which any of the BORROWERS or an ERISA AFFILIATE contributes, some or all of the benefits under which are guaranteed by the United States Pension Benefit Guaranty Corporation.

Section 1.48. Guarantor. The term “GUARANTOR” means, collectively, HINDMAN and TLC.

Section 1.49. Guaranty Agreements. The term “GUARANTY AGREEMENTS” means collectively the Guaranty Agreements executed from time to time by each GUARANTOR for the benefit of the LENDER.

Section 1.50. Guaranty Indebtedness. The term “GUARANTY INDEBTEDNESS” means any obligation, contingent or otherwise, of any referenced PERSON directly or indirectly guaranteeing any debt or obligation of any other PERSON and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such PERSON: (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such debt or obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise, other than agreements to purchase goods at an arm’s length price in the ordinary course of business); or (b) entered into for the purpose of assuring in any other manner the holder of such debt or obligation of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part) The term GUARANTY INDEBTEDNESS shall not include endorsements for collection or deposit in the ordinary course of business.

Section 1.51. Hindman. The term “HINDMAN” means W. James Hindman.

Section 1.52. Hindman Note. The term “HINDMAN NOTE” means the promissory note dated July 1, 2005 from AVATECH and payable to the order of HINDMAN in the original principal amount of Nine Hundred Two Thousand One Hundred Sixty-Eight Dollars and Eighty Cents ($902,168.80).

Section 1.53. Indebtedness. The term “INDEBTEDNESS” means, as to any referenced PERSON (determined without duplication): (a) indebtedness of such PERSON for borrowed money (whether by loan or the

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issuance and sale of debt securities), or for the deferred purchase or acquisition price of property or services (other than accounts payable incurred in the ordinary course of business); (b) obligations of such PERSON in respect of letters of credit or similar instruments issued or accepted by financial institutions for the account of such PERSON (whether or not such obligations are contingent); (c) CAPITAL LEASE OBLIGATIONS of such PERSON; (d) obligations of such PERSON to redeem or otherwise retire equity interests in such PERSON; (e) indebtedness of others of the type described in clause (a), (b), (c) or (d) above secured by a lien on any of the property of such PERSON, whether or not the respective obligation so secured has been assumed by such PERSON; and (f) GUARANTY INDEBTEDNESS.

Section 1.54. Insolvency Proceedings. The term “INSOLVENCY PROCEEDINGS” means, with respect to any referenced PERSON, any case or proceeding commenced by or against such PERSON, under any provision of the United States Bankruptcy Code, as amended, or under any other federal or state bankruptcy or insolvency law, or any assignments for the benefit of creditors, formal or informal moratoriums, receiverships, compositions or extensions with some or all creditors with respect to any indebtedness of such PERSON.

Section 1.55. Interest Expense. The term “INTEREST EXPENSE” means all finance charges reflected on the income statement as interest expense for all obligations of the Borrowers to any PERSON, including but not limited to the LENDER, as shown on the balance sheet in accordance with G.A.A.P.

Section 1.56. Interest Period. The term “INTEREST PERIOD” means with respect to any LIBOR BORROWING, each period commencing on the date upon which a LIBOR BORROWING has been selected to commence in accordance with the provisions of Section 2.2.2 of this AGREEMENT, or the date upon which a BASE RATE BORROWING is converted to a LIBOR BORROWING, and ending one (1) month thereafter; provided that: (a) any INTEREST PERIOD which would otherwise end on a day which is not a BUSINESS DAY shall be extended to the next succeeding BUSINESS DAY unless such BUSINESS DAY falls in another calendar month, in which case such INTEREST PERIOD shall end on the immediately preceding BUSINESS DAY; (b) any INTEREST PERIOD which begins on the last BUSINESS DAY of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such INTEREST PERIOD) shall end on the last BUSINESS DAY of a calendar month; and (c) the BORROWERS may not select any INTEREST PERIOD which would end after the MATURITY DATE.

Section 1.57. Interest Rate Protection Agreement. The term “INTEREST RATE PROTECTION AGREEMENT” means, with respect to any referenced PERSON, an interest rate swap, hedge, cap or collar agreement or similar arrangement between such PERSON and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies.

Section 1.58. Inventory. The term “INVENTORY” shall have the same meaning as provided to such term in the Uniform Commercial Code, as adopted and in effect in the State of Maryland, together with all of the BORROWERS’ goods, merchandise, materials, raw materials, goods in process, finished goods, work in progress, bindings or component materials, packaging and shipping materials and other tangible or intangible personal property, now owned or hereafter acquired and held for sale or lease or furnished or to be furnished under contracts of service or which contribute to the finished products or the sale, promotion, storage and shipment thereof, whether located at facilities owned or leased by the BORROWERS, in the course of transport to or from ACCOUNT DEBTORS, used for demonstration, placed on consignment, or held at storage locations.

Section 1.59. Laws. The term “LAWS” means all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any government or political subdivision or agency thereof, or any court or similar entity established by any thereof.

Section 1.60. Lender Expenses. The term “LENDER EXPENSES” means the out-of-pocket expenses or costs incurred by the LENDER arising out of, pertaining to, or in any way connected with this AGREEMENT, any of the other LOAN DOCUMENTS or the OBLIGATIONS, or any documents executed in connection herewith or transactions hereunder. The term “LENDER EXPENSES” shall include, without limitation: (a) the costs or expenses required to be paid by any or all of the BORROWERS pursuant to this AGREEMENT or any of the LOAN DOCUMENT; (b) taxes and insurance premiums advanced or otherwise paid by the LENDER in connection with the COLLATERAL or on behalf of any or all of the BORROWERS; (c) filing, recording, title insurance, environmental and consulting fees, audit

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fees, search fees and other expenses paid or incurred by the LENDER in connection with the LENDER’S transactions with any or all of the BORROWERS; (d) costs and expenses incurred by the LENDER in the collection of the ACCOUNTS (with or without the institution of legal action), or to enforce any provision of this AGREEMENT, or in gaining possession of, maintaining, handling, evaluating, preserving, storing, shipping, selling, preparing for sale and/or advertising to sell the COLLATERAL or any other property of any of the BORROWERS whether or not a sale is consummated; (e) costs and expenses of litigation incurred by the LENDER, or any participant of the LENDER in any of the OBLIGATIONS, in enforcing or defending this AGREEMENT or any portion hereof or in collecting any of the OBLIGATIONS; (f) reasonable attorneys’ fees and expenses incurred by the LENDER in obtaining advice or the services of its attorneys with respect to the structuring, drafting, negotiating, reviewing, amending, terminating, enforcing or defending of this AGREEMENT, or any portion hereof or any agreement or matter related hereto, whether or not litigation is instituted; and (g) travel expenses related to any of the foregoing.

Section 1.61. Leverage Ratio. The term “LEVERAGE RATIO” means the ratio of (a) total liabilities of the BORROWERS, less the principal balance outstanding under the HINDMAN NOTE to the extent the same has been subordinated to the OBLIGATIONS on terms and conditions satisfactory to the LENDER; to (b) TANGIBLE NET WORTH of the BORROWERS, plus the principal balance outstanding under the HINDMAN NOTE to the extent the same has been subordinated to the OBLIGATIONS on terms and conditions satisfactory to the LENDER.

Section 1.62. Letters Of Credit. The term “LETTERS OF CREDIT” means collectively letters of credit issued from time to time by the LENDER for the account or benefit of any or all of the BORROWERS.

Section 1.63. LIBOR Borrowing. The term “LIBOR BORROWING” means each amount of the unpaid principal balance of the LOAN which is designated by the BORROWERS in accordance with the terms of this AGREEMENT to accrue interest at the ADJUSTED LIBOR RATE for a separately designated INTEREST PERIOD.

Section 1.64. LIBOR Rate. The term “LIBOR RATE” means, for any LIBOR BORROWING for any INTEREST PERIOD therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%), quoted for a term equal to the applicable INTEREST PERIOD in The Wall Street Journal under the heading “Interest Rates,” one (1) BUSINESS DAY prior to the first day of such INTEREST PERIOD. If for any reason such rate is not available, the LENDER shall calculate the LIBOR RATE using such alternative index for the London interbank offered rate as the LENDER may determine in its sole discretion.

Section 1.65. Loan. The term “LOAN” means the revolving credit facility extended by the LENDER to the BORROWERS as co-obligors in accordance with the terms set forth in this AGREEMENT.

Section 1.66. Loan Documents. The term “LOAN DOCUMENTS” means all agreements, instruments and documents, including without limitation each document listed as a “Loan Document” on a Closing Index of even date herewith, together with all other loan agreements (including without limitation this AGREEMENT), notes (including without limitation the NOTE), guarantees, subordination agreements, intercreditor agreements, pledges, affidavits, powers of attorney, consents, assignments, landlord and mortgage waivers, opinions, collateral assignments, reimbursement agreements, contracts, notices, leases, financing statements, mortgages, deeds of trust, assignments of rents or contract proceeds, intellectual property security agreements, pledges, letter of credit applications, INTEREST RATE PROTECTION AGREEMENTS, and all other written matter, whether heretofore, now or hereafter executed by or on behalf of any or all of the BORROWERS, any GUARANTOR, or by any other PERSON in connection with any of the OBLIGATIONS.

Section 1.67. Lock Box. The term “LOCK BOX” has the meaning given that term in Section 3.5 of this AGREEMENT.

Section 1.68. Long Term Debt. The term “LONG TERM DEBT” means all obligations of the BORROWERS to any PERSON, including, but not limited to, the OBLIGATIONS, payable more than twelve (12) months from the date of its creation, which in accordance with G.A.A.P. is shown on the balance sheet as a liability (excluding reserves for deferred income taxes).

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Section 1.69. Material Adverse Event. The term “MATERIAL ADVERSE EVENT” means the occurrence of any event, condition, or omission which the LENDER in the good faith reasonable exercise of the LENDER’S discretion determines could be expected to have a material adverse effect upon: (a) the condition (financial or otherwise), results of operations, properties, assets, liabilities (including, without limitation, tax liabilities, liabilities under ENVIRONMENTAL LAWS, and ERISA LIABILITIES), businesses, operations (including but not limited to continuation by the BORROWERS of satisfactory supplier agreements, including the BORROWERS’ supplier agreement with [Autodesk]), capitalization, equity, licenses, franchises or prospects of any of the BORROWERS or of any GUARANTOR; (b) the ability of any of the BORROWERS or of any GUARANTOR to perform any of the OBLIGATIONS when and as required by the terms of the LOAN DOCUMENTS; (c) the rights and remedies of the LENDER as provided by the LOAN DOCUMENTS; or (d) the value, condition, use, or availability of any of the COLLATERAL or upon any of the LENDER’S liens and security interests securing the OBLIGATIONS.

Section 1.70. Maturity Date. The term “MATURITY DATE” means December 31,2006, as such date may be extended by written agreement of the LENDER.

Section 1.71. Maximum Loan Amount. The term “MAXIMUM LOAN AMOUNT” means the lesser of the BORROWING BASE or the DOLLAR CAP.

Section 1.72. Minimum Borrowing Amount. The term “MINIMUM BORROWING AMOUNT” means: (a) for BASE RATE BORROWINGS, Five Thousand Dollars ($5,000.00); and (b) for LIBOR BORROWINGS, Five Thousand Dollars ($5,000.00).

Section 1.73. Multiemployer Plan. The term “MULTIEMPLOYER PLAN” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA which is maintained for employees of the BORROWERS, or any ERISA AFFILIATE of the BORROWERS.

Section 1.74. Note. The term “NOTE” means the Revolving Loan Promissory Note of even date herewith from the BORROWERS as co-makers thereof which is payable to the order of the LENDER in the stated principal amount of Five Million Dollars ($5,000,000.00).

Section 1.75. Obligations. The term “OBLIGATIONS” means collectively all of the obligations of each of the BORROWERS to pay to the LENDER: (a) sums due to the LENDER arising out of or in connection with the LOAN or otherwise pursuant to the terms of the LOAN DOCUMENTS; (b) indemnification obligations owed by any or all of the BORROWERS to the LENDER in accordance with the terms of the LOAN DOCUMENTS; (c) LENDER EXPENSES; (d) overdrafts of any of the BORROWERS upon any accounts with the LENDER; (e) payments, duties or obligations owed to the LENDER arising from or with respect to INTEREST RATE PROTECTION AGREEMENTS, foreign exchange facilities or currency transactions, existing or arising from time to time; (f) any sums owed to the LENDER arising out of or relating to any LETTERS OF CREDIT including, without limitation, all reimbursement and indemnification obligations, and obligations to pay fees; (g) all duties of payment and performance owed to the LENDER in connection with any guaranties; (h) all other indebtedness or liability of any of the BORROWERS to the LENDER, whether direct or indirect, joint or several, absolute or contingent, contemplated or not presently contemplated, now existing or hereafter arising; and (i) any indebtedness or liability which may exist or arise as a result of any payment made by or for the benefit of any of the BORROWERS being avoided or set aside for any reason including, without limitation, any payment being avoided as a preference under Sections 547 and 550 of the United States Bankruptcy Code, as amended, or under any state law governing insolvency or creditors’ rights.

Section 1.76. Payment Date. The term “PAYMENT DATE” means the first BUSINESS DAY of each consecutive calendar month. The first PAYMENT DATE is January 1, 2006.

Section 1.77. Permitted Liens. The term “PERMITTED LIENS” means: (a) liens for taxes, assessments, or similar charges incurred in the ordinary course of business that are not yet due and payable; (b) liens in favor of the LENDER; (c) any existing liens specifically described on Schedule 1.78 hereof; (d) any lien on specifically allocated money or securities to secure payments under workmen’s compensation, unemployment insurance, social security and other similar LAWS, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations or appeal bonds, or to secure indemnity, performance or other similar bonds in

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the ordinary course of business; (e) purchase money security interests for EQUIPMENT not to exceed in aggregate amount outstanding at any one time the sum of One Hundred Fifty Thousand Dollars ($150,000.00), provided that such purchase money security interests do not attach to any assets other than the specific item(s) of EQUIPMENT acquired with the proceeds of the loan secured by such purchase money security interests; and (f) subsequently arising liens which are expressly approved in advance of the creation of any such liens by the LENDER in writing.

Section 1.78. Person. The term “PERSON” means any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, estate, unincorporated organization, joint venture, court, government or political subdivision or agency thereof, or other legal entity.

Section 1.79. Prime Rate. The term “PRIME RATE” means the rate of interest announced from time to time by the LENDER, in its sole discretion, as its prime lending rate of interest, it being understood that such announced rate bears no inference, implication, representation, or warranty that such announced rate is charged to any particular customer or customers of the LENDER. The LENDER’S prime lending rate of interest is but one of several interest rate bases used by the LENDER. Changes in the applicable interest rate shall be made as of, and immediately upon, the occurrence of changes in the LENDER’S prime rate.

Section 1.80. Quick Ratio. The term “QUICK RATIO” means, any time, the ratio of (a) the aggregate amount of cash and ACCOUNTS of the BORROWERS, at such time, determined in accordance with G.A.A.P., to (b) CURRENT LIABILITIES.

Section 1.81. Receivables. The term “RECEIVABLES” means all of the ACCOUNTS, INSTRUMENTS, DOCUMENTS, GENERAL INTANGIBLES, CHATTEL PAPER, PAYMENT INTANGIBLES, and PROMISSORY NOTES, now existing or hereafter created or acquired, and all proceeds and products thereof, and all rights thereto, arising from the sale or lease of or the providing of INVENTORY, GOODS, or services by any of the BORROWERS to ACCOUNT DEBTORS, as well as all other rights, contingent or non-contingent, of any kind of any of the BORROWERS to receive payment, benefit, or credit from any PERSON.

Section 1.82. Records. The term “RECORDS” means correspondence, memoranda, tapes, discs, papers, books and other documents, or transcribed information of any type, whether expressed in ordinary, computer or machine language.

Section 1.83. Regulated Substance. The term “REGULATED SUBSTANCE” means any substance which, pursuant to any ENVIRONMENTAL LAW, is identified as a hazardous substance (or other term having similar import) or is otherwise subject to special requirements in connection with the use, storage, transportation, disposition or other handling thereof.

Section 1.84. Regulatory Change. The term “REGULATORY CHANGE” means any change after the date of CLOSING in the LAWS of the United States, any state thereof, or any other GOVERNMENTAL AUTHORITY, or the adoption or making after such date, of any interpretations, changes in convention, directives or requests applying to a class of depository institutions, including any LENDER, of or under any LAWS of the United States, any state thereof, or any other GOVERNMENTAL AUTHORITY (whether or not any such interpretation, directive or request has the force of LAW).

Section 1.85. Release. The term “RELEASE” means a “release” as defined in Section 101(22) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as now or hereafter amended.

Section 1.86. Reserve Requirement. The term “RESERVE REQUIREMENT” means for any day during the referenced period the maximum rate at which reserves (including without limitation any marginal, special, supplemental or emergency reserves) are required to be maintained during such period under Regulation D of the Board of Governors of the Federal Reserve System, from time to time in effect (or any successor or other regulation or legal requirement relating to reserve requirements applicable to member banks of the Federal Reserve System) by member banks of the Federal Reserve System against “Eurocurrency Liabilities” as currently defined in Regulation D (or against any other category of liabilities which includes deposits by reference to which the interest rate on LIBOR BORROWINGS or loans is determined or any category of extensions of credit or other assets which include loans by a non-United States office of

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a bank to United States residents), whether or not the LENDER has any “Eurocurrency Liabilities” subject to such reserve requirements during the referenced period. LIBOR BORROWINGS shall be deemed to constitute “Eurocurrency Liabilities,” and as such shall be deemed subject to reserve requirements without benefits or credits for proration, exceptions or offsets that may be available from time to time to the LENDER. The ADJUSTED LIBOR RATE shall be adjusted automatically on and as of the effective date of any change in the RESERVE REQUIREMENT.

Section 1.87. Restricted Payment. The term “RESTRICTED PAYMENT” means collectively: (a) any dividend or other payment or distribution, direct or indirect, on account of any (i) common stock ownership in the BORROWERS, (ii) preferred stock ownership of the BORROWERS at any time during which any EVENT OF DEFAULT exists, or (iii) equity interest in any of the BORROWERS now or hereafter outstanding, except a dividend or distribution payable solely in the same class or type of equity interest to the holders of that class or type; (b) any redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, by any of the BORROWERS of any equity interest in any of the BORROWERS now or hereafter outstanding; (c) any payment made by any of the BORROWERS to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire equity interests in any of the BORROWERS now or hereafter outstanding; (d) any payment by any of the BORROWERS of any management, consulting or similar fees which are not salary payments in amounts comparable to sums paid in the marketplace for similar services to unrelated employees for services actually performed; (e) any payment by any of the BORROWERS on account of SUBORDINATED DEBT, other than as specifically permitted pursuant to the terms of any subordination agreement in connection therewith.

Section 1.88. Solvent. The term “SOLVENT” means, as to any referenced PERSON, that as of the date of determination both: (a) (i) the then fair saleable value of the property of such PERSON is greater than the total amount of liabilities (including contingent liabilities) of such PERSON and is not less than the amount that will be required to pay the probable liabilities on such PERSON’S then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such PERSON; (ii) such PERSON’S capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such PERSON does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (b) such PERSON is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

Section 1.89. Subordinated Debt. The term “SUBORDINATED DEBT” means all INDEBTEDNESS of any of the BORROWERS which has been subordinated to the payment and performance of the OBLIGATIONS pursuant to written agreements in form and substance satisfactory to the LENDER.

Section 1.90. Subsidiary. The term “SUBSIDIARY” means, with respect to any PERSON, any other PERSON of which securities or other ownership interests representing an aggregate of fifty percent (50%) or more of the equity or the ordinary voting power are, at the time as of which any determination is being made, owned or controlled directly, or indirectly through one or more intermediaries, by such PERSON.

Section 1.91. Tangible Net Worth. The term “TANGIBLE NET WORTH” means the excess of assets, excluding any and all intangible assets such as, but not limited to, goodwill, licenses, trademarks, patents, copyrights, organizational costs, appraisal surplus, officer and stockholder advances or receivables, mineral rights and the like, over liabilities, all determined in accordance with G.A.A.P.

Section 1.92. Termination Event. The term “TERMINATION EVENT” means: (a) a “Reportable Event” described in Section 4043 of ERISA and the regulations issued thereunder, but not including any such event for which the 30-day notice requirement has been waived by applicable regulation; (b) the withdrawal of any of the BORROWERS or an ERISA AFFILIATE of any of the BORROWERS from a GUARANTEED PENSION PLAN during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA; (c) the filing of a notice of intent to terminate a GUARANTEED PENSION PLAN or the treatment of a GUARANTEED PENSION PLAN amendment as a termination under Section 4041 of ERISA; (d) the institution of proceedings to terminate a GUARANTEED PENSION PLAN by the Pension Benefit Guaranty Corporation; (e) the withdrawal or partial withdrawal of any of the BORROWERS or an ERISA AFFILIATE of any of the BORROWERS from a MULTIEMPLOYER PLAN; or (f) any

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other event or condition which might reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any GUARANTEED PENSION PLAN.

Section 1.93. TLC. The term “TLC” means Technical Learningware Company, Inc., a Delaware corporation, and a wholly-owned subsidiary of AVATECH.

ARTICLE 2.

TERMS OF THE LOAN

Section 2.1. Agreement To Extend The Loan. Subject to the terms and conditions stated herein, the LENDER agrees to extend the LOAN to the BORROWERS as co-obligors from time to time until the MATURITY DATE. The LENDER shall advance proceeds of the LOAN to the BORROWERS by depositing into the COMMERCIAL ACCOUNT or in accordance with such other procedures as may be agreed to between the LENDER and the BORROWERS, such sums as any of the BORROWERS may request, provided that: (a) the aggregate outstanding principal balance of the LOAN shall never exceed at any time the MAXIMUM LOAN AMOUNT; (b) the minimum average net borrowing availability under the LOAN, measured quarterly, shall be at least Five Hundred Thousand Dollars ($500,000.00); (c) any advances in excess of the aggregate principal amount of Four Million Dollars ($4,000,000.00) may be made only in the sole discretion of the LENDER. The BORROWERS shall not request or permit any advance of proceeds of the LOAN which would cause the aggregate amount of advances made to or for the BORROWERS and outstanding under the LOAN DOCUMENTS to exceed the MAXIMUM LOAN AMOUNT or the other limitations set forth above. In the event that the principal balance outstanding under the LOAN ever exceeds the MAXIMUM LOAN AMOUNT or such other limitations, the BORROWERS shall immediately, upon the demand of the LENDER, reduce the principal balance of the LOAN to an amount which is not in excess of the MAXIMUM LOAN AMOUNT or such limitations. Any termination of the LOAN by the LENDER shall relieve the LENDER of the LENDER’S obligation to lend money or to make financial accommodations to or for any or all of the BORROWERS and the BORROWERS’ accounts, and shall in no way release, terminate, discharge or excuse any of the BORROWERS from its absolute duty to pay or perform the OBLIGATIONS.

Section 2.1.1. Revolving Loan Promissory Note. The obligations of the BORROWERS to repay the LOAN to the LENDER shall be further evidenced by the REVOLVING LOAN PROMISSORY NOTE.

Section 2.1.2. Procedure For Revolving Loan Borrowings. The BORROWERS may borrow proceeds of the LOAN until (but not including) the MATURITY DATE, provided, that the BORROWERS deliver to the LENDER an irrevocable notice (which notice must be received by the LENDER prior to 10:00 a.m. Baltimore, Maryland time on the requested BORROWING DATE) specifying: (i) the amount to be borrowed, (ii) the requested BORROWING DATE, (iii) whether the borrowing is to be a LIBOR BORROWING, a BASE RATE BORROWING, or a combination thereof, and (iv) if the borrowing is to be entirely or partly a LIBOR BORROWING, the notice of election described in Section 2.2.2 of this AGREEMENT. The above-described notice may be delivered to the LENDER via facsimile or electronic mail, with telephone confirmation. Such borrowing will be made available to the BORROWERS on or prior to 1:00 p.m. Baltimore, Maryland time by the LENDER crediting the COMMERCIAL ACCOUNT. Each borrowing under the LOAN shall be in a principal amount of not less than the MINIMUM BORROWING AMOUNT.

Section 2.1.3. Repayment Of Loan. Each of the BORROWERS, jointly and severally, unconditionally promises to pay to the LENDER the then unpaid principal amount of the LOAN and all other unpaid sums due to the LENDER pursuant to the LOAN DOCUMENTS on or before the MATURITY DATE (or on any earlier date on which the LOAN becomes due and payable as required by the stated provisions of this AGREEMENT). Each of the BORROWERS, jointly and severally, unconditionally promises to pay to the LENDER all interest which has accrued upon the unpaid principal amount of the LOAN from time to time outstanding from the date of CLOSING until the date of payment in full of the LOAN at the rates per annum, and on the dates set forth in Sections 2.2.1 and 2.2.2 of this AGREEMENT. All sums due to the LENDER in connection with the LOAN shall be paid in full on or before the MATURITY DATE.

Section 2.1.4. Permitted Purposes of the Loan. The proceeds of the LOAN shall be used by the BORROWERS solely (a) to repay in full all of the obligations of the BORROWERS to K Bank, (b) to repay in full all

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obligations owed by BORROWERS under the Loan Agreement dated July 22, 2003 between AVATECH and Dassault Systemes Corp. in the maximum principal amount of One Million Five Hundred Thousand ($1,500,000.00); and (c) to fund the general working capital needs of the BORROWERS.

Section 2.2. Interest Terms Applicable To The Loan. Interest shall accrue upon the unpaid principal balance of the LOAN until the LOAN has been repaid in full at the rate or rates described below in this Section 2.2.

Section 2.2.1. Adjusted Base Rate. Except as otherwise provided by the terms of this AGREEMENT, the LOAN shall bear interest on the unpaid principal balance at the fluctuating ADJUSTED BASE RATE. Absent a timely election by the BORROWERS in accordance with Section 2.2.2 of this AGREEMENT, the unpaid balance of the LOAN, including any balance of any LIBOR BORROWING for which the applicable INTEREST PERIOD has expired, automatically shall be deemed to bear interest at the ADJUSTED BASE RATE. Changes in the interest rate shall be made when and as changes in the BASE RATE occur. For each BASE RATE BORROWING, all accrued and unpaid interest shall be payable monthly in arrears on each consecutive PAYMENT DATE. Each election by the BORROWERS of a BASE RATE BORROWING shall be in the MINIMUM BORROWING AMOUNT, or any multiple thereof.

Section 2.2.2. Adjusted LIBOR Rate Option. Subject to the terms of this Section, interest may accrue at the election of the BORROWERS for INTEREST PERIODS selected by the BORROWERS, at the ADJUSTED LIBOR RATE on portions of the unpaid principal balance of the LOAN. Any LIBOR BORROWING or election for a LIBOR BORROWING pursuant to the provisions of this Section shall be subject to the following terms and conditions:

a. Payments. For each of the LIBOR BORROWINGS, accrued interest shall be paid to the LENDER in arrears on each consecutive PAYMENT DATE during each INTEREST PERIOD and on the last day of each applicable INTEREST PERIOD.

b. Notice Of Election. By 10:00 a.m. Baltimore, Maryland time on the BUSINESS DAY on which the BORROWERS desire that an INTEREST PERIOD commence, the BORROWERS shall deliver a written election to the LENDER specifying: (1) the commencement date of the relevant INTEREST PERIOD; and (2) the dollar amount of that portion of the total aggregate principal amount of the applicable LOAN which is to bear interest at the ADJUSTED LIBOR RATE, which amount shall not be less than the MINIMUM BORROWING AMOUNT or any multiple thereof.

c. Effect Of Election. Interest shall accrue from and including the first day of each INTEREST PERIOD selected by the BORROWERS to (but not including) the last day of such INTEREST PERIOD at the ADJUSTED LIBOR RATE determined as applicable to such INTEREST PERIOD upon the amount of the unpaid principal balance of the LOAN identified by the BORROWERS in the BORROWERS’ written election.

(i) Interest Periods. There shall be no more than one (1) INTEREST PERIOD outstanding at any one time. No INTEREST PERIOD may expire after the MATURITY DATE.

(ii) Availability. If the LENDER determines at any time that a REGULATORY CHANGE or a change in market conditions has made it impractical for the LENDER to offer pricing based on the ADJUSTED LIBOR RATE, the LENDER may give notice of such determination to the BORROWERS, and all advances which are then accruing interest at an ADJUSTED LIBOR RATE shall, on the last day(s) of the then applicable current INTEREST PERIOD(S) automatically and without further notice, begin to accrue interest at the ADJUSTED BASE RATE. Until such time as the LENDER determines that a REGULATORY CHANGE or a change in market conditions has again made it practical for the LENDER to offer pricing at the ADJUSTED LIBOR RATE, the LENDER will not be obligated to further offer pricing based upon the ADJUSTED LIBOR RATE, and any notice from the BORROWERS requesting such a rate option will be ineffective.

(iii) Breakage Costs. Each of the BORROWERS, jointly and severally, agrees to compensate the LENDER from time to time, upon demand from the LENDER, for all losses, expenses, lost earnings, costs and liabilities (including, without limitation, all interest paid to lenders of funds

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borrowed by the LENDER to carry LIBOR BORROWINGS) which the LENDER sustains if: (a) any repayment or prepayment of any LIBOR BORROWINGS (including, without limitation, any payment resulting from the acceleration of the LOAN in accordance with the terms of this AGREEMENT) or any conversion of a LIBOR BORROWING for any reason occurs on a date which is not the last day of the applicable INTEREST PERIOD; or (b) any failure by the BORROWERS to borrow a LIBOR BORROWING or convert a BASE RATE BORROWING to a LIBOR BORROWING on the date for such borrowing or conversion specified in the relevant notice of election given by the BORROWERS to the LENDER in accordance with the terms of this AGREEMENT.

(iv) Termination Of Right To Elect LIBOR Borrowings. Notwithstanding anything to the contrary set forth in this AGREEMENT, and without limiting any other rights and remedies of the LENDER, the LENDER during any continuing DEFAULT may suspend the right of the BORROWERS to convert any BASE RATE BORROWING into a LIBOR BORROWING or to permit any LIBOR BORROWING to be renewed as a LIBOR BORROWING, in which case the LOAN shall be converted (on the last days of the respective INTEREST PERIODS therefor) or continued, as the case may be, as a BASE RATE BORROWING.

Section 2.2.3. Calculation Of Interest. Interest shall be calculated upon LIBOR BORROWINGS on the basis of a 365 or 366 days per year factor applied to the actual days on which there exists an unpaid balance of the LIBOR BORROWINGS. Interest shall be calculated upon BASE RATE BORROWINGS on the basis of a 360 day per year factor applied to the actual days on which there exists an unpaid balance of the BASE RATE BORROWINGS.

Section 2.2.4. Default Interest. The interest rates payable upon the LOAN may be increased during any continuing EVENT OF DEFAULT by the LENDER to that rate (the “DEFAULT RATE”) equal to the BASE RATE plus four hundred (400) BASIS POINTS until the EVENT OF DEFAULT has been cured to the satisfaction of the LENDER.

Section 2.2.5. Maximum Rate Of Interest. Any provision contained in the LOAN DOCUMENTS to the contrary notwithstanding, the LENDER shall not be entitled to receive or collect, nor shall the BORROWERS be obligated to pay, interest, fees, or charges thereunder in excess of the maximum rate of interest permitted by any applicable LAW, and if any provision of this AGREEMENT, the NOTE or any of the other LOAN DOCUMENTS is construed or held by any court of law or GOVERNMENTAL BODY having jurisdiction to permit or require the charging, collection or payment of any amount of interest in excess of that permitted by such LAWS, the provisions of this Section shall control and shall override any contrary or inconsistent provision. The intention of the parties is to at all times conform strictly with all applicable usury requirements and other LAWS limiting the maximum rates of interest which may be lawfully charged upon the LOAN. The interest to be paid pursuant to the NOTE shall be held subject to reduction to the amount allowed under said usury or other laws as now or hereafter construed by the courts having jurisdiction, and any sums of money paid in excess of the interest rate allowed by applicable law shall be applied in reduction of the principal amount owing pursuant to the NOTE. Each of the BORROWERS acknowledges and irrevocably stipulates for all purposes that it has been contemplated at all times by the parties that the LAWS of the State of Maryland will govern the maximum rate of interest that it is permissible for the LENDERS to charge the BORROWERS.

Section 2.3. Late Payment Charges. Any payment of principal, interest or fees due upon the LOAN (including any final payment) which is received by the LENDER more than fifteen (15) calendar days after its due date shall incur a late payment charge equal to five percent (5%) of the amount of the payment due. All late payment charges shall be payable upon the demand of the LENDER. The existence of the right by the LENDER to receive a late payment charge shall not be deemed to constitute a grace period or provide any right to the BORROWERS to make a payment other than on such payment’s scheduled due date.

Section 2.4. Voluntary Prepayments. Any principal balance of the LOAN accruing interest at the ADJUSTED LIBOR RATE may be prepaid in whole or in part at any time without penalty or premium upon notice to the LENDER not less than two (2) BUSINESS DAYS prior to the date of repayment, provided that the LENDER is compensated for any breakage costs incurred by the LENDER as a result of any such repayment in accordance with the

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provisions of Section 2.2.2 (d) of this AGREEMENT. Any principal balance of the LOAN bearing interest at the BASE RATE may be prepaid in whole or in part at any time without penalty or premium.

Section 2.5. Yield Protection. If the adoption or change of any LAW, rule, or any change in the interpretation or administration thereof by any GOVERNMENTAL AUTHORITY, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by the LENDER with any request or directive (whether or not having the force of law) of any such GOVERNMENTAL AUTHORITY, central bank, or comparable agency or any REGULATORY CHANGE after the date of CLOSING: (a) subjects the LENDER to any tax, duty, or other charge with respect to the LOAN, or changes the basis of taxation of any amounts payable to the LENDER under this AGREEMENT or otherwise with respect to any OBLIGATIONS (other than taxes imposed on the overall net income of the LENDER by the jurisdiction in which the LENDER has its principal office); (b) imposes, modifies, or deems applicable any reserve, special deposit, assessment, compulsory loan, or similar requirement (other than the RESERVE REQUIREMENT utilized in the determination of the ADJUSTED LIBOR RATE) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, the LENDER, including the LOAN, extended by the LENDER hereunder or any other OBLIGATIONS owing to the LENDER; or (c) imposes on the LENDER or the applicable interbank market any other condition affecting this AGREEMENT or any OBLIGATION or any of such extensions of credit or liabilities or commitments or the costs of deposits maintained by the LENDER in obtaining funds to carry the LOAN or any of the other OBLIGATIONS; and the result of any of the foregoing is to increase the cost to the LENDER of the making, converting into, continuing, or maintaining or participating in the LOAN or other OBLIGATIONS or to reduce any yield or sum received or receivable by the LENDER under this AGREEMENT with respect to any LOAN or other OBLIGATION, then the BORROWERS, jointly and severally, agree to pay to the LENDER on demand such amount or amounts as will compensate the LENDER for such increased cost or reduction. If the LENDER claims compensation under this Section, the LENDER shall furnish to the BORROWERS a statement setting forth the reason and the additional amount or amounts to be paid to the LENDER hereunder which shall be conclusive in the absence of manifest error. In determining such amount, the LENDER may use any reasonable averaging and attribution methods.

Section 2.6. Lender’s Records. The date and amounts of each advance made by the LENDER and each payment made by any of the BORROWERS shall be recorded by the LENDER on the books and records of the LENDER, but any failure to record such dates or amounts shall not relieve any of the BORROWERS of its duties and obligations under the LOAN DOCUMENTS. Interest accrued upon the LOAN shall be computed on outstanding balances as reflected on the LENDER’S books and records.

Section 2.7. Commitment Fee. For each calendar quarter or portion thereof during which the LOAN is in existence and has not been terminated, until the termination of the LOAN, the BORROWERS shall pay to the LENDER a commitment fee of one-quarter of one percent (1/4%) per annum on that sum obtained by subtracting the average daily disbursed principal balance of the LOAN during such calendar quarter or portion thereof from the DOLLAR CAP, less One Million Dollars ($1,000,000.00). The commitment fee shall be payable quarterly in arrears, on the first day of each succeeding quarter or on the last day of a portion of a quarter commencing with the first of such payments to be made on January 1, 2006. The commitment fee is not to be considered a fee being paid by the BORROWERS to the LENDER as an inducement to the LENDER to make advances, nor shall it be considered to modify or limit the ability of the LENDER to terminate in accordance with the provisions of this AGREEMENT the ability of the BORROWERS to borrow under the LOAN, but is instead intended as part of the compensation which is earned by the LENDER for agreeing to provide the LOAN in accordance with the terms of the LOAN DOCUMENTS.

Section 2.8. Conditions Precedent To Each Advance. The obligation of the LENDER to make any advances under the LOAN, including the initial advance, shall be subject to the procedures set forth in Sections 2.1.2 and 2.2 below and to each of the following conditions precedent:

Section 2.8.1. No Defaults Or Events Of Default. No event shall have occurred on or prior to such date and be continuing on such date, and no condition shall exist on such date, which constitutes a DEFAULT or EVENT OF DEFAULT.

Section 2.8.2. Continuing Accuracy Of Representations And Warranties. Each of the representations and warranties made by or on behalf of the BORROWERS or by the GUARANTOR to the LENDER in

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the LOAN DOCUMENTS shall be true and correct in all material respects when made and shall be deemed to be repeated as true, accurate and complete as of the date of the BORROWERS’ request for each advance.

Section 2.8.3. Receipt Of Reports. The LENDER shall be in receipt of all reports, financial statements, financial information and financial disclosures required by the LOAN DOCUMENTS, except to the extent that the LENDER has waived the receipt thereof.

Section 2.8.4. Subordination Agreements. The HINDMAN NOTE, and any security interest securing same, shall be subordinated to the OBLIGATIONS and to the liens and security interests of the LENDER on terms and conditions satisfactory to the LENDER. The outstanding principal balance of the HINDMAN NOTE shall be not greater than Nine Hundred Two Thousand One Hundred Sixty-Eight Dollars and Eighty Cents ($902,168.80) as of the date of CLOSING.

Section 2.8.5. No Illegalities. It shall not be unlawful for the LENDER to perform any of the agreements or obligations imposed upon the LENDER by any of the LOAN DOCUMENTS or for any of the BORROWERS or the GUARANTOR to perform any of their respective agreements or obligations as provided by the LOAN DOCUMENTS.

Section 2.8.6. No Material Adverse Event. No MATERIAL ADVERSE EVENT shall have occurred and be then continuing.

Section 2.9. Letters Of Credit.

Section 2.9.1. Issuance Of Letters Of Credit. The LENDER may in its sole discretion issue LETTERS OF CREDIT as requested by any of the BORROWERS, provided that no DEFAULT or EVENT OF DEFAULT has occurred and is continuing and provided that the aggregate amount of all LETTERS OF CREDIT issued and outstanding and any reimbursement obligations owed to the LENDER arising out of any LETTERS OF CREDIT do not exceed Two Hundred Thousand Dollars ($200,000.00). No LETTER OF CREDIT shall have an expiry date which occurs after the stated maturity date or termination date of the LOAN. Any amounts paid by the LENDER in connection with any LETTER OF CREDIT shall be treated as an advance of proceeds of the LOAN, shall be secured by all of the COLLATERAL, and shall bear interest (including the default rate of interest) and be payable at the same rate and in the same manner as the LOAN.

Section 2.9.2. Rights And Remedies Of The Lender. In the event that, coincident with or subsequent to the occurrence of, and during the continuance of, a DEFAULT or an EVENT OF DEFAULT, the LENDER becomes aware of the possibility of a draw, or enforcement of the LENDER’S obligations, under a LETTER OF CREDIT, the LENDER, at its option, may, but shall not be required to, pay the obligations to the beneficiary or holder of such LETTER OF CREDIT directly to such beneficiary or holder, and, in such event, the amount of any such payment made by the LENDER shall be treated for all purposes and shall have the same force and effect as if such amount had been loaned by the LENDER to the BORROWERS as an advance of proceeds of the LOAN, shall be secured by all of the COLLATERAL and shall bear interest and be payable at the same rate (including the default rate of interest) and in the same manner as the LOAN. If any LETTER OF CREDIT is drawn upon to discharge any obligation of any of the BORROWERS to the beneficiary of such LETTER OF CREDIT, in whole or in part, the LENDER shall be fully subrogated to the rights of such beneficiary with respect to the obligations owed by such BORROWER to such beneficiary discharged with the proceeds of the LETTER OF CREDIT.

Section 2.9.3. Indemnification. The BORROWERS jointly and severally and unconditionally and irrevocably agree to indemnify the LENDER and to hold the LENDER harmless from any and all losses, claims or liabilities arising from any transactions or occurrences relating to LETTERS OF CREDIT issued, established, opened or accepted for the account of any of the BORROWERS, and any drafts or acceptances thereunder, and all OBLIGATIONS incurred in connection therewith, other than losses, claims or liabilities arising from the gross negligence or wanton misconduct of the LENDER.

Section 2.9.4. Reimbursement Obligations. The BORROWERS jointly and severally agree to reimburse the LENDER on the day of drawing (or upon such later date as any or all of the BORROWERS receives notice

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of the payment of the presented draft by the LENDER) upon any LETTER OF CREDIT (either with the proceeds of the LOAN obtained hereunder or otherwise) in same day funds in the amount of the drawing. If the BORROWERS fail to reimburse the LENDER as provided herein or as provided in any separate letter of credit application agreements or other LOAN DOCUMENTS, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the highest interest rate (including the default rate of interest) applicable to the LOAN. The BORROWERS’ reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of set-off, counterclaim or defense to payment any of the BORROWERS may claim or have against the LENDER, the beneficiary of the LETTER OF CREDIT or any other PERSON, including, without limitation, any defense based on any failure of any of the BORROWERS to receive consideration or the legality, validity, regularity or unenforceability of the LETTER OF CREDIT or any irregularities in the presentment of the draft presented upon the LETTER OF CREDIT.

Section 2.9.5. Fees, Charges And Other Terms. The BORROWERS jointly and severally agree to pay to the LENDER such issuance, amendment, extension and other fees as the LENDER quotes from time to time with respect to each LETTER OF CREDIT, and shall execute such applications, reimbursement agreements, or other documents as the LENDER requires from time to time with respect to the issuance, extension, amendment, or any other requested or required action concerning a LETTER OF CREDIT.

Section 2.10. Capital Adequacy. If the LENDER determines at any time that the adoption or implementation of any CAPITAL ADEQUACY REQUIREMENT, or the compliance therewith by the LENDER or any corporation or other PERSON controlling the LENDER, affects the amount of capital to be maintained by the LENDER or any PERSON controlling the LENDER as a result of its obligations hereunder, or reduces the effective rate of return on the LENDER’S or such controlling PERSON’S capital to a level below that which the LENDER or such controlling PERSON would have achieved but for such CAPITAL ADEQUACY REQUIREMENT as a consequence of its obligations hereunder (taking into consideration the LENDER’S or such controlling PERSON’S policies with respect to capital adequacy), then after submission by the LENDER to the BORROWERS of a written request therefor and a statement of the basis for such determination, the BORROWERS shall pay to the LENDER such additional amounts as will compensate the LENDER or the controlling PERSON for the cost of maintaining the increased capital or for the reduction in the rate of return on capital, together with interest thereon at the highest rate of interest then in effect under the NOTE from the date the LENDER requests such additional amounts until those amounts are paid in full.

Section 2.11. Payments. All payments received by the LENDER which are to be applied to reduce the OBLIGATIONS shall be credited to the balances due from any or all of the BORROWERS pursuant to the normal and customary practices of the LENDER, but shall be provisional and shall not be considered final unless and until such payment is not subject to avoidance under any provision of the United States Bankruptcy Code, as amended, including Sections 547 and 550, or any state law governing insolvency or creditors’ rights. If any payment is avoided or set aside under any provision of the United States Bankruptcy Code, including Sections 547 and 550, or any state law governing insolvency or creditors’ rights, the payment shall be considered not to have been made for all purposes of this AGREEMENT and the LENDER shall adjust its records to reflect the fact that the avoided payment was not made and has not been credited against the OBLIGATIONS.

Section 2.12. Advancements. If any of the BORROWERS fails to perform any of its agreements or covenants contained in this AGREEMENT or if any of the BORROWERS fails to protect or preserve the COLLATERAL or the status and priority of the security interest of the LENDER in the COLLATERAL, the LENDER may make advances to perform the same on behalf of such BORROWER to protect or preserve the COLLATERAL or the status and priority of the security interest of the LENDER in the COLLATERAL, and all sums so advanced shall immediately upon advance become secured by the security interests granted in this AGREEMENT, and shall become part of the principal amount owed to the LENDER with interest to be assessed at the applicable rate thereon and subject to the terms and provisions of this AGREEMENT and all of the LOAN DOCUMENTS. The BORROWERS shall repay on demand all sums so advanced on any BORROWER’S behalf, plus all expenses or costs incurred by the LENDER, including reasonable legal fees, with interest thereon at the highest rate authorized in the NOTE. The provisions of this Section shall not be construed to prevent the institution of the rights and remedies of the LENDER upon the occurrence of an EVENT OF DEFAULT. The authorization contained in this Section is not intended to impose any duty or obligation on the LENDER to perform any action or make any advancement on behalf of any or all of the BORROWERS and is intended to be for the sole benefit and protection of the LENDER.

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Section 2.13. Cross-Guaranty; Waiver Of Suretyship Defenses; Subordination.

Section 2.13.1. Cross-Guaranty. Each BORROWER guarantees to the LENDER the payment in full of all of the OBLIGATIONS of the other BORROWERS and further guarantees the due performance by the other BORROWERS of their respective duties and covenants made in favor of the LENDER hereunder and under the other LOAN DOCUMENTS. Each BORROWER agrees that neither this cross guaranty nor the joint and several liability of the BORROWERS provided in this AGREEMENT nor the LENDER’S liens and rights in any of the COLLATERAL shall be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which the parties hereto may hereafter agree, nor by any modification, release or other alteration of any of the rights of the LENDER with respect to any of the COLLATERAL, nor by any delay, extension of time, renewal, compromise or other indulgence granted by the LENDER with respect to any of the OBLIGATIONS, nor by any other agreements or arrangements whatever with the other BORROWERS or with any other PERSON, each BORROWER hereby waiving all notice of any such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectively as if it had expressly agreed thereto in advance. The liability of each BORROWER hereunder is direct and unconditional as to all of the OBLIGATIONS, and may be enforced without requiring the LENDER first to resort to any other right, remedy or security.

Section 2.13.2. Postponement Of Subrogation. Until all of the OBLIGATIONS are paid in full, no BORROWER shall have any right of subrogation, reimbursement or indemnity whatsoever, nor any right of recourse to security for any of the OBLIGATIONS, and nothing shall discharge or satisfy the liability of a BORROWER hereunder, until the full, final and absolute payment and performance of all of the OBLIGATIONS at any time after all commitments of the LENDER under this AGREEMENT are terminated. Any and all present and future debts and obligations of each BORROWER to each other BORROWER are hereby waived and postponed in favor of and subordinated to the full payment and performance of all present and future OBLIGATIONS.

Section 2.13.3. Subordination. Each BORROWER hereby subordinates any claims (other than claims evidenced by notes which have been assigned and delivered to the LENDER), including, without limitation, any other right of payment, subrogation, contribution and indemnity that it may have from or against the other BORROWERS, and any successor or assign of the other BORROWER, including, without limitation, any trustee, receiver or debtor-in-possession, howsoever arising, due or owing and whether heretofore, now or hereafter existing, to all of the OBLIGATIONS of the other BORROWERS to the LENDER.

Section 2.14. Joint And Several Liability; Appointment Of Agent. Notwithstanding anything to the contrary contained herein, the BORROWERS shall be jointly and severally liable to the LENDER for all OBLIGATIONS, regardless of whether such OBLIGATIONS arise as a result of credit extensions to one BORROWER, it being stipulated and agreed that the LOAN, the LETTERS OF CREDIT, and all of the credit extensions hereunder to one BORROWER inure to the benefit of all BORROWERS, and that the LENDER is relying on the joint and several liability of the BORROWERS in extending the LOAN and in issuing any of the LETTERS OF CREDIT and in providing credit hereunder. To facilitate the administration of the LOAN, AVATECH SUBSIDIARY hereby irrevocably appoints AVATECH as its true and lawful agent and attorney-in-fact with full power and authority to execute, deliver and acknowledge, as appropriate, all LOAN DOCUMENTS or certificates from time to time deemed necessary or appropriate by the LENDER in connection with the LOAN, any LETTERS OF CREDIT, or the issuance or administration of any of the other OBLIGATIONS. This power-of-attorney is coupled with an interest and cannot be revoked, modified or amended without the prior written consent of the LENDER. Upon the request of the LENDER, AVATECH SUBSIDIARY shall execute, acknowledge and deliver to the LENDER a form of power of attorney confirming and restating the power- of- attorney granted herein.

ARTICLE 3.

SECURITY FOR THE OBLIGATIONS

The payment, performance and satisfaction of the OBLIGATIONS shall be secured by the following assurances of payment and security.

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Section 3.1. Grant Of Security Interest. In order to secure the repayment and performance of all OBLIGATIONS, both currently existing and arising in the future, each of the BORROWERS grants to the LENDER an immediate and continuing security interest in and to the COLLATERAL. Each of the BORROWERS further pledges, hypothecates and grants to the LENDER a continuing security interest in and to, all amounts that may be owing at any time and from time to time by the LENDER to any of the BORROWERS in any capacity, including but not limited to any balance or share belonging to any of the BORROWERS of any deposit or other account with the LENDER, which security interest shall be independent of and in addition to any right of set-off to which the LENDER may be entitled.

Section 3.2. Proceeds And Products. The LENDER’S security interests provided for herein shall apply to the proceeds, including but not limited to insurance proceeds, and the products of the COLLATERAL.

Section 3.3. Priority Of Security Interests. Each of the security interests, pledges, and liens granted by each of the BORROWERS to the LENDER pursuant to any of the LOAN DOCUMENTS shall be perfected first priority security interests, pledges, and liens, with the exception of the LENDER’S security interest in INVENTORY purchased by the BORROWERS from Autodesk, Inc., and in proceeds of such INVENTORY generated on a liquidation or foreclosure sale of such INVENTORY by Autodesk, Inc., as to which the security interest of the LENDER shall constitute a second priority security interest subject only to the first priority security interest of Autodesk, Inc.

Section 3.4. Future Advances. The security interests, liens, and pledges granted by each of the BORROWERS to the LENDER pursuant to the LOAN DOCUMENTS shall secure all current and all future advances made by the LENDER to the BORROWERS, or for the account or benefit of any of the BORROWERS, and the LENDER may advance or readvance upon repayment by any of the BORROWERS all or any portion of the sums loaned to the BORROWERS and any such advance or readvance shall be fully secured by the security interests, liens, and pledges created by the LOAN DOCUMENTS.

Section 3.5. Receivable Collections. Each of the BORROWERS shall deposit into the COLLECTION ACCOUNT, immediately upon receipt thereof, all cash, checks, drafts, and other instruments for the payment of money, properly endorsed, which have been received by it in full or partial payment of any RECEIVABLE. Prior to any such deposit by any of the BORROWERS into the COLLECTION ACCOUNT, none of the BORROWERS will commingle such items of payment with any of its other funds or property but will hold them separate and apart. In addition, each of the BORROWERS shall instruct all of its ACCOUNT DEBTORS to make all payments on its RECEIVABLES to a post office box in which the LENDER alone shall have sole access (“LOCK BOX”). If payment of any BORROWER’S RECEIVABLES is paid into the LOCK BOX the LENDER shall, on each BUSINESS DAY, withdraw the items of payment from the LOCK BOX and deposit them into either the COLLECTION ACCOUNT or the COMMERCIAL ACCOUNT, as determined by the LENDER. The LENDER, from time to time, shall apply all of the collected funds held in the COLLECTION ACCOUNT toward payment of all or any part of the OBLIGATIONS, whether or not then due, in such order of application as the LENDER may determine. The LENDER shall have no obligation to provide any provisional or other credit for any deposited funds which are not collected funds free of any rights of return.

Section 3.6. Collection Of Receivables By Lender. The LENDER shall have the right during any continuing DEFAULT or EVENT OF DEFAULT to send notices of assignment or notices of the LENDER’S security interest to any and all ACCOUNT DEBTORS or any third party holding or otherwise concerned with any of the COLLATERAL, and thereafter the LENDER shall have the sole right to collect the RECEIVABLES and to take possession of the COLLATERAL and RECORDS relating thereto. All of the LENDER’S collection expenses shall be charged to the BORROWERS’ accounts and added to the OBLIGATIONS. During any continuing DEFAULT or EVENT OF DEFAULT the LENDER shall have the right to receive, indorse, assign and deliver in the LENDER’S name or the name of any of the BORROWERS any and all checks, drafts and other instruments for the payment of money relating to the RECEIVABLES, and each of the BORROWERS hereby waives notice of presentment, protest and non-payment of any instrument so endorsed. If the LENDER is collecting the RECEIVABLES, each of the BORROWERS hereby constitutes the LENDER or the LENDER’S designee as its attorney-in-fact with power with respect to the RECEIVABLES: (a) to indorse its name upon all notes, acceptances, checks, drafts, money orders or other evidences of payment of COLLATERAL that may come into the LENDER’S possession; (b) to sign its name on any invoices relating to any of the RECEIVABLES, drafts against ACCOUNT DEBTORS, assignments and verifications of RECEIVABLES and notices to ACCOUNT DEBTORS; (c) to send verifications of RECEIVABLES to any ACCOUNT DEBTOR; (d) to notify the Post Office to change the address for delivery of mail addressed to it to such address as the

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LENDER may designate; (e) to receive and open all mail addressed to it and to remove therefrom all cash, checks, drafts and other payments of money; and (f) to do all other acts and things necessary, proper, or convenient to carry out the terms and conditions and purposes and intent of this AGREEMENT. All acts of such attorney or designee are hereby ratified and approved, and such attorney or designee shall not be liable for any acts of omission or commission, nor for any error of judgment or mistake of fact or law in accordance with this AGREEMENT, with the exception of acts arising from actual fraud or gross and wanton negligence. The power of attorney hereby granted, being coupled with an interest, is irrevocable while any of the OBLIGATIONS remain unpaid. The LENDER, without notice to or consent from any of the BORROWERS, may sue upon or otherwise collect, extend the time of payment of or compromise or settle for cash, credit or otherwise upon any terms, any of the RECEIVABLES or any securities, instruments or insurances applicable thereto or release the obligor thereon. The LENDER is authorized and empowered to accept the return of the goods represented by any of the RECEIVABLES, without notice to or consent by any of the BORROWERS, all without discharging or in any way affecting the liability of any of the BORROWERS under the LOAN DOCUMENTS. The LENDER does not, by anything herein or in any assignment or otherwise, assume any of the obligations of any of the BORROWERS under any contract or agreement assigned to the LENDER, and the LENDER shall not be responsible in any way for the performance by any of the BORROWERS of any of the terms and conditions thereof.

Section 3.7. Maintenance Of Principal Accounts. As further security for the OBLIGATIONS, each of the BORROWERS shall maintain its principal transaction and deposit accounts with the LENDER.

Section 3.8. Guaranty Agreements. Each GUARANTOR shall execute and deliver a GUARANTY AGREEMENT which shall guarantee, among other things, the absolute full payment and performance by the BORROWERS of the OBLIGATIONS. TLC shall execute and deliver to the LENDER a Security Agreement pursuant to which TLC shall grant to the LENDER a lien and security interest in and to all tangible and intangible assets of TLC.

Section 3.9. Assignment Of Life Insurance. The BORROWERS shall deliver and cause to be assigned to the LENDER an original life insurance policy acceptable to the LENDER on the life of each of Donald R. Walsh and W. Scott Harris in an amount not less than Five Hundred Thousand Dollars ($500,000.00) issued by an insurer acceptable to the LENDER, which policies and assignments are to be furnished after CLOSING pursuant to the Post Closing Agreement of even date herewith from the BORROWERS to the LENDER.

Section 3.10. Further Assurances. Each of the BORROWERS will, at its expense, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the LENDER may request from time to time in order: (a) to perfect and protect the security interests to be created hereby; (b) to enable the LENDER to exercise and enforce its rights and remedies hereunder in respect of the COLLATERAL; or (c) otherwise to effect the purposes of this AGREEMENT, including, without limitation: (i) upon such BORROWER’S acquisition thereof, delivering to the LENDER each item of CHATTEL PAPER of the BORROWER, (ii) if any RECEIVABLES are evidenced by an INSTRUMENT delivering and pledging to the LENDER such INSTRUMENT duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the LENDER, (iii) executing and filing such financing statements or amendments thereto as may be necessary or desirable or that the LENDER may request in order to perfect and preserve the security interests purported to be created hereby, (iv) upon the acquisition after the date hereof by such BORROWER of any EQUIPMENT covered by a certificate of title or ownership, cause the LENDER to be listed as the lienholder on such certificate of title and within sixty (60) days of the acquisition thereof deliver evidence of the same to the LENDER, and (v) upon the acquisition after the date hereof of any asset for which an assignment, pledge, mortgage, or other document is required to be filed in order to grant or perfect a lien therein for the benefit of the LENDER, execute and deliver to the LENDER such assignment, pledge, mortgage, or other INSTRUMENT within thirty (30) days of the acquisition thereof. If any of the BORROWERS fails to execute any instrument or document described above within five (5) BUSINESS DAYS of being requested to do so by the LENDER, each of the BORROWERS hereby appoints the LENDER or any officer of the LENDER as such BORROWER’S attorney in fact for purposes of executing such instruments or documents in such BORROWER’S name, place and stead, which power of attorney shall be considered as coupled with an interest and irrevocable.

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ARTICLE 4.

REPRESENTATIONS AND WARRANTIES

To induce the LENDER to extend the LOAN and to enter into this AGREEMENT, each of the BORROWERS makes the representations and warranties set forth in this Article 4. Each of the BORROWERS acknowledges the LENDER’S justifiable right to rely upon these representations and warranties.

Section 4.1. Accuracy Of Information. All information submitted by or on behalf of any of the BORROWERS or any GUARANTOR in connection with any of the OBLIGATIONS is true, accurate and complete in all material respects as of the date made and contain no knowingly false, incomplete or misleading statements.

Section 4.2. No Litigation. There are no actions, suits, investigations, or proceedings pending or, to the knowledge of either the BORROWERS, threatened against any of the BORROWERS or the assets of any of the BORROWERS, except as specifically disclosed on Schedule 4.2 attached hereto.

Section 4.3. No Liability Or Adverse Change. None of the BORROWERS has any direct or contingent liability known to any of the BORROWERS and not previously disclosed to the LENDER, nor does any of the BORROWERS know of or have any reason to expect any material adverse change in any BORROWER’S assets, liabilities, properties, business, or condition, financial or otherwise.

Section 4.4. Title To Collateral. Each of the BORROWERS has good and marketable title to the COLLATERAL. The liens granted by each of the BORROWERS to the LENDER in the COLLATERAL will have the priority required by the LOAN DOCUMENTS.

Section 4.5. Authority; Approvals And Consents.

Section 4.5.1. Authority. Each of the BORROWERS has the legal authority to enter into each of the LOAN DOCUMENTS and to perform, observe and comply with all of such BORROWER’S agreements and obligations thereunder, including, without limitation the borrowings contemplated hereby.

Section 4.5.2. Approvals. The execution and delivery by each of the BORROWERS of each of the LOAN DOCUMENTS, the performance by each of the BORROWERS of all of its agreements and obligations under the LOAN DOCUMENTS, and the borrowings contemplated by this AGREEMENT, have been duly authorized by all necessary action on the part of each BORROWER and do not and will not (v) contravene any provision of the organizational documents of any of the BORROWERS; (vi) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien upon any of the property of any of the BORROWERS under any agreement, trust deed, indenture, mortgage or other instrument to which any of the BORROWERS is a party or by which any of the BORROWERS or any property of any of the BORROWERS is bound or affected (except for liens created for the benefit of the LENDER); (vii) violate or contravene any provision of any LAW, rule or regulation (including, without limitation, Regulations G, T, U or X of the Board of Governors of the Federal Reserve System) or any order, ruling or interpretation thereunder or any decree, order of judgment of any court or governmental or regulatory authority, bureau, agency or official (all as from time to time in effect and applicable to any of the BORROWERS); or (viii) require any waivers, consents or approvals by any of the creditors of any of the BORROWERS.

Section 4.5.3. Consents. Other than filings and recordings required to perfect the security interests and liens granted hereunder, no approval, consent, order, authorization or license by, or giving notice to, or taking any other action with respect to, any governmental or regulatory authority or agency is required for the execution and delivery by any of the BORROWERS of the LOAN DOCUMENTS or for the performance by each of the BORROWERS of any of the agreements and obligations thereunder.

Section 4.6. Binding Effect Of Documents, Etc. Each of the LOAN DOCUMENTS which each of the BORROWERS has executed and delivered as contemplated and required to be executed and delivered as of the date of CLOSING by this AGREEMENT, has been duly executed and delivered by each BORROWER and is the legal, valid and binding obligation of each BORROWER and is enforceable against each BORROWER in accordance with all stated terms.

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Section 4.7. Other Names. None of the BORROWERS has changed its name, been the surviving entity in a merger, or changed the location of its chief executive office within the last twelve (12) years, except as is disclosed on Schedule 4.7 attached hereto. None of the BORROWERS trades under any trade or fictitious names except as set forth on Schedule 4.7.

Section 4.8. No Events Of Default. There does not currently exist any action, event, or condition which presently constitutes a DEFAULT or an EVENT OF DEFAULT.

Section 4.9. Guaranty Agreements. The GUARANTY AGREEMENTS are the valid and binding obligation of the GUARANTOR and are fully enforceable against the GUARANTOR in accordance with all outstanding terms.

Section 4.10. Taxes. Each of the BORROWERS: (a) has filed all federal, state and local tax returns and other reports which such BORROWER is required by LAW to file prior to the date hereof and which are material to the conduct of the business of such BORROWER; (b) has paid or caused to be paid all taxes, assessments and other governmental charges that are due and payable prior to the date hereof; and (c) has made adequate provision for the payment of such taxes, assessments or other charges accruing but not yet payable. None of the BORROWERS has any knowledge of any deficiency or additional assessment in connection with any taxes, assessments or charges not provided for on such BORROWER’S books of account or reflected in such BORROWER’S financial statements.

Section 4.11. Compliance With Laws. Each of the BORROWERS has complied in all material respects with all applicable LAWS, including, but not limited to, all LAWS with respect to: (a) all restrictions, specifications, or other requirements pertaining to products that it sells or to the services it performs; (b) the conduct of its business; and (c) the use, maintenance, and operation of the real and personal properties owned or leased by it in the conduct of its business.

Section 4.12. Chief Place Of Business. The chief executive office, chief place of business, and the place where each of the BORROWERS keeps its RECORDS concerning the COLLATERAL is set forth on Schedule 4.12 attached hereto.

Section 4.13. Location Of Inventory. The INVENTORY is and shall be kept solely at the BORROWERS’ locations set forth on Schedule 4.13 attached hereto, and shall not be moved, sold or otherwise disposed of without prior notification to the LENDER, except for sales of INVENTORY to ACCOUNT DEBTORS in the ordinary course of the BORROWERS’ businesses. None of the INVENTORY is stored with or in the possession of any bailee, warehouseman, or other similar PERSON, except as specifically disclosed on Schedule 4.13 attached hereto.

Section 4.14. No Subsidiaries. None of the BORROWERS has any SUBSIDIARIES, except that AVATECH SOLUTIONS and TLC are wholly-owned subsidiaries of AVATECH.

Section 4.15. No Labor Agreements. None of the BORROWERS is subject to any collective bargaining agreement or any agreement, contract, decree or order requiring it to recognize, deal with or employ any PERSONS organized as a collective bargaining unit or other form of organized labor.

Section 4.16. Eligible Accounts. Each ACCOUNT which any of the BORROWERS contends should be included in the calculation of the BORROWING BASE from time to time will be an ELIGIBLE ACCOUNT. At the time each ELIGIBLE ACCOUNT is listed on or included in (whether singularly or in the aggregate with other ELIGIBLE ACCOUNTS) a schedule or report delivered to the LENDER to be included in the calculation of the BORROWING BASE, all of such ELIGIBLE ACCOUNTS will have been generated in compliance with such BORROWER’S normal credit policies as historically in effect (or as modified from time to time on prior written notice of the LENDER), or on such other reasonable terms disclosed in writing to the LENDER in advance of the creation of such ACCOUNTS, and such terms shall be expressly set forth on the face of all invoices.

Section 4.17. Approvals. Each of the BORROWERS possesses all franchises, approvals, licenses, contracts, merchandising agreements, merchandising contracts and governmental approvals, registrations and exemptions

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necessary for it lawfully to conduct its business and operation as presently conducted and as anticipated to be conducted after CLOSING.

Section 4.18. Financial Statements. The financial statements of each of the BORROWERS which have been delivered to the LENDER prior to the date of this AGREEMENT, fairly present the financial conditions of the BORROWERS as of the respective dates thereof and the results and operations of the BORROWERS for the fiscal periods ended on such respective dates, all in accordance with G.A.A.P. None of the BORROWERS has any direct or contingent liability or obligation known to any of the BORROWERS and not disclosed on the financial statements delivered to the LENDER or disclosed on Schedule 4.19 hereto. There has been no adverse change in the financial condition of any of the BORROWERS since the financial statements of the BORROWERS dated September 30, 2005, and none of the BORROWERS knows of or has any reason to expect any material adverse change in the assets, liabilities, properties, business, or condition, financial or otherwise, of any of the BORROWERS.

Section 4.19. Solvency. Each of the BORROWERS will be SOLVENT both before and after CLOSING, after giving full effect to the OBLIGATIONS and all of the BORROWERS’ respective liabilities.

Section 4.20. Fair Labor Standards Act. Each of the BORROWERS has complied in all material respects with the Fair Labor Standards Act of 1938, as amended.

Section 4.21. Employee Benefit Plans.

Section 4.21.1. Compliance. Each of the BORROWERS and its ERISA AFFILIATES are in compliance in all material respects with all applicable provisions of ERISA and the regulations thereunder and of the CODE with respect to all EMPLOYEE BENEFIT PLANS.

Section 4.21.2. Absence Of Termination Event. No TERMINATION EVENT has occurred or is reasonably expected to occur with respect to any GUARANTEED PENSION PLAN.

Section 4.21.3. Actuarial Value. The actuarial present value (as defined in Section 4001 of ERISA) of all benefit commitments (as defined in Section 4001 of ERISA) under each GUARANTEED PENSION PLAN does not exceed the assets of that plan.

Section 4.21.4. No Withdrawal Liability. None of the BORROWERS nor any of their ERISA AFFILIATES has incurred or reasonably expects to incur any withdrawal liability under ERISA in connection with any MULTIEMPLOYER PLANS.

Section 4.22. Environmental Conditions.

Section 4.22.1. Existence Of Permits. Each of the BORROWERS has obtained all legally required permits, licenses, variances, clearances and all other necessary approvals (collectively, the “EPA PERMITS”) for use of the FACILITIES and the operation and conduct of its business from all applicable federal, state, and local governmental authorities, utility companies or development-related entities including, but not limited to, any and all appropriate Federal or State environmental protection agencies and other county or city departments, public water works and public utilities in regard to the use of the FACILITIES, the operation and conduct of its business, and the handling, transporting, treating, storage, disposal, discharge, or RELEASE of REGULATED SUBSTANCES, if any, into, on or from the environment (including, but not limited to, any air, water, or soil).

Section 4.22.2. Compliance With Permits. Each issued EPA PERMIT is in full force and effect, has not expired or been suspended, denied or revoked, and is not under challenge by any PERSON. Each of the BORROWERS is in compliance in all material aspects with each issued EPA PERMIT.

Section 4.22.3. No Litigation. None of the BORROWERS nor any of the FACILITIES is subject to any private or governmental litigation, or to the knowledge of any of the BORROWERS, threatened litigation, lien or judicial or administrative notice, order or action involving any of the BORROWERS or any of the FACILITIES relating to REGULATED SUBSTANCES or environmental problems, impairments or liabilities.

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Section 4.22.4. No Releases. To the best knowledge of each of the BORROWERS, there has been no RELEASE into, on or from any of the FACILITIES and no REGULATED SUBSTANCES are located on or have been treated, stored, processed, disposed of, handled or transported to or from, any of the FACILITIES in violation of any ENVIRONMENTAL LAWS. To the best knowledge of each of the BORROWERS, no REGULATED SUBSTANCES have been treated, stored, disposed, RELEASED, located, discharged, possessed, managed, processed, or otherwise handled in the operation or conduct of any BORROWER’S business in violation of any ENVIRONMENTAL LAWS. Each of the BORROWERS has complied in all material respects with all ENVIRONMENTAL LAWS affecting the FACILITIES and each BORROWER’S business.

Section 4.22.5. Transportation. None of the BORROWERS transports, in any manner, any REGULATED SUBSTANCES except in the ordinary course of such BORROWER’S business in material compliance with all ENVIRONMENTAL LAWS.

Section 4.22.6. No Violation Notices. No BORROWER has received any notices that any REGULATED SUBSTANCES transported from any FACILITY have been disposed of in violation of any ENVIRONMENTAL LAWS.

Section 4.22.7. No Notice Of Violations. No BORROWER has received written notice of any circumstances which would be likely to result in any obligation under any ENVIRONMENTAL LAW to investigate or remediate any REGULATED SUBSTANCES in, on or under any of the FACILITIES.

ARTICLE 5.

AFFIRMATIVE COVENANTS

Each of the BORROWERS agrees during the term of this AGREEMENT and while any OBLIGATIONS are outstanding and unpaid to do and perform each of the acts and promises set forth in this Article 5:

Section 5.1. Payment. All OBLIGATIONS shall be paid in full when and as due.

Section 5.2. Insurance. Each of the BORROWERS shall obtain and maintain such insurance coverages as are reasonable, customary and prudent for businesses engaged in activities similar to the business activities of the BORROWERS. Without limitation to the foregoing, each of the BORROWERS shall maintain for all of its assets and properties, whether real, personal, or mixed and including but not limited to the COLLATERAL, fire and extended coverage casualty insurance in amounts satisfactory to the LENDER and sufficient to prevent any co-insurance liability (which amount shall be the full insurable value of the assets and properties insured unless the LENDER in writing agrees to a lesser amount), naming the LENDER as sole loss payee with respect to the COLLATERAL, with insurance companies and upon policy forms containing standard mortgagee clauses which are acceptable to and approved by the LENDER. Each of the BORROWERS shall submit to the LENDER the originals of the casualty insurance policies and paid receipts evidencing payment of the premiums due on the same. The casualty insurance policies shall be endorsed so as to make them noncancellable unless thirty (30) days prior notice of cancellation is provided to the LENDER. The proceeds of any insured loss shall be applied by the LENDER to the OBLIGATIONS, in such order of application as determined by the LENDER, unless the LENDER in its sole discretion permits the use thereof to repair or replace damaged or destroyed COLLATERAL.

Section 5.3. Books And Records. Each of the BORROWERS shall notify the LENDER in writing if any of the BORROWERS modifies or changes its method of accounting or enters into, modifies, or terminates any agreement presently existing, or at any time hereafter entered into with any third party accounting firm for the preparation and/or storage of any BORROWER’S accounting records.

Section 5.4. Collection Of Accounts; Sale Of Inventory. Each of the BORROWERS shall only collect its RECEIVABLES and sell its INVENTORY in the ordinary course of its business.

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Section 5.5. Notice Of Litigation And Proceedings. Each of the BORROWERS shall give prompt notice to the LENDER of any action, suit, citation, violation, direction, notice or proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any of the BORROWERS, or the assets or properties thereof, which, if determined adversely to any of the BORROWERS: (a) could require any or all of the BORROWERS to pay over more than Fifty Thousand Dollars ($50,000.00) or deliver assets the value of which exceeds that sum (whether or not the claim is considered to be covered by insurance); or (b) could reasonably be expected to have a material adverse effect upon the financial condition or business operations of any of the BORROWERS.

Section 5.6. Payment Of Liabilities To Third Persons. Each of the BORROWERS shall pay when and as due, or within applicable grace periods (but shall not prepay in advance of any stated payment schedule), all liabilities due to third persons, except when the amount thereof is being contested in good faith by appropriate proceedings and with adequate reserves therefor being set aside.

Section 5.7. Notice Of Change Of Business Location. Each of the BORROWERS shall notify the LENDER thirty (30) days in advance of: (a) any change in the location of its existing offices or place of business; (b) the establishment of any new, or the discontinuation of any existing, place of business; and (c) any change in or addition to the locations at which the COLLATERAL is kept. Prior to moving any COLLATERAL to any location not owned by it (other than deliveries to ACCOUNT DEBTORS of sold or leased items), each of the BORROWERS shall obtain and deliver to the LENDER an agreement, in form and substance acceptable to the LENDER, pursuant to which the owner of such location shall: (a) subordinate any rights which it may have, or thereafter may obtain, in any of the COLLATERAL to the rights and security interests of the LENDER in the COLLATERAL; and (b) allow the LENDER access to the COLLATERAL in order to remove the COLLATERAL from such location. In the event any COLLATERAL is stored with a warehousemen or other bailee, and the COLLATERAL is evidenced by a negotiable document of title, each of the BORROWERS shall immediately deliver the document of title to the LENDER.

Section 5.8. Payment Of Taxes. Each of the BORROWERS shall pay or cause to be paid when and as due all taxes, assessments and charges or levies imposed upon it or on any of its property or which it is required to withhold and pay over to the taxing authority or which it must pay on its income, except where contested in good faith, by appropriate proceedings and at its own cost and expense; provided, however, that none of the BORROWERS shall be deemed to be contesting in good faith by appropriate proceedings unless: (a) such proceedings operate to prevent the taxing authority from attempting to collect the taxes, assessments or charges; (b) the COLLATERAL is not subject to sale, forfeiture or loss during such proceedings; (c) such BORROWER’S contest does not subject the LENDER to any claim by the taxing authority or any other person; (d) such BORROWER establishes appropriate reserves, satisfactory to the LENDER in its sole discretion, for the payment of all taxes, assessments, charges, levies, legal fees, court costs and other expenses for which such BORROWER would be liable if unsuccessful in the contest; (e) such BORROWER prosecutes the contest continuously to its final conclusion; and (f) at the conclusion of the proceedings, such BORROWER promptly pays all amounts determined to be payable, including but not limited to all taxes, assessments, charges, levies, legal fees and court costs.

Section 5.9. Inspections Of Records. Each of the BORROWERS shall permit representatives of the LENDER access to each BORROWER’S places of business, at intervals and at such times as determined by the LENDER, to inspect the COLLATERAL and to review and make extracts from or photocopies of the books and records of each of the BORROWERS. Each of the BORROWERS agrees to pay to the LENDER the audit fees and other expenses incurred by the LENDER in connection with such inspections.

Section 5.10. Notice Of Events Affecting Collateral; Compromise Of Receivables; Returned Or Repossessed Goods. Each of the BORROWERS shall promptly report to the LENDER: (a) any reclamation, return or repossession of goods; (b) all claims or disputes asserted by any ACCOUNT DEBTOR or other obligor involving in excess of Twenty-Five Thousand Dollars ($25,000.00); (c) termination or other material change in the BORROWER’S supplier agreement with Autodesk, Inc.; (d) all matters materially affecting the value, enforceability or collectibility of any COLLATERAL having a value, in the aggregate, exceeding Twenty-Five Thousand Dollars ($25,000.00). Without the LENDER’S consent, none of the BORROWERS shall compromise or adjust any of the RECEIVABLES which have been included by any of the BORROWERS in the determination of the BORROWING BASE, extend the time for payment thereof, or grant any additional discounts, allowances or credits thereon; provided, however, that any of the

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BORROWERS may grant, in the ordinary course of business, to any party obligated on any of the RECEIVABLES, any rebate, refund, or adjustment to which such party may be lawfully entitled, and may accept, in connection therewith, the return of goods, sale, or lease of which shall have given rise to such RECEIVABLES. If any goods, the sale of which has resulted in RECEIVABLES included in determining the BORROWING BASE, are returned by the ACCOUNT DEBTOR for credit or repossessed by any of the BORROWERS, the BORROWERS shall receive and hold such goods as trustee for the LENDER and as additional security for the payment of the OBLIGATIONS, and make disposition thereof as required by the LENDER.

Section 5.11. Documentation Of Collateral. Each of the BORROWERS agrees that upon the request of the LENDER, each of the BORROWERS will provide the LENDER with: (a) written statements or schedules identifying and describing the COLLATERAL, and all additions, substitutions, and replacements thereof, in such detail as the LENDER may require; (b) copies of ACCOUNT DEBTORS’ invoices or billing statements; (c) evidence of shipment or delivery of goods or merchandise to or performance of services for ACCOUNT DEBTORS; and (d) such other schedules and information as the LENDER reasonably may require. The items to be provided under this Section shall be in form satisfactory to the LENDER and are to be executed and delivered to the LENDER from time to time solely for the LENDER’S convenience in maintaining RECORDS of the COLLATERAL. The failure of any of the BORROWERS to give any of such items to the LENDER shall not affect, terminate, modify or otherwise limit the LENDER’S security interests in the COLLATERAL. The LENDER shall have the right, at any time and from time to time, to verify the eligibility of the BORROWERS’ RECEIVABLES, including obtaining verification of the RECEIVABLES directly from ACCOUNT DEBTORS.

Section 5.12. Reporting Requirements. The BORROWERS shall submit the following items to the LENDER:

Section 5.12.1. Receivables And Accounts Payable Reports. On or before the 15^th day of each calendar month: (i) a RECEIVABLES report and aging; and (ii) an accounts payable report and aging, both in form reasonably acceptable to the LENDER and containing such information as the LENDER may specify from time to time. Such reports shall be accompanied by such reports, copies of sales journals, remittance reports, and other documentation as the LENDER may reasonably request from time to time.

Section 5.12.2. Borrowing Base Report. Once each month, or more frequently if requested by the LENDER, a collateral and loan report in such form and content as may be specified by the LENDER from time to time.

Section 5.12.3. Monthly Financial Statements. As soon as available and in any event within twenty-five (25) calendar days after the end of each calendar month, AVATECH shall submit to the LENDER a consolidated and consolidating balance sheet of AVATECH and its SUBSIDIARIES as of the end of such month and a consolidated and consolidating statement of income and retained earnings of AVATECH and its SUBSIDIARIES for such month, and a consolidated and consolidating statement of cash flow of AVATECH and its SUBSIDIARIES for such month, all in reasonable detail and stating in comparative form the respective consolidated and consolidating 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 quarter-end and year-end adjustment).

Section 5.12.4. Annual Financial Statements. As soon as available and in any event within ninety (90) calendar days after the end of each FISCAL YEAR of AVATECH, AVATECH shall submit to the LENDER a consolidated and consolidating balance sheet of AVATECH and its SUBSIDIARIES as of the end of such FISCAL YEAR and a consolidated and consolidating statement of income and retained earnings of AVATECH and its SUBSIDIARIES for such FISCAL YEAR, and a consolidated and consolidating statement of cash flow of AVATECH and its SUBSIDIARIES for such FISCAL YEAR, all in reasonable detail and stating in comparative form the respective consolidated and consolidating figures for the corresponding date and period in the prior FISCAL YEAR and all prepared in accordance with G.A.A.P. and accompanied by an audited opinion thereon acceptable to the LENDER by independent accountants selected by each of the BORROWERS and acceptable to the LENDER. In addition, on an annual basis, as soon as available, the BORROWERS shall supply the LENDER with copies of its federal and state income tax returns, certified as true, correct, and complete by the chief financial officers of the BORROWERS.

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Section 5.12.5. SEC And Other Filings. Within five (5) days after the sending, filing, or receipt thereof, copies of: (a) all financial statements, reports, notices and proxy statements that each of the BORROWERS sends to its shareholders; (b) all Forms 10-K, 10-Q and 14A, and all Forms 8K that are material, that each of the BORROWERS renders to or files with the Securities and Exchange Commission, and (c) all registration statements that each of the BORROWERS renders to or files with the Securities And Exchange Commission or any national securities exchange.

Section 5.12.6. Management Letters. Promptly upon receipt thereof, each of the BORROWERS shall submit to the LENDER copies of any reports submitted to any of the BORROWERS or any SUBSIDIARY by independent certified public accountants in connection with the examination of the financial statements of the BORROWERS or any SUBSIDIARY made by such accountants.

Section 5.12.7. Compliance Certificates. Within thirty (30) calendar days after the end of each of the quarters of each FISCAL YEAR of each of the BORROWERS, each of the BORROWERS shall submit to the LENDER certificates (“COMPLIANCE CERTIFICATES”) of the chief financial officers of each of the BORROWERS certifying that: (i) there exists no DEFAULT or EVENT OF DEFAULT, or if a DEFAULT or an EVENT OF DEFAULT exists, specifying the nature thereof, the period of existence thereof and what action such BORROWER proposes to take with respect thereto; (ii) no material adverse change in the condition, financial or otherwise, business, property or results of operations of such BORROWER has occurred since the previous certificate was sent to the LENDER by such BORROWER or, if any such change has occurred, specifying the nature thereof and what action such BORROWER has taken or proposes to take with respect thereto; (iii) all insurance premiums then due have been paid; (iv) all taxes then due have been paid or, for those taxes which have not been paid, a statement of the taxes not paid and a description of such BORROWER’S rationale therefor; (v) no litigation, investigation or proceedings, or injunction, writ or restraining order is pending or threatened or, if any such litigation, investigation, proceeding, injunction, writ or order is pending, describing the nature thereof; and (vi) stating whether or not the BORROWERS are in compliance with the covenants in this AGREEMENT, including a calculation of the financial covenants in the schedule attached to such officers’ certificates in form satisfactory to the LENDER.

Section 5.12.8. Reports To Other Creditors. Promptly after the furnishing thereof, each of the BORROWERS shall submit to the LENDER copies of any statement or report furnished to any other PERSON pursuant to the terms of any indenture, loan, or credit or similar agreement and not otherwise required to be furnished to the LENDER pursuant to any other provisions of this AGREEMENT.

Section 5.12.9. Financial Statement Of Hindman. On an annual basis, the BORROWERS shall cause to be delivered to the LENDER an annual personal financial statement of HINDMAN, in form and substance satisfactory to the LENDER, together with copies of HINDMAN’S federal and state income tax returns.

Section 5.12.10. Management Changes. Each of the BORROWERS shall notify the LENDER immediately of any changes in the personnel holding the positions of either President or Chief Financial Officer of any of the BORROWERS.

Section 5.12.11. General Information. In addition to the items set forth in subparagraphs 5.12.1 through 5.12.10 above, each of the BORROWERS agrees to submit to the LENDER such other information respecting the condition or operations, financial or otherwise, of each of the BORROWERS as the LENDER may reasonably request from time to time.

Section 5.13. Employee Benefit Plans And Guaranteed Pension Plans. Each of the BORROWERS will, and will cause each of its ERISA AFFILIATES to: (a) comply with all requirements imposed by ERISA and the CODE, applicable from time to time to any of its GUARANTEED PENSION PLANS or EMPLOYEE BENEFIT PLANS; (b) make full payment when due of all amounts which, under the provisions of EMPLOYEE BENEFIT PLANS or under applicable LAW, are required to be paid as contributions thereto; (c) not permit to exist any material accumulated funding deficiency, whether or not waived; (d) file on a timely basis all reports, notices and other filings required by any governmental agency with respect to any of its EMPLOYEE BENEFITS PLANS; (e) make any payments to MULTIEMPLOYER PLANS required to be made under any agreement relating to such MULTIEMPLOYER PLANS,

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or under any LAW pertaining thereto; (f) not amend or otherwise alter any GUARANTEED PENSION PLAN if the effect would be to cause the actuarial present value of all benefit commitments under any GUARANTEED PENSION PLAN to be less than the current value of the assets of such GUARANTEED PENSION PLAN allocable to such benefit commitments; (g) furnish to all participants, beneficiaries and employees under any of the EMPLOYEE BENEFIT PLANS, within the periods prescribed by LAW, all reports, notices and other information to which they are entitled under applicable LAW; and (h) take no action which would cause any of the EMPLOYEE BENEFIT PLANS to fail to meet any qualification requirement imposed by the CODE. As used in this Section, the term “accumulated funding deficiency” has the meaning specified in Section 302 of ERISA and Section 412 of the CODE, and the terms “actuarial present value”, “benefit commitments” and “current value” have the meaning specified in Section 4001 of ERISA.

Section 5.14. Maintenance Of Fixed Assets. Each of the BORROWERS shall maintain and preserve all of its fixed assets in a state of good and efficient working order.

Section 5.15. Consignments. Each of the BORROWERS shall advise the LENDER of all PERSONS to whom it has consigned or assigned INVENTORY for sale or distribution, and the location of the INVENTORY subject to any such consignment or assignment arrangement. Each of the BORROWERS shall: (a) duly and properly file financing statements in all applicable places of public record with respect to each of such consignments or assignments, which filings shall comply with the Uniform Commercial Code and with all other requirements necessary for such BORROWER to protect its interests therein under applicable LAWS; (b) supply the LENDER with prior evidence of such filing and with a financing statement, judgment and tax lien search in the name of the consignee or assignee in all applicable places of public record; and (c) provide written notification to any holder of any security interests in the inventory of the consignee or assignee who has filed a financing statement before such BORROWER files its financing statement, which notice shall state that such BORROWER expects to deliver goods on consignment, shall describe the goods by item or type and which notification shall be received by any such holder within five (5) years before the consignee receives possession of the goods and at five (5) year intervals thereafter.

Section 5.16. Federal Assignment Of Claims Act. Each of the BORROWERS shall notify the LENDER if any RECEIVABLE arises out of a contract with the United States of America, or any department, agency or instrumentality thereof, and shall execute all documents or instruments and shall take all steps or actions required by the LENDER so that all monies due or to become due under such contract are assigned to the LENDER and notice given thereof to the United States in accordance with the requirements of the Federal Assignment of Claims Act, as amended.

Section 5.17. Compliance With Laws. Each of the BORROWERS shall comply in all material respects with all applicable LAWS, including, but not limited to, all LAWS with respect to: (a) all restrictions, specifications, or other requirements pertaining to products that it sells or to the services it performs; (b) the conduct of its business; (c) the use, maintenance, and operation of the real and personal properties owned or leased by it in the conduct of its business; and (d) the obtaining and maintenance of all necessary licenses, franchises, permits and governmental approvals, registrations and exemptions necessary to engage in its business. Without limiting the generality of the preceding sentence, each of the BORROWERS shall: (i) comply in all material respects with, and ensure such compliance by all tenants and subtenants, if any, with, all applicable ENVIRONMENTAL LAWS and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable ENVIRONMENTAL LAWS; (ii) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under ENVIRONMENTAL LAWS, and promptly comply with all lawful orders and directives of any governmental authority regarding ENVIRONMENTAL LAWS; and (iii) defend, indemnify and hold harmless the LENDER, and its employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any ENVIRONMENTAL LAWS applicable to the operations of each of the BORROWERS, or any orders, requirements or demands of governmental authorities related thereto, including, without limitation, reasonable attorney’s and consultant’s fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor. Each of the BORROWERS agrees to promptly notify the LENDER of any RELEASE of a REGULATED SUBSTANCE on, to or from any FACILITY in violation of any ENVIRONMENTAL LAWS or of any notice received by such BORROWER that such BORROWER or any FACILITY is not in compliance with any ENVIRONMENTAL LAWS.

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Section 5.18. Current Ratio. The BORROWERS, on a consolidated basis, shall maintain at all times a current ratio of greater than .75:1.00, measured quarterly at the end of each quarter.

Section 5.19. Quick Ratio. The BORROWERS, on a consolidated basis, shall maintain at all times a QUICK RATIO of greater than .60:1.00, measured quarterly at the end of each quarter.

Section 5.20. Minimum Tangible Net Worth Plus Subordinated Debt. The BORROWERS, on a consolidated basis, shall maintain TANGIBLE NET WORTH of the BORROWERS, plus the principal balance of all SUBORDINATED DEBT, in an amount greater than: (a) as of CLOSING and at all times through and including June 29, 2006, One Hundred Thousand Dollars ($100,000.00); and (b) as of June 30, 2006 and at all times thereafter, Four Hundred Thousand Dollars ($400,000.00), measured quarterly.

Section 5.21. Leverage Ratio. The BORROWERS, on a consolidated basis, shall maintain a LEVERAGE RATIO, measured quarterly, of: (a) less than 50:1 at CLOSING and as of all measurement dates through and including the fiscal quarter ending March 31, 2006; and (b) less than 10:1 as of the fiscal quarter ending June 30, 2006 and at all measurement dates thereafter.

Section 5.22. EBIT/I. The BORROWERS, on a consolidated basis, shall maintain a ratio of EBIT to INTEREST EXPENSE of greater than 2.0:1.0, measured semi-annually on a year-to-date basis at December 31 and June 30 of each year commencing as of December 31, 2005.

Section 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 1.00:1.00, measured semi-annually on a year-to-date basis at December 31 and June 30 of each year commencing as of December 31, 2005.

ARTICLE 6.

NEGATIVE COVENANTS

Each of the BORROWERS covenants while any OBLIGATIONS are outstanding and unpaid not to do or to permit to be done or to occur any of the acts or occurrences set forth in this Article 6 without the prior written authorization of the LENDER.

Section 6.1. No Change Of Name, Merger, Etc. No BORROWER shall change its name or enter into any merger, consolidation, reorganization or recapitalization.

Section 6.2. No Sale Or Transfer Of Assets. No BORROWER shall sell, transfer, lease or otherwise dispose of all or any part of the COLLATERAL, or all or any part of any of its other assets, except that INVENTORY may be sold to ACCOUNT DEBTORS in the ordinary course of a BORROWER’S business, and items of equipment may be disposed of in the ordinary course of business so long as they are promptly replaced with new equipment of equal or greater value.

Section 6.3. No Encumbrance Of Assets. No BORROWER shall mortgage, pledge, grant or permit to exist a security interest in or lien upon any of its assets of any kind, now owned or hereafter acquired, except for PERMITTED LIENS.

Section 6.4. No Indebtedness. No BORROWER shall incur, create, assume, or permit to exist any INDEBTEDNESS except: (a) the OBLIGATIONS; and (b) INDEBTEDNESS secured by PERMITTED LIENS.

Section 6.5. Restricted Payments. No BORROWER shall make any RESTRICTED PAYMENTS.

Section 6.6. Transactions With Affiliates. No BORROWER shall make any contract for the purchase of any items from any AFFILIATE or the performance of any services (including employment services) by any

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AFFILIATE, unless such contract is on terms which fairly represent generally available terms to be obtained in transactions of a similar nature with independent third PERSONS.

Section 6.7. Loans, Investments And Sale-Leasebacks. No BORROWER shall make any advance, loan, investment, or material acquisition of assets or enter into any sale-leaseback transactions.

Section 6.8. No Acquisition Of Equity In Or Assets Of Third Persons. No BORROWER shall acquire any equity interests in, or all or substantially all of the assets of, any PERSON.

Section 6.9. No Assignment. No BORROWER shall assign or attempt to assign its rights under this AGREEMENT.

Section 6.10. No Alteration Of Structure Or Operations. No BORROWER shall amend or change materially its capital structure or its line or scope of business, nor shall it engage in business ventures other than those in which it is presently engaged.

Section 6.11. Unpermitted Uses Of Loan Proceeds. No BORROWER shall use any part of the proceeds of the LOAN hereunder for any purpose which constitutes a violation of, or is inconsistent with, regulations of the Board of Governors of the Federal Reserve System, including without limitation, the purchase or carrying of (or refinancing of indebtedness originally incurred to purchase or carry) margin securities.

Section 6.12. Long Term Contracts. No BORROWER shall enter into any management contract, employment contract, consulting contract, non-competition contract, service contract or the like, having a term in excess of thirteen (13) months or requiring the payment of any monies by any of the BORROWERS on a date occurring more than thirteen (13) months after the date of such contract with any AFFILIATE.

Section 6.13. Changes In Fiscal Year. No BORROWER shall change its FISCAL YEAR.

Section 6.14. Limitation On Issuance Of Equity Interests. No BORROWER shall issue or sell any equity interest in such BORROWER that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of an event or passage of time would be: (a) convertible or exchangeable into a liability of such BORROWER; or (b) required to be redeemed or repurchased, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, provided, however, that a BORROWER shall be permitted to issue equity interests in such BORROWER in connection with a transaction to which the LENDER has consented in accordance with the requirements of Section 6.1 or 6.8.

ARTICLE 7.

EVENTS OF DEFAULT

The occurrence of any of the following events shall constitute an EVENT OF DEFAULT.

Section 7.1. Failure To Pay. The failure by any or all of the BORROWERS to pay any of the OBLIGATIONS when and as due.

Section 7.2. Violation Of Covenants. The failure by any or all of the BORROWERS to perform or a violation of any of the covenants or agreements provided in this AGREEMENT or in any of the other LOAN DOCUMENTS.

Section 7.3. Representation Or Warranty. The failure of any representation or warranty made by any or all of the BORROWERS or by any GUARANTOR to be true in any material respect, as of the date made.

Section 7.4. Default Under Loan Documents. A breach of or default by any or all of the BORROWERS under the terms, covenants, and conditions set forth in any other LOAN DOCUMENT.

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Section 7.5. Cross-Default. A breach of or default under the terms, covenants, or conditions of any agreement, loan, guaranty, or other transaction of any or all of the BORROWERS or any GUARANTOR with the LENDER or with any other lender.

Section 7.6. Judgments. Any of the BORROWERS or any GUARANTOR shall suffer final judgments for the payment of money aggregating in excess of Ten Thousand Dollars ($10,000.00) and shall not discharge the same within a period of thirty (30) days unless, pending further proceedings, execution has not been commenced or if commenced has been effectively stayed.

Section 7.7. Levy By Judgment Creditor. A judgment creditor of any of the BORROWERS shall obtain possession of any of the COLLATERAL by any means, including but not limited to levy, distraint, replevin or self-help, and the applicable BORROWER shall fail to remedy same within thirty (30) days thereof; or a writ of garnishment is served on the LENDER relating to any of the accounts of any of the BORROWERS maintained by the LENDER.

Section 7.8. Failure To Pay Liabilities. Any of the BORROWERS shall fail to pay any of its debts, in any material amount, due any third PERSON and such failure shall continue beyond any applicable grace period, unless the applicable BORROWER holds a good faith defense to payment and has set aside reasonable reserves for the payment thereof.

Section 7.9. Involuntary Insolvency Proceedings. The institution of involuntary INSOLVENCY PROCEEDINGS against any of the BORROWERS and the failure of any such INSOLVENCY PROCEEDINGS to be dismissed before the earliest to occur of: (a) the date which is ninety (90) days after the institution of such INSOLVENCY PROCEEDINGS; (b) the entry of any order for relief in the INSOLVENCY PROCEEDING or any order adjudicating any or all of the BORROWERS insolvent; or (c) the impairment (as to validity, priority or otherwise) of any security interest or lien of the LENDER in any of the COLLATERAL.

Section 7.10. Voluntary Insolvency Proceedings. The commencement by any of the BORROWERS of INSOLVENCY PROCEEDINGS.

Section 7.11. Insolvency Proceedings Pertaining To Guarantor. The occurrence of any of the events listed in Sections 7.9 and 7.10 above to any GUARANTOR.

Section 7.12. Material Adverse Event. The occurrence of a MATERIAL ADVERSE EVENT.

Section 7.13. Default By Guarantor. The failure by any GUARANTOR to satisfy any obligation imposed upon it in the GUARANTY AGREEMENTS.

Section 7.14. Attempt To Terminate Guaranties. The receipt by the LENDER of notice from a GUARANTOR that the GUARANTOR is attempting to terminate or limit any portion of its obligations under a GUARANTY AGREEMENT.

Section 7.15. ERISA. If any TERMINATION EVENT shall occur and as of the date thereof or any subsequent date, the sum of the various liabilities of any of the BORROWERS and its ERISA AFFILIATES (such liabilities to include, without limitation, any liability to the Pension Benefit Guaranty Corporation (or any successor thereto) or to any other party under Sections 4062, 4063, or 4064 of ERISA or any other provision of LAW and to be calculated after giving effect to the tax consequences thereof) resulting from or otherwise associated with such event exceeds Fifty Thousand Dollars ($50,000.00); or any of the BORROWERS or any of its ERISA AFFILIATES as an employer under any MULTIEMPLOYER PLAN shall have made a complete or partial withdrawal from such MULTIEMPLOYER PLANS and the plan sponsors of such MULTIEMPLOYER PLANS shall have notified such withdrawing employer that such employer has incurred a withdrawal liability requiring a payment in an amount exceeding Fifty Thousand Dollars ($50,000.00).

Section 7.16. Dissolution; Change of Control. The dissolution of any of the BORROWERS, the failure of AVATECH SUBSIDIARY to be a wholly owned SUBSIDIARY of AVATECH, or a CHANGE OF CONTROL of AVATECH.

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Section 7.17. Indictment Of Borrowers Or Guarantor. The indictment of any of the BORROWERS or of any GUARANTOR for a felony under any federal, state or other LAW.

Section 7.18. Injunction. The issuance of any injunction against any of the BORROWERS which enjoins or restrains any of the BORROWERS from continuing to conduct any material part of any BORROWER’S business affairs.

Section 7.19. Notice And Cure Rights. Notwithstanding any provision to the contrary set forth in this AGREEMENT, an EVENT OF DEFAULT shall not be deemed to have occurred with respect to the violation of any covenant or requirement contained herein, or the occurrence of any default hereunder other than the failure to pay a monetary amount due (with respect to which there shall be no notice or cure right), excepting the specific provisions of this AGREEMENT excluded in the next succeeding sentence of this Section, until after the LENDER has forward notice of such violation to the BORROWER and the BORROWER has failed to correct such violation within ten (10) calendar days after the date of the sending of such notice. A violation of any of the following sections of this AGREEMENT shall immediately constitute an EVENT OF DEFAULT without the BORROWER having any notice or cure rights: Section 5.1, Sections 6.1 through 6.14 inclusive, and Sections 7.3, 7.5, 7.6, 7.7, 7.9, 7.10, 7.11, 7.16, 7.17 or 7.18.

ARTICLE 8.

RIGHTS AND REMEDIES ON THE

OCCURRENCE OF AN EVENT OF DEFAULT

Section 8.1. Lender’s Specific Rights And Remedies. In addition to all other rights and remedies provided by LAW and the LOAN DOCUMENTS, upon the occurrence of any EVENT OF DEFAULT, the LENDER may: (a) accelerate and call immediately due and payable all or any part of the OBLIGATIONS; (b) seek specific performance or injunctive relief to enforce performance of the undertakings, duties, and agreements provided in the LOAN DOCUMENTS, whether or not a remedy at law exists or is adequate; and (c) exercise any rights of a secured creditor under the Uniform Commercial Code, as adopted and amended in Maryland, including the right to take possession of the COLLATERAL without the use of judicial process or hearing of any kind and the right to require any or all of the BORROWERS to assemble the COLLATERAL at such place as the LENDER may specify.

Section 8.2. Automatic Acceleration. Upon the occurrence of an EVENT OF DEFAULT as described in Sections 7.9 or 7.10 of this AGREEMENT, the OBLIGATIONS shall be automatically accelerated and due and payable without any notice, demand or action of any type on the part of the LENDER.

Section 8.3. Sale Of Collateral. In addition to any other remedy provided herein, upon the occurrence of an EVENT OF DEFAULT, the LENDER, in a commercially reasonable fashion, may sell at public or private sale or otherwise realize upon, in Baltimore, Maryland, or elsewhere, the whole or, from time to time, any part of all COLLATERAL which is personal property, or any interest which any of the BORROWERS may have therein. Pending any such action, the LENDER may collect and liquidate the COLLATERAL. After deducting from the proceeds of sale or other disposition of such COLLATERAL all expenses, including all expenses for legal services, the LENDER shall apply such proceeds toward the satisfaction of the OBLIGATIONS. Any remainder of the proceeds after satisfaction in full of the OBLIGATIONS shall be distributed as required by applicable LAW. Notice of any sale or other disposition (other than sales or other dispositions of COLLATERAL which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market) shall be given to the BORROWERS not less than ten (10) calendar days before the time of any intended public sale or of the time after which any intended private sale or other disposition of the COLLATERAL is to be made, which each of the BORROWERS hereby agrees shall be commercially reasonable notice of such sale or other disposition. The BORROWERS shall assemble, or shall cause to be assembled, at the BORROWERS’ own expense, the COLLATERAL at such place or places as the LENDER shall designate. At any such sale or other disposition, the LENDER may, to the extent permissible under applicable law, purchase the whole or any part of the COLLATERAL, free from any right of redemption on the part of any of the BORROWERS, which right is hereby waived and released to the extent lawfully permitted. Without limiting the generality of any of the rights and remedies conferred upon the LENDER under this Section, the LENDER may, to the full extent permitted by applicable law: (a) enter upon the premises of any of the BORROWERS, exclude therefrom any of the BORROWERS or any PERSON connected therewith, and take immediate possession of the COLLATERAL, either personally or by means of a receiver appointed by a court of competent jurisdiction, using all necessary force to do so; (b) at the LENDER’S option,

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use, operate, manage, and control the COLLATERAL in any lawful manner; (c) collect and receive all income, revenue, earnings, issues, and profits therefrom; and (d) maintain, alter or remove the COLLATERAL as the LENDER may determine in the LENDER’S discretion.

Section 8.4. Letters Of Credit. Upon the request of the LENDER, at any time after the occurrence of an EVENT OF DEFAULT, the BORROWERS shall immediately deposit in a cash collateral account at the LENDER, over which the LENDER has sole access, an amount equal to the aggregate then undrawn and unexpired amount of all LETTERS OF CREDIT. Amounts held in such cash collateral account shall be applied by the LENDER to the payment of drafts drawn under LETTERS OF CREDIT, and the unused portion thereof after all LETTERS OF CREDIT shall have expired or been fully drawn upon shall be applied to repay the other OBLIGATIONS. After all LETTERS OF CREDIT shall have expired or have been fully drawn upon and all other OBLIGATIONS shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the BORROWERS. In the event the BORROWERS fail to deposit into the cash collateral account an amount equal to the then undrawn and unexpired amount of all LETTERS OF CREDIT, the LENDER shall be authorized to deposit into such cash collateral account proceeds from the liquidation of the COLLATERAL until the balance in such account equals the aggregate then undrawn and unexpired amount of all LETTERS OF CREDIT.

Section 8.5. Remedies Cumulative. The rights and remedies provided in this AGREEMENT and in the other LOAN DOCUMENTS or otherwise under applicable LAWS shall be cumulative and the exercise of any particular right or remedy shall not preclude the exercise of any other rights or remedies in addition to, or as an alternative of, such right or remedy.

ARTICLE 9.

GENERAL CONDITIONS AND TERMS

Section 9.1. Obligations Are Unconditional. The payment and performance of the OBLIGATIONS shall be the absolute and unconditional joint and several duty and obligation of each of the BORROWERS, and shall be independent of any defense or any rights of set-off, recoupment or counterclaim which any of the BORROWERS might otherwise have against the LENDER. The BORROWERS shall pay the payments of the principal and interest to be made upon the OBLIGATIONS, free of any deductions and without abatement, diminution or set-off other than those herein expressly provided. Until such time as the OBLIGATIONS have been fully paid and performed, none of the BORROWERS shall: (a) suspend or discontinue any payments required by the LOAN DOCUMENTS; and (b) fail to perform and observe all of each BORROWER’S covenants and agreements set forth in the LOAN DOCUMENTS.

Section 9.2. Indemnity. Each of the BORROWERS agrees to defend, indemnify and hold harmless the LENDER and the entities affiliated with the LENDER and all of the LENDER’S and its affiliated entities’ employees, agents, officers and directors, from and against any losses, penalties, fines, liabilities, settlements, damages, costs and expenses, suffered in connection with any claim, investigation, litigation or other proceeding (whether or not the LENDER or an affiliated entity is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with any LOAN DOCUMENT, including without limitation reasonable attorneys’ and consultant’s fees, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor. Notwithstanding any termination of this AGREEMENT or payment and performance of the OBLIGATIONS, the indemnities provided for herein shall continue in full force and effect and shall protect all of the above-described PERSONS against events arising after such termination, payment or performance as well as before.

Section 9.3. Lender Expenses. All LENDER EXPENSES shall be paid by the BORROWERS, whether incurred prior to or after CLOSING, such that the subject transactions shall at all times be cost free to the LENDER.

Section 9.4. Authorization To Obtain Financial Information. Each of the BORROWERS hereby irrevocably authorizes its accounting firm to provide the LENDER from time to time with such information as may be requested by the LENDER, and hereby authorizes the LENDER to contact directly such accounting firm in order to obtain such information.

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Section 9.5. Incorporation; Construction Of Inconsistent Provisions. The terms and conditions of the LOAN DOCUMENTS are incorporated by reference and made a part hereof, as if fully set forth herein. In the event of any inconsistency between this AGREEMENT and any other LOAN DOCUMENT, such inconsistency shall be construed, interpreted, and resolved so as to benefit the LENDER, independent of whether this AGREEMENT or another LOAN DOCUMENT controls, and the LENDER’S election of which interpretation or construction is for the LENDER’S benefit shall govern.

Section 9.6. Waivers. The LENDER at any time or from time to time may waive all or any rights under this AGREEMENT or any other LOAN DOCUMENT, but any waiver or indulgence by the LENDER at any time or from time to time shall not constitute a future waiver of performance or exact performance by any of the BORROWERS.

Section 9.7. Continuing Obligation Of Borrowers. The terms, conditions, and covenants set forth herein and in the LOAN DOCUMENTS shall survive CLOSING and shall constitute a continuing obligation of each of the BORROWERS during the course of the transactions contemplated herein. The security interests, liens and other security provided by this AGREEMENT shall remain in effect so long as any OBLIGATION, whether direct or contingent, is outstanding, unpaid or unsatisfied.

Section 9.8. 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.

Section 9.9. Submission To Jurisdiction; Venue; Actions Against Lender. For purposes of any action, in law or in equity, which is based directly or indirectly on this AGREEMENT, any other LOAN DOCUMENT or any matter related to this AGREEMENT or any other LOAN DOCUMENT, including any action for recognition or enforcement of any of the LENDER’S rights under the LOAN DOCUMENTS or any judgment obtained by the LENDER in respect thereof, each of the BORROWERS hereby:

Section 9.9.1. Jurisdiction. Irrevocably submits to the non-exclusive general jurisdiction of the courts of the State of Maryland and, if a basis for federal jurisdiction exists at any time, the courts of the United States of America for the District of Maryland.

Section 9.9.2. Venue. Agrees that venue shall be proper in the Circuit Court for Baltimore City, Maryland, the Circuit Court for any county in the state of Maryland, as selected by the LENDER, and, if a basis for federal jurisdiction exists, the courts of the United States of America for the District of Maryland.

Section 9.9.3. Waiver Of Objections To Venue. Waives any right to object to the maintenance of any suit in any of the courts specified in Section 9.9.2 above on the basis of improper venue or convenience of forum. Each of the BORROWERS further agrees that it shall not institute any suit or other action against the LENDER, in law or in equity, which is based directly or indirectly on this AGREEMENT, any other LOAN DOCUMENT or any matter related to this AGREEMENT or any other LOAN DOCUMENT, in any court other than a court specified in Section 9.9.2 above; provided, that in any instance in which there is then pending a suit instituted by the LENDER against any of the BORROWERS in a court other than a court specified in Section 9.9.2 above, each of the BORROWERS may file in such suit any counterclaim which it has against the LENDER but only if such counterclaim is a compulsory counterclaim and would be barred if not filed as a counterclaim in such suit. Each of the BORROWERS agrees that any suit brought by it against the LENDER not in accordance with this paragraph should be forthwith dismissed or transferred to a court specified in Section 9.9.2 above.

Section 9.10. Notices. Any notice required or permitted by or in connection with this AGREEMENT shall be in writing and shall be made by facsimile (confirmed on the date the facsimile is sent by one of the other methods of giving notice provided for in this Section) or by hand delivery, by Federal Express, or other similar overnight delivery service, or by certified mail, unrestricted delivery, return receipt requested, postage prepaid, addressed to the LENDER or the BORROWERS at the appropriate address set forth below or to such other address as may be hereafter specified by

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written notice by the LENDER or the BORROWERS. Notice shall be considered given as of the date of the facsimile or the hand delivery, one (1) calendar day after delivery to Federal Express or similar overnight delivery service, or three (3) calendar days after the date of mailing, independent of the date of actual delivery or whether delivery is ever in fact made, as the case may be, provided the giver of notice can establish the fact that notice was given as provided herein. If notice is tendered pursuant to the provisions of this Section and is refused by the intended recipient thereof, the notice, nevertheless, shall be considered to have been given and shall be effective as of the date herein provided.

If to the LENDER:

MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY

2 Hopkins Plaza, 21^st Floor

Baltimore, Maryland 21201

Attn: Stephen D. Palmer, Senior Vice President

Facsimile: (410) 237-5703

If to the BORROWERS:

AVATECH SOLUTIONS, INC.

AVATECH SOLUTIONS SUBSIDIARY, INC.

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

Attn: Lawrence Rychlak, Vice President and Chief Financial Officer

Facsimile: (410) 753-1591

With A Courtesy Copy To:

Avatech Solutions, Inc.

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

Attn: Christopher Olander, Esquire

Facsimile: 410-753-1591

The failure of the LENDER to send the above courtesy copy shall not impair the effectiveness of notice given to the BORROWERS in the manner provided herein.

Section 9.11. Participations. The LENDER reserves the right to assign all or any portion of its interests in any of the OBLIGATIONS or the LOAN DOCUMENTS or to participate with other lending institutions any of the OBLIGATIONS and the LOAN DOCUMENTS on such terms and at such times as the LENDER may determine from time to time, all without any consent thereto or notice thereof to the BORROWERS. Each of the BORROWERS hereby grants to each participating lending institution, to the full extent of the OBLIGATIONS, the right to set off deposit accounts maintained by the BORROWERS with such institution, and each of the BORROWERS agrees to pay the LENDER EXPENSES of any such participating lending institution which arise or are incurred as a result of the occurrence of an EVENT OF DEFAULT.

Section 9.12. Miscellaneous Provisions. The parties agree that: (a) this AGREEMENT shall be effective as of the date first above written, independent of the date of execution or delivery hereof; (b) this AGREEMENT shall be binding upon the parties and their successors and assigns, contains the final and entire agreement and understanding of the parties, and may neither be amended or altered except by a writing signed by the parties; (c) time is strictly of the essence of this AGREEMENT; (d) as used herein, the singular includes the plural and the plural includes the singular, the use of any gender applies to all genders; (e) the captions contained herein are for purposes of convenience only and are not a part of this AGREEMENT; (f) a carbon, photographic, photocopy or other reproduction of a security agreement or financing statement shall be sufficient as a financing statement; (g) this AGREEMENT may be delivered by facsimile, and a facsimile of any party’s signature to this AGREEMENT shall be deemed an original signature for all purposes; and (h) this AGREEMENT may be executed in several counterparts, each of which shall be an original, but all of which, when taken together, shall constitute one and the same document.

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Section 9.13. Waiver Of Trial By Jury. Each party to this AGREEMENT agrees that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by any party hereto or any successor or assign of any party on or with respect to this AGREEMENT or any other LOAN DOCUMENT or which in any way relates, directly or indirectly, to the OBLIGATIONS or any event, transaction, or occurrence arising out of or in any way connected with any of the OBLIGATIONS, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

IN WITNESS WHEREOF, the LENDER and the BORROWERS have duly executed this AGREEMENT under seal as of the date first above written.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

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Signature Page to Loan and Security Agreement:

WITNESS/ATTEST:	LENDER: MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY
/s/ Lawrence Rychlak	By:	/s/ Stephen D. Palmer	(SEAL)
		Stephen D. Palmer Senior Vice President
	BORROWERS: AVATECH SOLUTIONS, INC., A Delaware Corporation
/s/ Stephen D. Palmer	By:	/s/ Lawrence Rychlak	(SEAL)
		Lawrence Rychlak, Vice President and Chief Financial Officer
	AVATECH SOLUTIONS, SUBSIDIARY, INC. A Delaware Corporation
/s/ Stephen D. Palmer	By:	/s/ Lawrence Rychlak	(SEAL)
		Lawrence Rychlak, Vice President and Chief Financial Officer

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Schedule 1.78

Permitted Liens

1. Autodesk, Inc. filing with the Delaware Department of State filed 5/31/2002, Filing No. 2160864 9.

2. Inter-Tel Leasing, Inc. filing with the Delaware Department of State filed 10/25/2002, Filing No. 2269090 1.

3. Autodesk, Inc. filing with the Delaware Department of State filed 4/14/2004, Filing No. 4121276 2.

4. Autodesk, Inc. filing with the Delaware Department of State filed 5/06/2004, Filing No. 4143427 5.

5. Dell Financial Services, L.P. filing with the Delaware Department of State filed 9/10/2004, Filing No. 4255140 8.

6. Autodesk, Inc. filing with the Delaware Department of State filed 10/20/2004, Filing No. 4301355 6.

7. Pitney Bowes Credit Corporation filing with the Maryland State Department of Assessment and Taxation filed 8/11/1997, Filing No. 172237514.

8. Autodesk, Inc. filing with the Maryland State Department of Assessment and Taxation filed 1/29/1999, Filing No. 39100000046469.

9. American Express Business Finance filing with the Maryland State Department of Assessment and Taxation filed 4/28/2004, Filing No. 181189236.

Schedule 4.2

Litigation

None.

Schedule 4.7

Other Names

Avatech Solutions, Inc.

Planet CAD, Inc.

Spatial Technology, Inc.

Avatech Solutions Subsidiary, Inc.

Raven Acquisition, Inc.

Schedule 4.12

Chief Executive Office

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

Schedule 4.13

Locations of Inventory

• 10715 Red Run Boulevard, Suite 101, Owings Mills, MD 21117

• 1630 Duke Street, First Floor, Alexandria, VA 22314

• 2708 Enterprise Parkway, Richmond, VA 23294

• 4460 Corporation Lane, Suite 317, Virginia Beach, VA 23462

• 639 Research Parkway, Meridian, CT 06450

• 11156 Aurora Avenue, Urbandale, IA 50322

• 1221 Park Place NE, Suite C, Cedar Rapids, IA 52402

• 11422 Miracle Hills Drive, Suite 504, Omaha, NE 68154

• 8101 East Prentice Avenue, Suite 200, Engelwood, CO 80111

• 101 East 5^th Street, Suite 1510, St. Paul, MN 55101

• 7880 Woodland Center Boulevard, Tampa, FL 33614

• 4322 North Beltline Road, Suite B-l10, Irving, TX 75038

• 7700 San Felipe, Suite 490, Houston, TX 77063

• 100 Farmers Bank Drive, Suite 410, Georgetown, KY 40324

Schedule 4.19

Liabilities Not Disclosed on Financial Statements

None.

EX-10.52

Exhibit 10.52

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT (“GUARANTY”) is given as of January 27 2006, by W. JAMES HINDMAN (“GUARANTOR”), for the benefit of MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY (“LENDER”), with respect to the obligations of AVATECH SOLUTIONS, INC., a Delaware corporation and AVATECH SOLUTIONS SUBSIDIARY, INC., a Delaware corporation (collectively, “BORROWERS”).

RECITALS

The BORROWERS have requested that the LENDER provide to the BORROWERS, jointly and severally, a revolving loan in the stated principal amount of Five Million Dollars ($5,000,000.00) (“LOAN”).

The LENDER has agreed to provide the LOAN to the BORROWERS, but only if the GUARANTOR provides to the LENDER the guaranties of payment and performance set forth in this GUARANTY. The GUARANTOR is willing to provide this GUARANTY to the LENDER in order to induce the LENDER to provide the LOAN to the BORROWERS.

NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the GUARANTOR hereby agrees to provide to the LENDER the following guaranties and indemnifications.

Section 1. Guaranty. Subject to the Limitations set forth in Section 3 of this GUARANTY, the GUARANTOR guarantees: (a) the payment of any and all sums now or hereafter due and owing to the LENDER by any or all of the BORROWERS as a result of or in connection with the LOAN, including, but not limited to, all amounts of principal, interest, charges, reimbursements, advancements, escrows, and fees; (b) that all sums now or hereafter due and owing by any or all of the BORROWERS in connection with the LOAN shall be paid when and as due, whether by reason of installment, maturity, acceleration or otherwise, time being of the essence; and (c) the timely, complete, continuous, and strict performance and observance by the BORROWERS of each of the terms, covenants, agreements and conditions contained in any and all existing or future documents, instruments, agreements, and writings of every kind, nature, type, and variety which evidence, reflect, embody, give rise to or secure any and all existing and future indebtedness, liabilities, and obligations of any kind of any or all of the BORROWERS to the LENDER which arise out of or relate in any respect to the LOAN (collectively, “LOAN DOCUMENTS”). As used in this GUARANTY, the term “OBLIGATIONS” shall refer to the obligations of payment, performance, and indemnification which the GUARANTOR has undertaken and assumed pursuant to this GUARANTY, both as described in this Section and in other Sections of this GUARANTY.

Section 2. Nature Of Guaranty. This GUARANTY: (a) is (i) irrevocable, (ii) absolute and unconditional, (iii) direct, immediate, and primary, and (iv) one of payment and not just collection; and (b) makes the GUARANTOR a surety to the LENDER with respect to the OBLIGATIONS and the equivalent of a co-obligor with the BORROWERS. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of any of the BORROWERS, any other guarantor or any other obligor under any of the LOAN DOCUMENTS, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against any of the BORROWERS, any other guarantor or any obligor under any of the LOAN DOCUMENTS shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of the GUARANTOR hereunder in any manner whatsoever, and this GUARANTY shall remain and continue in full force and effect.

Section 3. Limitation Upon Principal Amount Guaranteed By The Guarantor. The liability of the GUARANTOR for the repayment of the principal balances of the LOAN owed by the BORROWERS to the LENDER shall be Limited to the total aggregate sum of Seven Hundred Thousand Dollars ($700,000.00). The GUARANTOR agrees that in calculating the liability of the GUARANTOR to the LENDER in connection with the repayment of the aggregate unpaid principal balances of the LOAN, the proceeds of the liquidation of any collateral securing the LOAN and any payments received by the LENDER from any of the BORROWERS or from any other guarantor or which are otherwise obtained from any other source shall not be considered to be a discharge of the principal balances of the LOAN guaranteed by the GUARANTOR until all unpaid principal balances of the LOAN, other than those which have been guaranteed by the GUARANTOR, have been repaid and satisfied in full. The limitations set forth in this Section shall

not include or be deemed to be a limitation upon the GUARANTOR’S guaranty to the LENDER that all interest which accrues upon the LOAN shall be paid in full, nor shall such limitations constitute any restriction upon the LENDER’S rights to recover late charges, fees, costs, expenses, or attorneys’ fees as payable to the LENDER in accordance with the terms of the LOAN DOCUMENTS or this GUARANTY.

Section 4. Representations Of Guarantor. To induce the LENDER to accept this GUARANTY for the purposes for which it is given, the GUARANTOR represents and warrants to the LENDER as follows: (a) all representations and warranties made by the BORROWERS or by the GUARANTOR to the LENDER were true, accurate and correct in all material respects when made; (b) any financial statements submitted by the GUARANTOR to the LENDER, including any schedules and notes pertaining thereto, fully and fairly present the financial condition of the GUARANTOR at the date thereof, and there has been no material adverse change in the financial condition of the GUARANTOR from the date thereof to the date hereof, other than as disclosed to the LENDER; (c) the GUARANTOR is not in default with respect to any of its existing indebtedness, and the making and performance of this GUARANTY will not (immediately, with the passage of time, the giving of notices, or both), result in a default under any contract, agreement, or instrument to which the GUARANTOR is a party or by which the GUARANTOR or its property is bound; (d) this GUARANTY when delivered will be, valid, binding, and enforceable in accordance with its terms; and (e) the incurring or satisfaction of the OBLIGATIONS has not left and will not leave the GUARANTOR insolvent, with an unreasonably small capital, or unable to pay existing or future debts as they mature.

Section 5. Lender Need Not Pursue Other Rights. The LENDER shall be under no obligation to pursue any of the LENDER’S rights and remedies against any of the BORROWERS or any of the collateral of any of the BORROWERS securing the obligations of any of the BORROWERS to the LENDER or against any other guarantor or any collateral of any other guarantor before pursuing the LENDER’S rights and remedies against the GUARANTOR.

Section 6. Certain Rights Of Lender. The GUARANTOR hereby assents to any and all terms and agreements between the LENDER and any of the BORROWERS or between the LENDER and any other guarantor, and all amendments and modifications thereof, whether presently existing or hereafter made and whether oral or in writing. The LENDER may, without compromising, impairing, diminishing, or in any way releasing the GUARANTOR from the OBLIGATIONS and without notifying or obtaining the prior approval of the GUARANTOR, at any time or from time to time: (a) waive or excuse a default by any of the BORROWERS or any other guarantor, or delay in the exercise by the LENDER of any or all of the LENDER’S rights or remedies with respect to such default or defaults; (b) grant extensions of time for payment or performance by any of the BORROWERS or by any other guarantor; (c) release, substitute, exchange, surrender, or add collateral of any of the BORROWERS or of any other guarantor, or waive, release, or subordinate, in whole or in part, any lien or security interest held by the LENDER on any real or personal property securing payment or performance, in whole or in part, of the obligations of any of the BORROWERS to the LENDER or of any other guarantor; (d) release any or all of the BORROWERS or any other guarantor; (e) apply payments made by any of the BORROWERS or by any other guarantor to any sums owed by the BORROWERS to the LENDER, in any order or manner, or to any specific account or accounts, as the LENDER may elect; and (f) modify, change, renew, extend, or amend in any respect the LENDER’S agreement with any of the BORROWERS or any other guarantor, or any document, instrument, or writing embodying or reflecting the same, including without limitation modifications which increase the amount of the OBLIGATIONS or extend the maturity of the OBLIGATIONS.

Section 7. Waivers By Guarantor. The GUARANTOR waives: (a) any and all notices whatsoever with respect to this GUARANTY or with respect to any of the obligations of any of the BORROWERS to the LENDER, including, but not Limited to, notice of (i) the LENDER’S acceptance hereof or the LENDER’S intention to act, or the LENDER’S action, in reliance hereon, (ii) the present existence or future incurring of any of the obligations of any of the BORROWERS to the LENDER or any terms or amounts thereof or any change therein, (iii) any default by any of the BORROWERS or any surety, pledgor, grantor of security, guarantor or any person who has guarantied or secured in whole or in part the obligations of any of the BORROWERS to the LENDER, and (iv) the obtaining or release of any guaranty or surety agreement, pledge, assignment, or other security for any of the obligations of any of the BORROWERS to the LENDER; (b) presentment and demand for payment of any sum due from any of the BORROWERS or any other guarantor and protest of nonpayment; (c) demand for performance by any of the BORROWERS or any other guarantor; and (d) any and all defenses based on suretyship or impairment of collateral.

Section 8. Unenforceability Of Obligations Of Borrowers. This GUARANTY shall be valid, binding, and enforceable even if the obligations of the BORROWERS to the LENDER which are guarantied hereby are now or hereafter become invalid or unenforceable for any reason.

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Section 9. No Conditions Precedent. This GUARANTY shall be effective and enforceable immediately upon its execution. The GUARANTOR acknowledges that no unsatisfied conditions precedent to the effectiveness and enforceability of this GUARANTY exist as of the date of its execution and that the effectiveness and enforceability of this GUARANTY are not in any way conditioned or contingent upon any event, occurrence, or happening, or upon any condition existing or coming into existence either before or after the execution of this GUARANTY.

Section 10. No Duty To Disclose. The LENDER shall have no present or future duty or obligation to discover or to disclose to the GUARANTOR any information, financial or otherwise, concerning the BORROWERS, any other guarantor, or any collateral securing either the obligations of the BORROWERS to the LENDER or of any other person who may have guarantied in whole or in part the obligations of the BORROWERS to the LENDER. The GUARANTOR waives any right to claim or assert any such duty or obligation on the part of the LENDER. The GUARANTOR agrees to obtain all information which the GUARANTOR considers either appropriate or relevant to this GUARANTY from sources other than, the LENDER and to become and remain at all times current and continuously apprised of all information concerning the BORROWERS, other guarantors, and any collateral which the GUARANTOR deems to be material or relevant to the obligations of the GUARANTOR under this GUARANTY.

Section 11. Existing Or Future Guaranties. The execution of this GUARANTY shall not discharge, terminate or in any way impair or adversely affect the validity or enforceability of any other guaranty given by the GUARANTOR to the LENDER. The execution and delivery by the GUARANTOR of any future guaranty for the benefit of the LENDER shall not discharge, terminate, or in any way impair or adversely affect the validity or enforceability of this GUARANTY. All guaranties provided by the GUARANTOR to the LENDER are intended to be cumulative and shall remain in full force and effect unless and until discharged and terminated in accordance with any expressly stated termination provisions set forth therein.

Section 12. Cumulative Liability. The liability of the GUARANTOR under this GUARANTY shall be cumulative to, and not in lieu of, the GUARANTOR’S liability under any other LOAN DOCUMENT or in any capacity other than as GUARANTOR hereunder.

Section 13. Obligations Are Unconditional. The payment and performance of the OBLIGATIONS shall be the absolute and unconditional duty and obligation of the GUARANTOR, and shall be independent of any defense or any rights of setoff, recoupment or counterclaim which the GUARANTOR might otherwise have against the LENDER, and the GUARANTOR shall pay and perform these OBLIGATIONS, free of any deductions and without abatement, diminution or setoff. Until such time as the OBLIGATIONS have been fully paid and performed, the GUARANTOR: (a) shall not suspend or discontinue any payments provided for herein; (b) shall perform and observe all of the covenants and agreements contained in this GUARANTY; and (c) shall not terminate or attempt to terminate this GUARANTY for any reason. No delay by the LENDER in making demand on the GUARANTOR for satisfaction of the OBLIGATIONS shall prejudice or in any way impair the LENDER’S ability to enforce this GUARANTY.

Section 14. Defenses Against Borrowers. The GUARANTOR waives any right to assert against the LENDER any defense (whether legal or equitable), claim, counterclaim, or right of setoff or recoupment which the GUARANTOR may now or hereafter have against any of the BORROWERS or against any other guarantor.

Section 15. Events Authorizing Acceleration Of The Obligations. The occurrence of any of the following (each an “EVENT OF DEFAULT”) shall entitle the LENDER, without notice or demand, to accelerate and call due the OBLIGATIONS, even if the LENDER has not accelerated and called due the sums owed to the LENDER by the BORROWERS: (a) the commencement by any of the BORROWERS or the GUARANTOR of a voluntary case or proceeding under any federal or state bankruptcy, insolvency or similar law; (b) the commencement of an involuntary case or proceeding against any of the BORROWERS or the GUARANTOR under any federal or state bankruptcy, insolvency, or similar law, and either (i) such case or proceeding is not dismissed within sixty (60) calendar days after commencement, or (ii) an order for relief is entered in such case; (c) the appointment of a receiver, assignee, custodian, trustee or similar official under any federal or state insolvency or creditors’ rights law for any property of any of the BORROWERS or the GUARANTOR; (d) the entry of a judgment against the GUARANTOR or any of the BORROWERS and the failure to satisfy such judgment within thirty (30) days either by payment or by the filing of a supersedeas bond; (e) a default by any of the BORROWERS under any of the LOAN DOCUMENTS or under any other agreement between any of the BORROWERS and the LENDER, and such default is not cured within any applicable cure period; (f) a failure of the GUARANTOR to perform any covenant or agreement contained in this GUARANTY or in

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any other agreement between the GUARANTOR and the LENDER; (g) any representation or warranty made in this GUARANTY or in any report or financial statement furnished in connection with this GUARANTY, shall prove to have been false or misleading when made; (h) the LENDER in its sole discretion determines in good faith that a material adverse change has occurred in the financial condition of the GUARANTOR; (i) the liquidation or dissolution of any of the BORROWERS or the death of the GUARANTOR; or (j) a failure of the GUARANTOR to satisfy any of the obligations of the GUARANTOR to the LENDER with respect to any loan or extension of credit by the LENDER to the GUARANTOR or under any other guaranty given by the GUARANTOR to the LENDER.

Section 16. Expenses Of Collection And Attorneys’ Fees. Should this GUARANTY be referred to an attorney for collection, the GUARANTOR shall pay all of the holder’s reasonable costs, fees and expenses resulting from such referral, including reasonable attorney’s fees, which the holder may incur, even though judgment has not been confessed or suit has not been filed.

Section 17. Confession Of Judgment. Upon the occurrence of an EVENT OF DEFAULT, the GUARANTOR authorizes any attorney admitted to practice before any court of record in the United States, or the clerk of such court, to appear on behalf of the GUARANTOR and to confess judgment in any such court against the GUARANTOR in the full amount due on this GUARANTY at such time plus an attorney’s fee equal to fifteen percent (15%) of the amount due. The GUARANTOR waives any right to notice or a hearing prior to the entry of judgment and to the benefit of any and every statute, ordinance, or rule of court which may be lawfully waived conferring upon the GUARANTOR any right or privilege of exemption, appeal, stay of execution, or supplementary proceedings, or other relief from the enforcement or immediate enforcement of a judgment or related proceedings on a judgment. The authority and power which the GUARANTOR has given for any attorney admitted to practice before any court of record in the United States, or the clerk of such court, to appear for and confess judgment against the GUARANTOR shall be a continuous authority which shall not be exhausted or extinguished by any one or more exercises or imperfect exercises thereof or by any one or more judgments entered pursuant thereto and may be exercised on one or more occasions and at such times and from time to time after default and in the same or different courts or jurisdictions as the LENDER may consider necessary or advisable. In the event that the LENDER receives, as a result of execution on a judgment confessed hereunder, attorneys’ fees which exceed the actual legal fees incurred by the LENDER in connection with the enforcement of this GUARANTY, then upon full and final payment of all other sums due and owing to the LENDER in accordance with this GUARANTY and the payment to the LENDER of the actual attorneys’ fees incurred by the LENDER, the LENDER shall remit such excess amount of attorneys’ fees to the GUARANTOR.

Section 18. Interest Rate After Judgment. If judgment is entered against the GUARANTOR on this GUARANTY, the amount of the judgment entered (which, unless applicable law specifically provides to the contrary, includes all principal, prejudgment interest, late charges, prepayment charges if any are provided for, collection expenses, attorneys’ fees, and court costs) shall bear interest at the highest rate after default authorized by the LOAN DOCUMENTS as of the date of entry of the judgment to the extent permitted by applicable law. In the event any statute or rule of court specifies the rate of interest which a judgment on this GUARANTY may bear or the amount on which such interest rate may apply and such rate or amount is less than that called for in the preceding sentence absent a restriction under applicable law, the GUARANTOR: (a) agrees to pay to the order of the LENDER an amount as will equal the interest computed at the highest rate after default provided for in the LOAN DOCUMENTS which would be due on the judgment amount (which, for this purpose, shall be considered to include all principal, prejudgment interest, late charges, prepayment charges if any are provided for, collection expense fees, attorneys’ fees, and court costs) less the interest due on the amount of the judgment which bears judgment interest; and (b) authorizes the confession of judgment pursuant to the confession of judgment provision of this GUARANTY if the GUARANTOR fails to make payment thereof.

Section 19. Enforcement During Bankruptcy. Enforcement of this GUARANTY shall not be stayed or in any way delayed as a result of the filing of a petition under the United States Bankruptcy Code, as amended, by or against any of the BORROWERS. Should the LENDER be required to obtain an order of the United States Bankruptcy Court to begin enforcement of this GUARANTY after the filing of a petition under the United States Bankruptcy Code, as amended, by or against any of the BORROWERS, the GUARANTOR hereby consents to this relief and agrees to file or cause to be filed all appropriate pleadings to evidence and effectuate such consent and to enable the LENDER to obtain the relief requested.

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Section 20. Remedies Cumulative. All of the LENDER’S rights and remedies shall be cumulative and any failure of the LENDER to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any time, and from time to time, thereafter.

Section 21. Continuing Guaranty. This GUARANTY is a continuing guaranty of all existing and future obligations of the BORROWERS to the LENDER arising out of or relating in any respect to the LOAN and may not be terminated by the GUARANTOR until after the termination of the LOAN DOCUMENTS, in accordance with the provisions thereof, and the payment (which payment shall not be subject to challenge or contest) and satisfaction in full of all of the OBLIGATIONS and of all of the BORROWERS’ obligations and liabilities to the LENDER under the LOAN DOCUMENTS.

Section 22. Reinstatement. If at any time any payment, or portion thereof, made by, or for the account of, any of the BORROWERS or the GUARANTOR on account of any of the obligations and liabilities under any of the LOAN DOCUMENTS is set aside by any court or trustee having jurisdiction as a voidable preference, or fraudulent conveyance or must otherwise be restored or returned by the LENDER to any of the BORROWERS or any other person or entity under any insolvency, bankruptcy or other federal and/or state laws or as a result of any dissolution, liquidation or reorganization of any of the BORROWERS or any other person or entity, or for any other reason, the GUARANTOR hereby agrees that this GUARANTY shall continue and remain in full force and effect or be reinstated, as the case may be, all as though such payment(s) had not been made.

Section 23. Rights Of Subrogation, Etc. In the event the GUARANTOR pays any sum to or for the benefit of the LENDER pursuant to this GUARANTY, the GUARANTOR may not enforce any right of contribution, indemnification, exoneration, reimbursement, subrogation or other right or remedy against any of the BORROWERS, any other guarantor, or any collateral, whether real, personal, or mixed, securing the obligations of any of the BORROWERS to the LENDER or the obligations of any other guarantor to the LENDER until such time as the LENDER has been paid in full and has no further claim against any of the BORROWERS, any other guarantor, or any collateral. The GUARANTOR waives and releases any claim which the GUARANTOR hereafter may have against the LENDER if some action of the LENDER, whether intentional or negligent, impairs, destroys, or in any way adversely affects any right of contribution, indemnification, exoneration, reimbursement, subrogation, or the like which the GUARANTOR may have upon the payment of any sum to or for the benefit of the LENDER pursuant to this GUARANTY.

Section 24. Subordination Of Certain Indebtedness. If the GUARANTOR advances any sums to the any of BORROWERS or the successors or assigns of any of the BORROWERS, or if any of the BORROWERS or the successors or assigns of any of the BORROWERS shall hereafter become indebted to the GUARANTOR, such sums and indebtedness shall be subordinate in all respects to the amounts then or thereafter due and owing to the LENDER by the BORROWERS.

Section 25. Setoff. The LENDER shall have the right to setoff and apply against the OBLIGATIONS any sums which the GUARANTOR at any time has on deposit with the LENDER whether such deposits are general or special, time or demand, provisional or final, and the GUARANTOR hereby pledges and grants to the LENDER a security interest in all of such deposits.

Section 26. Financial Statements. The GUARANTOR shall submit to the LENDER annual personal financial statements for the GUARANTOR within ninety (90) days from the close of each calendar year and shall submit to the LENDER copies of the most recently filed state and federal income tax returns with all supporting schedules and filings within thirty (30) days of filing. As used herein, financial statements shall include a statement of assets and liabilities and any variation thereof or other specific statements requested by the LENDER in form and substance acceptable to the LENDER. The costs of supplying the financial statements shall be paid by the GUARANTOR.

Section 27. Renewals. Etc. This GUARANTY shall apply to all sums now or hereafter owed by the any of the BORROWERS to the LENDER and to all extensions, modifications, amendments, renewals, substitutions, and refinancings thereof.

Section 28. 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 GUARANTY and the rights and obligations of the parties hereto, including the validity, construction, interpretation, and enforceability of this GUARANTY and its

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various provisions and the consequences and legal effect of all transactions and events which resulted in the issuance of this GUARANTY or which occurred or were to occur as a direct or indirect result of this GUARANTY having been executed.

Section 29. Consent To Jurisdiction: Agreement As To Venue. The GUARANTOR 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. The GUARANTOR 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 waives 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.

Section 30. Proofs Of Sums Due On Guaranty. In any action or proceeding brought by the LENDER to collect the sums owed on this GUARANTY, a certificate signed by an officer of the LENDER setting forth the unpaid balances of principal, and any accrued interest, default interest, attorneys’ fees, and late charges owed with respect hereto shall be presumed correct and shall be admissible in evidence for the purpose of establishing the truth of what it asserts. If the GUARANTOR wishes to contest the accuracy of the figure set forth in any such certificate, the GUARANTOR shall have the burden of proving by clear and convincing evidence that the certificate is inaccurate or incorrect.

Section 31. Actions Against Lender. Any action brought by the GUARANTOR against the LENDER which is based, directly or indirectly, on this GUARANTY or any matter in or related to this GUARANTY, including but not limited to the obligations of any of the BORROWERS to the LENDER, the administration, collection, or enforcement thereof, shall be brought only in the courts of the State of Maryland. The GUARANTOR may not file a counterclaim against the LENDER in a suit brought by the LENDER against the GUARANTOR in a state other than the State of Maryland unless under the rules of procedure of the court in which the LENDER brought the action the counterclaim is mandatory, and not merely permissive, and will be considered waived unless filed as a counterclaim in the action instituted by the LENDER. The GUARANTOR agrees that any forum other than the State of Maryland is an inconvenient forum and that a suit brought by the GUARANTOR against the LENDER in a court of any state other than the State of Maryland should be forthwith dismissed or transferred to a court located in the State of Maryland by that court.

Section 32. Invalidity Of Any Part. If any provision or part of any provision of this GUARANTY shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions or the remaining part of any effective provisions of this GUARANTY, and this GUARANTY 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.

Section 3 3. Amendment Or Waiver. This GUARANTY may be amended only by a writing duly executed by the GUARANTOR and the LENDER. No waiver by the LENDER of any of the provisions of this GUARANTY or any of the rights or remedies of the LENDER with respect hereto shall be considered effective or enforceable unless in writing.

Section 34. Notices. Any notice required or permitted by or in connection with this GUARANTY shall be in writing and shall be made by facsimile (confirmed on the date the facsimile is sent by one of the other methods of giving notice provided for in this Section) or by hand delivery, by Federal Express, or other similar overnight delivery service, or by certified mail, unrestricted delivery, return receipt requested, postage prepaid, addressed to the LENDER or the GUARANTOR at the appropriate address set forth below or to such other address as may be hereafter specified by written notice by the LENDER or the GUARANTOR. Notice shall be considered given as of the date of the facsimile or the hand delivery, one (1) calendar day after delivery to Federal Express or similar overnight delivery service, or three (3) calendar days after the date of mailing, independent of the date of actual delivery or whether delivery is ever in fact made, as the case may be, provided the giver of notice can establish the fact that notice was given as provided herein. If notice is tendered pursuant to the provisions of this Section and is refused by the intended recipient thereof, the notice, nevertheless, shall be considered to have been given and shall be effective as of the date herein provided.

6

If to the LENDER:

MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY

2 Hopkins Plaza, 21^st Floor

Baltimore, MD 21201

Attn.: Stephen D. Palmer, Senior Vice President

Fax No.: (410) 237-5703

If to the GUARANTOR:

W. JAMES HINDMAN

Rich Meadow Farm

2322 Nicodemus Road

Westminster, Maryland 21157

Fax No.: (410) 840-8139

Section 35. Binding Nature. This GUARANTY shall inure to the benefit of and be enforceable by the LENDER and the LENDER’S successors and assigns and any other person to whom the LENDER may grant an interest in the obligations of any of the BORROWERS to the LENDER, and shall be binding upon and enforceable against the GUARANTOR and the GUARANTOR’S successors, and assigns.

Section 36. Joint And Several Nature. In the event there exists more than one GUARANTOR, all liabilities hereunder shall be joint and several. The liability of the GUARANTOR shall be joint and several with the liability of any other guarantor not a party to this GUARANTY.

Section 37. Assignability. This GUARANTY or an interest therein may be assigned by the LENDER, or by any other holder, at any time or from time to time, without prior notice to or consent from the GUARANTOR.

Section 38. Final Agreement. This GUARANTY contains the final and entire agreement between the LENDER and the GUARANTOR with respect to the guaranty by the GUARANTOR of the BORROWERS’ obligations to the LENDER. There are no separate oral or written understandings between the LENDER and the GUARANTOR with respect thereto.

Section 39. Tense, Gender, Defined Terms, Captions. As used herein, the plural includes the singular, and the singular includes the plural. The use of any gender applies to any other gender. If more than one person has executed this GUARANTY, the term “GUARANTOR” means all such persons collectively or any one or more of such persons individually or collectively, as the case may be and as the context may require. All defined terms are completely capitalized throughout this GUARANTY. All captions are for the purpose of convenience only.

Section 40. Seal And Effective Date. This GUARANTY is an instrument executed under seal and is to be considered effective and enforceable as of the date set forth on the first page hereof, independent of the date of actual execution.

Section 41. Waiver Of Trial By Jury. The GUARANTOR and the LENDER, by their execution and acceptance, respectively, of this GUARANTY, agree that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by either party hereto or any successor or assign of any party on or with respect to this GUARANTY or which in any way relates, directly or indirectly, to this GUARANTY or any event, transaction, or occurrence arising out of or in any way connected with this GUARANTY, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

7

IN WITNESS WHEREOF, the GUARANTOR has executed this GUARANTY with the specific intention of creating a document under seal.

WITNESS:	GUARANTOR:
/s/ Illegible	/s/ W. James Hindman	(SEAL)
	W. JAMES HINDMAN

STATE OF Maryland, CITY/COUNTY OF Westminster /Carroll, TO WIT:

I HEREBY CERTIFY that on this 12^th day of January, 2006, before me, the undersigned Notary Public of the State of Maryland, personally appeared W. JAMES HINDMAN, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained.

IN WITNESS MY Hand and Notarial Seal.

/s/ Illegible	(SEAL)
NOTARY PUBLIC

My Commission Expires: 11/16/2008

8

EX-10.53

Exhibit 10.53

AUTODESK AUTHORIZED VALUE ADDED RESELLER AGREEMENT

(NORTH AMERICA)

This Autodesk Authorized Value Added Reseller Agreement (“Agreement” or “VAR Agreement”), effective on February 1, 2006 (“Effective Date”) is made between Autodesk, Inc., a Delaware corporation with its principal place of business at 111 McInnis Parkway, San Rafael, California 94903 (“Autodesk”), and Value Added Reseller (“VAR”) as set forth below:

Avatech Solutions Subsidiary, Inc.

10715 Red Run Blvd, Suite 101

Owings Mills, MD 21117

410-581-8088

0070001471, 007000270 and 0070001359 01

This Agreement is comprised of the following components:

• This execution page

• Authorization Terms and Conditions

• Exhibit A (Authorization Matrix)

• Exhibit B (Authorization Requirements Chart)

• Exhibit C (VAR Benefits)

• Exhibit D (Support Program Requirements)

This execution page, the documents identified above, and all other documents and materials specifically referred to therein, are hereby incorporated by reference and made an integral part of this Agreement. By signing below, VAR confirms that it has read, understood and agreed to be bound by the terms and conditions of the Agreement in its entirety.

The parties hereto confirm that it is their wish that this Agreement, as well as other documents relating hereto, including notices hereunder, have been and shall be written in the English language only. Les parties ci dessus confirment leur desir que cet accord ainsi que tous les documents, y compris tous avis qui s’y rattachent, soient rediges en langue anglaise.

IN WITNESS WHEREOF the parties have caused their authorized representatives to sign this Agreement in duplicate.

“Autodesk” AUTODESK, INC		“VAR” Company: AVATECH SOLUTIONS INC.
By:	/s/ Steve Blum	By:	/s/ W. Scott Harris
	Steve Blum		W. Scott Harris
	Vice President -Americas Sales		Printed Name President
	Title		Title
	2/1/06		1/28/06
	Date		Date

AUTHORIZATION TERMS AND CONDITIONS

1. Definitions

1.1 “Authorization Level” means the category(ies) of authorization(s) applicable to VAR as set forth in the Authorization Matrix.

1.2 “Authorized Location” means each physical location set forth in the Authorization Matrix.

1.3 “Authorization Matrix” means Exhibit A to this Agreement, as modified from time to time by Autodesk at its sole discretion provided VAR has applied for each applicable authorization and complies with the Requirements and the terms and conditions of this Agreement.

1.4 “Authorized Product(s)” means the Autodesk software product(s) in object code form and accompanying documentation, and their respective Subscriptions, Updates and Upgrades (if any) which (i) VAR has procured directly from Autodesk or from an Autodesk Distribution Partner in accordance with this VAR Agreement if made available by Autodesk for purchase by VARs, and (ii) which are identified in Exhibit B hereto and correspond with each VAR authorization and Authorization Level as specified in the Authorization Matrix.

1.5 “Autodesk Product(s)” shall mean Authorized Product(s) and any other Autodesk software products designated as retail products by Autodesk in object code form and accompanying documentation, and their respective Subscriptions, Updates and Upgrades (if any).

1.6 “Autodesk Store” means any Autodesk branded and operated (directly or indirectly) internet accessible ecommerce site.

1.7 “Authorized Territory” means the geographical areas of the United States and/or Canada specified in the Authorization Matrix (Exhibit A) within which VAR is authorized to market, distribute and support the applicable Authorized Product(s) to End Users.

1.8 “Channel Partner Policies and Procedures” means the documents posted to OTW (including the VAR CPA Program Guide), as periodically amended by Autodesk, in its sole discretion, that sets forth the policies and procedures to be followed by VAR_f which is hereby incorporated by reference.

1.9 “Dedicated” means that each Qualified employee only sells or supports the Authorized Product(s) subject to a single authorization identified in Section I of Exhibit B, and non-competitive third-party complementary products and services as determined by Autodesk in its sole discretion.

1.10 “Direct Customer(s)” means any End User to whom Autodesk sells Autodesk Product(s) directly. Direct Customers include all named accounts, Autodesk Store customers and all state, local and federal government End Users.

1.11 “Distribution Partner” means any entity currently authorized in writing by Autodesk to distribute Autodesk Product(s) to third parties other than End Users for resale.

1.12 “End User” means a customer of Autodesk who has acquired a license for one or more Autodesk Product(s) from VAR for the personal or business use of such customer and not for transfer or resale.

1.13 “End User License” means the then-current license agreement shipped with,

incorporated in or made available by download with each Autodesk Product, which sets forth the terms and conditions under which an End User may use such Autodesk Product.

1.14 “End User Records” means the records maintained by VAR that show, at a minimum, the name and address of each End User to whom VAR has sold the Autodesk Product(s).

1.15 “Government Reseller” means the partner(s) Autodesk contracts with to administer marketing and sales to qualifying government customers.

1.16 “Marketing Materials” means the marketing collateral and other advertising materials that Autodesk may make available to VAR from time to time.

1.17 “Minimum Purchase Requirement” means the minimum purchase requirements as set forth in Exhibit B, and/or as set periodically by Autodesk in its sole discretion, which reflect commercially reasonable quantities necessary for VAR to satisfy its obligations hereunder.

1.18 “One Team Web” or “OTW” means the current partner web site (www.autodesk.com/otw) or any other successor site designated by Autodesk.

1.19 “Qualified” means that the full-time VAR employee (excluding management and administrative staff as determined by Autodesk in its sole discretion) who has (i) passed the appropriate Autodesk exam(s) (as applicable), has attended all mandatory training and continues to maintain the appropriate technical skill and product experience as set forth in the Requirements, and (ii) only sells or supports Authorized Product(s) under the authorization combinations identified in Section II of Exhibit B, and non-competitive third-party complementary products and services, as determined by Autodesk in its sole discretion.

1.20 “Requirement(s)” means the mandatory requirements and obligations that must be met by VAR to market and support the Authorized Product(s) and/or participate in specified Autodesk programs and which may be modified by Autodesk pursuant to the terms of this Agreement. As of the Effective Date, the Requirements are as set forth in Exhibit B.

1.21 “Subscription(s)” means at any time during the term of this Agreement, the then-current Autodesk programs and standard agreements setting forth the terms and conditions entitling an End User to specified product and service benefits related to Autodesk software programs, over a specified period of time.

1.22 “Support Program” means the minimum End User support training, authorization and tracking requirements as set forth in Exhibit D attached hereto.

1.23 “Target” means the applicable revenue, unit, and other targets set by Autodesk based upon purchases of Authorized Product(s).

1.24 “Update(s)” means improved versions of Autodesk Product(s), or portions thereof, which incorporate corrections or minor enhancements for which Autodesk does not normally charge a fee and which require the End User to whom it is distributed to have previously licensed the Autodesk Product(s) corresponding to such improved versions.

1.25 “Upgrade(s)” means commercial releases of Autodesk Product(s) which enhance and/or improve the functionality of Authorized Product(s) hereunder and for which Autodesk normally charges a fee, and which require the End User to have previously licensed the Autodesk Product(s) corresponding to such enhanced or improved versions. An Upgrade does not include a future software programs which is not a direct successor to Autodesk Product(s), and shall be deemed a Authorized Product for purposes of this Agreement if subject to authorization, and made available by Autodesk to VAR for resale pursuant to this Agreement.

1.26 “Value Added Services” means the services, referred to in Section 4.2 below, which VAR must provide to each End User in order to qualify as a VAR.

1.27 All references in this VAR Agreement to the “sale” of or “selling” or “purchase” of Authorized Product(s) or software shall mean the sale or purchase of a license to use such software.

2. Authorization and Benefits

2.1 Non-exclusive VAR. Autodesk authorizes VAR as a non-exclusive reseller (and appoints VAR as a non-exclusive agent for the limited purposes expressly set forth in this Agreement) to market, distribute, and support the Authorized Product(s) from each applicable Authorized Location solely to End Users in the respective Authorized Territory, as set forth in the Authorization Matrix.

2.2 VAR Benefits. VAR shall be eligible to participate in the VAR benefits programs set forth in Exhibit C with respect to eligible Authorized Product(s) which correspond with VAR’s applicable authorization(s) and Authorization Level(s) as set forth in the Authorization Matrix. Autodesk reserves the right to modify or discontinue the foregoing programs in whole or in part upon thirty (30) days notice to VAR.

2.3 Retention of Rights by Autodesk. Autodesk reserves the unrestricted right to (i) market, distribute, and support any Autodesk Product(s) worldwide in any location, including in the VARs Authorized Territory, directly to End Users or through any other channel, including, but not limited to, original equipment manufacturers, channel partners, distributors, on-line sales or retail outlets, and (ii) modify, augment, or otherwise change the methods in which Autodesk markets, distributes, or supports any Autodesk Product(s), without any liability to VAR. Autodesk hereby gives VAR notice that it has reserved all Direct Customers for direct sales from Autodesk or its designated agents only.

3. Restrictions

VAR agrees as follows:

3.1 End User License Terms. Upon request, VAR shall make available to End Users the End User License and Subscription program terms and conditions, and advise Autodesk promptly of any known breach of the terms and conditions of these agreements and support Autodesk’s compliance efforts related thereto.

3.2 Not For Resale (“NFR”) Copies of Authorized Product(s). VAR shall not distribute, lease, loan, sublicense or otherwise provide access to any NFR copy of an Autodesk software product to any third-party. VAR may use NFR product only for demonstration and evaluation purposes and for qualified staff training purposes. NFR versions may not be provided to End Users or other third parties without Autodesk’s written authorization. Except as otherwise specified above, use of NFR Autodesk software product is subject to the terms and conditions of the End User License.

3.3 Restrictions. VAR shall not market, distribute, or support any Authorized Product(s) to or for any third party other than an End User. VAR expressly acknowledges and agrees that VAR is not a Distribution Partner and further acknowledges and agrees that the rights granted under Section 2 may not be construed so as to allow VAR to market or distribute Authorized Product(s) to any person or entity other than an End User. This restriction notwithstanding, VAR may permit the financing of any Authorized Product(s) by an End User through a financial institution approved by Autodesk. Such financing shall be restricted to a loan arrangement or permitting an End User to enter into a buy-out lease, provided;

however, such financial institution shall not be an End User and shall have no rights to such Authorized Product(s) as a licensee thereof. In any event, this consent shall not be construed to permit short-term rental of Authorized Product(s).

3.4 Agency Authorization. This VAR Agreement allows VAR to act as Autodesk’s non-exclusive agent to assist with sales activities to Direct Customers at Autodesk’s sole discretion. Unless otherwise directed by Autodesk in writing, VAR may only engage in sales activities for Authorized Product(s) to such Direct Customers as Autodesk’s agent and may not sell Authorized Product(s) from its commercial inventory to Direct Customers. Failure to comply with the foregoing shall subject VAR to termination.

3.5 License Acquisition Limitation. VAR shall not purchase, license or otherwise acquire or attempt to acquire licenses for Authorized Product(s) from (i) an End User, (ii) an agent acting on behalf of an End User, or (iii) any person or party other than Autodesk or a Autodesk Distribution Partner.

3.6 Unauthorized Acquisition. VAR shall not attempt to upgrade, exchange, or otherwise procure an economic benefit from any Authorized Product(s) purchased, licensed, or otherwise acquired from: (i) an End User, (ii) an agent acting on behalf of an End User, or (iii) any person or party other than Autodesk or a Distribution Partner.

3.7 No Mischaracterization. VAR shall not attempt to mischaracterize an Update or an Upgrade as a stand-alone, fully paid-up license to the corresponding Autodesk Product(s) for the purpose of attempting to upgrade, exchange, or otherwise procure an economic benefit from such Update or Upgrade. VAR shall not market, distribute, or support any Authorized Product(s) to any entity purporting to be an End User but which is either known to VAR or known to Autodesk and communicated to VAR to have the intent to, or have attempted to, sublicense such Authorized Product(s) to bona fide End Users or other third parties without written authorization from Autodesk.

3.8 Export Controls. VAR agrees and understands that the Autodesk Product(s), and any technical data, provided by Autodesk under this Agreement are subject to United States laws and regulations, which may restrict or prohibit resale or other transfers to other countries and parties. VAR agrees that no Autodesk Product(s) or technical information provided under this Agreement will be exported, transferred, or disclosed contrary to the applicable laws and regulations of the United States, or to any country, entity or other party which is ineligible to receive such items under U.S. laws and regulations, including regulations of the U.S. Department of Commerce or the U.S. Department of the Treasury. VAR agrees and understands it shall be solely responsible for: (i) complying with applicable U.S. laws and regulations and (ii) monitoring any modifications to them. Solely for information purposes, and without any obligation on the part of Autodesk to provide additional or updated information, further information about relevant U.S. laws and regulations is typically provided at websites maintained by the U.S. Treasury Department [http://www.ustreas.gov/ofac/] and the U.S. Commerce Department [http://www.bis.doc.gov/]. VAR shall also be solely responsible for: (i) complying with applicable laws and regulations of VAR’s country which restrict or prohibit exports and (ii) monitoring any modifications to such laws and regulations. VAR’s failure to comply with U.S. foreign trade and export laws and regulations, or those of VAR’s country, shall be deemed a material breach of this Agreement. VAR shall notify Autodesk immediately upon learning that it has exported, transferred or disclosed any Autodesk product to any country, entity or other party which is ineligible to receive such items under U.S. laws and regulations or those of VAR’s country.

3.9 Territory Limitations. VAR shall not attempt to market or distribute Authorized Product(s) other than from the applicable Authorized Location and in the applicable Authorized Territory set forth in the Authorization Matrix, unless authorized by Autodesk in writing. Any advertising, including but not limited to, trade magazine and web based

advertising, which may be seen by customers outside of VAR’s Authorized Territory, must contain a disclaimer notifying such customers that VAR may not sell to customers outside of VAR’s Authorized Territory. VAR shall refrain from marketing or promoting, in any manner, brokering or attempting to broker, solicit or arrange for the sale of any Authorized Product(s) other than the Authorized Product(s) for which VAR has been authorized.

3.10 Remedy for Violation. In addition to all other remedies available to Autodesk at law or in equity or this VAR Agreement, including termination of the Agreement, in the event that VAR violates any of the provisions of this Section 3 or the Channel Partner Policies and Procedures, VAR shall pay to Autodesk, as liquidated damages and not as a penalty, an amount equal to the difference between the then-current Autodesk suggested retail price and the price VAR actually paid for the Autodesk software product used, procured or distributed in contravention of this Section 3 or the sum of $500.00 for each copy of the Autodesk software product used, procured or distributed in contravention of this Section 3, whichever is greater. Additionally, VAR shall not be eligible for certain VAR Benefits as determined by Autodesk for, at a minimum, the remainder of the Autodesk fiscal quarter in which the violation occurred (or the remainder of the Autodesk fiscal quarter in which Autodesk learned of such violation by VAR) and the subsequent Autodesk fiscal quarter.

3.11 Modifications to Agreement. Autodesk reserves the right, in its sole and exclusive discretion, to amend, supplement, change or discontinue any part of this VAR Agreement, any exhibits or amendments thereto, upon thirty (30) days notice to VAR. The notice may come in the form of a posting to OTW or an email, expressly setting forth the specific change.

3.12 Quote Expirations: All VARs who submit customer quotes on any sale (i) to Direct Customers pursuant to the agency authorization, (ii) on any Autodesk Subscription Program offering, (iii) on any Autodesk support offering, or (iv) for any Autodesk services offering must include an expiration date of not more then thirty (30) days from the date of customer quote on such customer quote. If the commercial customer quote includes both software and one of the foregoing then the customer quote must have the prescribed expiration date. VAR may adopt an expiration date shorter the thirty days (30) on any customer quote at its discretion.

4. VAR Obligations.

VAR agrees to perform the following obligations in good faith;

4.1 Compliance with Requirements. VAR shall continuously comply with the Requirements at each VAR Authorized Location from which VAR is authorized to market, distribute and support Authorized Product(s), as per the Authorization Matrix, including the Minimum Purchase Requirements. VAR shall comply with the new Requirements within sixty (60) days of Autodesk’s written notice (or such other timeframe as may notified to VAR by Autodesk in writing). Autodesk may also add one or more new products or services to the groupings identified in Exhibit B (Authorizations and Levels) and specify additions to the Requirements. VAR shall comply with those new Requirements within sixty (60) days of Autodesk’s written notice (or such other timeframe as may notified to VAR by Autodesk in writing).

4.2 Value Added Services. VAR is required to provide Value Added Services beyond mere product fulfillment to End Users. Value Added Services include, but are not limited to (i) assessing each End User’s software needs via the telephone or in person, (ii) providing product demonstrations, (iii) recommending the appropriate Authorized Product(s) to an End User based upon End User’s needs and (iv) offering pre and post-sales technical support; all as further described in the Channel Partner Policies and Procedures. VAR shall be required to maintain written records that demonstrate these Value Added Services were offered for each sale of Authorized Product(s) to an End User. Autodesk reserves the right

to contact End Users to validate that such Value Added Services were provided and require VAR to provide Autodesk with evidence of Value Added Services upon request.

4.3 Support. At a minimum, VAR must offer support services at the level defined by the Support Services Program and outlined in Exhibit D.

4.4 Reporting. VAR shall provide sell through reports, forecasts, inventory reports, point of sale, and personnel reports pursuant to the Channel Partner Policies and Procedures at its own expense and in the format requested by Autodesk. Failure to provide any required report may be considered a breach of this VAR Agreement by Autodesk, may result in the loss of benefits referred to in Section 2.2. or result in termination of this Agreement in whole or in part for cause, as determined by Autodesk.

4.5 Opt-Out Requirement. In using End User Records for the promotion, sale and support of the Autodesk Product(s) pursuant to this VAR Agreement, VAR shall, at a minimum, utilize the following; (i) an “unsubscribe” or “opt-out” option on every marketing piece sent to End User regardless of form, and (ii) a limitation on marketing contact with End Users to no more frequently than one time per calendar month. Additionally, VAR shall comply with any and all federal, state, provincial, county, and local laws, statutes, ordinances, and regulations that are related to privacy, customer data and anything thereto related and shall hereby indemnify Autodesk for any failure of it to do so.

4.6 Approvals. VAR shall obtain and maintain at its own expense all approvals, consents, permissions, licenses, and other governmental or other third party approvals necessary to enable VAR to market, distribute, and support the Autodesk Product(s). VAR shall comply with all applicable federal, state, provincial, county, and local laws, statutes, ordinances, and regulations that apply to the activities of VAR including relevant privacy and piracy laws.

4.7 Marketing Activities. VAR shall use its best efforts to actively market, promote, and distribute, at VAR’s expense, the Authorized Product(s) only within the Authorized Territory under the terms of this VAR Agreement and the applicable Requirements, and Channel Partner Policies and Procedures. Upon invitation, at least one senior representative of VAR’s organization, preferably an owner or principal shall endeavor to attend Autodesk’s annual One Team Conference or similar event.

4.8 Updates. VAR, at its own expense, shall be responsible for distribution and support of any Updates to any Autodesk Product(s) that VAR has sold to an End User promptly after delivery to VAR of such Update. Autodesk reserves the right to distribute Updates to End Users directly or through alternative channels, including, but not limited to, electronic distribution. VAR shall promptly notify Autodesk of any defect in any Autodesk Product(s) which is discovered by or reported to VAR.

4.9 Autodesk Channel Partner Policy and Procedures. VAR is required to review OTW at least weekly and VAR shall comply with all terms and conditions of all current Channel Partner Policies and Procedures. Failure to abide by such policies and procedures shall be considered a breach of this VAR Agreement and shall constitute termination for cause. Autodesk reserves the right to modify such policies and procedures at anytime by posting an update to OTW at its sole discretion.

4.10 Fulfillment of Rebate Programs. From time to time Autodesk may run a promotion whereby End Users may receive a rebate offer for Autodesk Product(s). Autodesk appoints VAR as a non-exclusive agent for the fulfillment of rebate claims (“Rebate Claims”) submitted by End Users for the various promotions (“Promotions”). VAR shall pay to an End User who has submitted a Rebate Claim, the specified dollar amount as set forth on the rebate coupon, according to the terms and conditions stated on the applicable rebate coupon or as otherwise authorized by Autodesk in writing. VAR shall only pay End User for

Rebate Claims that have been received for the Promotions for which VAR has been authorized by Autodesk. VAR shall pay a rebate to End User only if the rebate coupons have been completely filled out by the End User, if all required documentation is attached, and the Rebate Claim was postmarked or received prior to the expiration date printed on the rebate coupon, unless otherwise instructed or specified by Autodesk in writing. After submission to Autodesk of all required End User documentation by VAR or VAR’s compliance with Autodesk’s applicable rebate program instructions, Autodesk shall credit VAR’s account for the amount of the rebate coupon, unless said rebates have been pre-funded by Autodesk via credits or incremental discounts.

4.11 VAR’s Office. VAR has all equipment, facilities and other resources necessary to perform its obligations under this Agreement, independent of Autodesk. VAR shall maintain an office within a commercial facility for each Authorized Location that is suitable to adequately represent Authorized Product(s) and reflect a professional image to End Users. VAR shall also maintain or have access to a five (5) seat training lab capable of running current Authorized Product(s). Such office may not be a home-office unless expressly approved by Autodesk in writing. Upon request, VAR shall submit to Autodesk, photographs of VAR’s office along with this VAR Agreement. In the event that VAR loses its commercial office or lab, VAR shall have thirty (30) days in which to establish a new office and/or lab as specified above. The establishment of a new office or lab that is more than five (5) miles from VAR’s Authorized Location is subject to written approval by Autodesk.

4.12 Updated Financial Statements. VAR is required to submit updated financial statements to Autodesk, within five (5) business days following Autodesk’s request.

4.13 Attendance at Meetings. VAR shall attend at its own expense all mandatory Autodesk strategic meetings or conferences of which VAR has been notified by Autodesk at least thirty (30) days in advance of such meeting or conference.

4.14 Breach of Obligations. In the event that VAR breaches any of the terms under this Section 4, in addition to all other remedies available to Autodesk at law or in equity or pursuant to this VAR Agreement, at Autodesk’s sole discretion, Autodesk may terminate this VAR Agreement.

5. Audit Rights. In addition to any other Autodesk audit rights pursuant to this VAR Agreement, Autodesk, in its sole discretion, may conduct an audit of the financial and other records of VAR for the purpose of validating or augmenting the VAR reports identified above in Section 4 and otherwise ensuring that VAR is complying with the terms of this VAR Agreement. Autodesk shall bear the cost of such audit, unless the audit determines that VAR has underpaid Autodesk by more than five percent (5%) for any Autodesk fiscal quarter OR unless such audit reveals the VAR is not in compliance with this VAR Agreement. In the event of an underpayment by VAR, VAR shall pay to Autodesk the full amount of any underpayment disclosed by such audit, plus interest at the rate of one and one-half percent (1.5%) per month or the highest rate allowed by law, whichever is lower, within five (5) days of Autodesk’s notification of such underpayment as well as bearing the costs of the audit. In the event a breach of this VAR Agreement is discovered, VAR shall bear the cost of the audit in addition to all other rights Autodesk has under this VAR Agreement, at law or in equity.

5.1 Investigations. From time to time Autodesk shall conduct investigations related to, among other things, alleged piracy and gray market sales (“Prohibited Activity”). In the event VAR is found to be involved in Prohibited Activity, in addition to all other rights and remedies available to Autodesk pursuant to this VAR Agreement, at law or in equity, VAR shall reimburse Autodesk for the costs of such investigation.

6. Support. Pursuant to the terms and conditions of this VAR Agreement, VAR will be granted access to all Autodesk self service support tools as made available on the VAR support portal at www.autodesk.com (or any other site as designated by Autodesk.) Autodesk reserves the right to distribute Updates and/or Upgrades to End Users directly or through alternative channels, including, but not limited to, electronic distribution.

7. VAR Purchases

7.1 Purchase of Authorized Product(s). Unless otherwise designated in an Addendum to this Agreement, VAR may only procure Authorized Product(s) from an Autodesk Distribution Partner in accordance with this VAR Agreement, the Authorized Product(s) Requirements and Exhibit A.

7.2 Taxes. As between VAR and Autodesk, VAR is responsible for the collection and payment of all federal, state, provincial, county, or local taxes, fees, and other charges, including all applicable income and sales taxes, as well as all penalties and interest, in relation to this Agreement.

7.3 Product Returns. Autodesk shall post any then-current End User software product returns policies on the OTW or any Autodesk site as designated by Autodesk. Autodesk reserves the right to change, amend or discontinue any End User software product returns policies upon thirty (30) days notice. Notwithstanding the foregoing, at Autodesk’s request, VAR shall destroy Autodesk Product(s) for which return authorization has been received from Autodesk, and VAR shall certify in writing to the complete destruction of said Autodesk Product(s).

8. Trademarks. During the term of this VAR Agreement, VAR shall have a non-exclusive, non-transferable right to indicate to the public that it is an Authorized VAR, as well as other program designations specific to Autodesk programs that VAR participates in, and to advertise the Authorized Product(s) within the United States under the trademarks and slogans adopted by Autodesk from time to time (‘Trademarks”). VAR’s use of the Trademarks in any literature, promotion, or advertising shall be in accordance with Autodesk guidelines for such usage. VAR shall not contest, oppose, or challenge Autodesk’s ownership of the Trademarks. All representations of Autodesk Trademarks that VAR intends to use shall be exact copies of those used by Autodesk, or shall first be submitted to the appropriate Autodesk personnel for written approval of design, color, and other details, such approval shall not be unreasonably withheld. If any of the Autodesk Trademarks are to be used in conjunction with another trademark on or in relation to the Autodesk Product(s), then the Autodesk Trademarks shall be presented equally legibly, equally prominently, but nevertheless separated from the other so that each appears to be a trademark in its own right, distinct from the other mark. All use of the Trademarks shall inure to the sole benefit of Autodesk. Effective upon the termination of this VAR Agreement, VAR shall immediately cease all usage of Autodesk Trademarks.

9. Title and Proprietary Rights. The Autodesk Product(s) and other materials included in or incorporated therein and included on an Autodesk web site (collectively the “Materials”) remain at all times the property of Autodesk. VAR acknowledges and agrees that Autodesk holds the copyright to the Materials and, except as expressly provided herein, VAR is not granted any other right or license to patents, copyrights, trade secrets, or trademarks with respect to the Materials. VAR shall take all reasonable measures to protect Autodesk’s proprietary rights in the Materials and shall not copy, use or distribute the Materials, or any derivative thereof, in any manner or for any purpose, except as expressly authorized in this VAR Agreement. VAR shall not disassemble, decompile, or reverse-engineer the Materials, including any Autodesk Product source code, or otherwise attempt to discover any Autodesk trade secret or other proprietary information, or hack, impede, change or interfere with any Autodesk web site. VAR acknowledges that Autodesk has an Anti-Piracy Program and VAR agrees to review and follow the Anti-Piracy Program guidelines as published by Autodesk from time to time. VAR shall notify Autodesk promptly in writing upon its discovery of any

unauthorized use of the Autodesk Product(s) or infringement of Autodesk’s patent, copyright, trade secret, trademark, or other intellectual property rights. VAR shall not distribute any Autodesk Product(s) to any person or entity if VAR is aware that such person or entity may be involved in potential unauthorized use of the Materials or other infringement of Autodesk’s proprietary rights.

10. Customer Data. All customer data, including End User Records, is and shall remain the sole and exclusive property of Autodesk and VAR shall have no right, title or interest in or to such customer data. All customer data is Autodesk confidential information and shall be treated by VAR as Autodesk’s valuable trade secret. On occasion and at Autodesk’s sole discretion, VAR may have access to Autodesk’s customer database. VAR’s access to such database shall be limited to customers with which VAR has a pre-existing business relationship, and its use shall be strictly limited to the express purpose authorized by Autodesk. In the event that VAR loses its authorization for any Authorized Product(s), Autodesk reserves the right to provide another Authorized Reseller with access to Autodesk’s customer database for the customers to which VAR can no longer sell such Authorized Product(s). Autodesk does not represent or warrant to VAR that the information in Autodesk’s customer database is current, correct or complete and Autodesk shall have no liability to VAR for any information contained in the Autodesk’s customer database. Autodesk shall have no liability for VAR’s violation of any laws in connection with customer contact including, but not limited to, privacy laws, National “Do Not Call List” regulations and Federal, State and Provincial “Spam” and fax blast rules.

11. Warranty and Limitations of Warranty. Autodesk makes certain limited warranties to the End User in the End User License and disclaims all other warranties. VAR SHALL NOT MAKE ANY WARRANTY OR REPRESENTATION ACTUALLY, APPARENTLY OR OSTENSIBLY ON BEHALF OF AUTODESK. EXCEPT FOR THE EXPRESS END USER WARRANTY REFERRED TO HEREIN, AUTODESK MAKES NO OTHER WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE, REGARDING AUTODESK PRODUCT(S). AUTODESK EXPRESSLY EXCLUDES ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR NON INFRINGEMENT.

12. Indemnity

12.1 Infringement Indemnity by Autodesk. Autodesk shall indemnify, hold harmless, and defend, at its expense, VAR from any action brought against VAR which alleges that any Autodesk Product(s) infringes a registered United States patent, copyright, or trade secret, provided that VAR promptly notifies Autodesk in writing of any claim, gives Autodesk sole control of the defense and settlement thereof, and provides all reasonable assistance in connection therewith. If the Autodesk Product is finally adjudged to so infringe, Autodesk, at its exclusive option, (i) shall procure for VAR the right to continue distribution of such Autodesk Product(s); (ii) shall modify or replace such Autodesk Product(s) with a non-infringing product; or (iii) shall authorize return of the Autodesk Product(s) and terminate this VAR Agreement. Autodesk shall have no liability regarding any claim (i) arising out of the use of the Autodesk Product(s) in combination with other products, or modification of the Autodesk Product(s), if the infringement would not have occurred but for such combination, modification, or usage, or (ii) for use of the Autodesk Product(s) which does not comply with the terms of the End User License or this VAR Agreement. THE FOREGOING STATES VAR’S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND.

12.2 Indemnity by VAR. VAR agrees to indemnify, hold harmless and defend Autodesk from any cost, loss, liability, or expense, including court costs and reasonable fees for attorneys or other professionals, arising out of or resulting from (i) any claim or demand brought against Autodesk or its directors, employees, or agents by a third party arising from or in connection with any breach by VAR of the terms of this VAR Agreement or any End User License, (ii) any action brought by an End User or Distribution Partner except as set

forth in Section 12.1 above, (iii) any breach by VAR of any provision of this VAR Agreement including, but not limited to, confidentiality and trade secrets, or (iv) any negligent or willful act or omission by VAR, VAR’s employees, or VAR’s sales channel including, but not limited to, any act or omission that contributes to (a) any bodily injury, sickness, disease, or death; (b) any injury or destruction to tangible property or loss of use resulting there from; or (c) any violation of any statute, ordinance or regulation including but not limited to privacy laws.

13. Limitation of Liability. AUTODESK’S ENTIRE CUMULATIVE LIABILITY ARISING OUT OF THIS VAR AGREEMENT, INCLUDING THE ORDER, DELIVERY OR NON-DELIVERY OF ANY AUTODESK PRODUCT(S), SHALL NOT EXCEED THE GREATER OF: (i) THE VAR COST OF AUTODESK PRODUCT(S) PURCHASED BY VAR IN THE SIX (6) MONTHS PRECEDING THE EVENT OR, (ii) FIVE HUNDRED US DOLLARS ($500.00). IN NO EVENT SHALL AUTODESK BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES ARISING OUT OF THIS VAR AGREEMENT, HOWEVER CAUSED, WHETHER FOR BREACH OF CONTRACT, TORT, (INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL THEORY, AND WHETHER OR NOT AUTODESK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FUNDAMENTAL BREACH, BREACH OF MATERIAL TERM OR FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

14. Confidentiality

14.1 Confidential Information. As used in this VAR Agreement, confidential information shall mean any information that is (i) designated as confidential orally or in writing by either party hereto, (ii) related to any Autodesk Product(s), (iii) related to Autodesk’s business, or (iv) other information received by VAR by virtue of VAR’s relationship with Autodesk including, but not limited to, product plans, product designs, product costs, product prices, product names, finances, marketing plans, business opportunities, Autodesk customer data, personnel, research, development, this VAR Agreement, customer data or know-how (“Confidential Information”).

14.2 Limitations on Disclosure and Use of Confidential Information. Each party shall exercise the same degree of care employed by such party to prevent the unauthorized disclosure of its own Confidential Information but in no event employing less than reasonable care. Confidential Information disclosed under this VAR Agreement shall only be used by the receiving party in the furtherance of this VAR Agreement or the performance of its obligations hereunder. VAR shall not disclose the terms of this VAR Agreement to any third party without the prior written consent of the other, except pursuant to a valid and enforceable order of a court or government agency. Notwithstanding the foregoing, nothing herein shall limit Autodesk’s right to disclose its standard VAR Agreement and other Autodesk Confidential Information to third parties.

14.3 Exceptions. Confidential Information does not include information which (i) is rightfully received by the receiving party from a third party without restriction or violation of confidentiality, (ii) is known to or developed by the receiving party independently without use of the Confidential Information, (iii) is or becomes generally known to the public by other than a breach of duty hereunder by the receiving party, or (iv) has been approved in advance for release by written authorization of the non-disclosing party.

15. Term, Termination, and Other Remedies

15.1 Term. This VAR Agreement, when fully executed by the parties, shall begin on the Effective Date, and shall continue in effect through midnight on January 31, 2007 when it shall then terminate, unless terminated earlier under the provisions of this VAR Agreement.

15.2 Termination for Breach. Either party may terminate this VAR Agreement upon thirty (30) days prior written notice to the other party if the other party breaches any term or condition of this VAR Agreement and fails to cure such breach to the reasonable satisfaction of the non-breaching party within the thirty (30) day written notice period. For the avoidance of doubt, Autodesk may terminate VAR’s Authorization Level(s), and/or VAR’s authorization to distribute and market, distribute and support Authorized Product(s) on a (i) per Authorized Location basis, and/or on a (ii) Authorized Product basis.

Notwithstanding the foregoing, Autodesk may terminate this VAR Agreement with immediate effect for incurable material breaches, such as conviction of a crime relating to the conduct of business in relation to Autodesk, or any other act that impairs goodwill associated with any Autodesk mark, logo or brand.

15.3 Termination for Insolvency. Autodesk may immediately terminate this VAR Agreement with or without notice if VAR becomes insolvent, or the subject of a voluntary or involuntary petition in bankruptcy or any proceeding relating to insolvency, receivership, liquidation, or assignment for the benefit of creditors, if that proceeding is not dismissed with prejudice within sixty (60) days after filing. In addition to the foregoing, in the event VAR either voluntarily files for protection against its creditors under the United States Bankruptcy Code or is the subject of an involuntary petition in bankruptcy, VAR agrees that Autodesk is entitled to all rights to retain the benefits of this VAR Agreement which are set forth in 11 U.S.C. 365(n). No right granted to Autodesk under 11 U.S.C. 365(n) shall be deemed to have been waived either expressly or by implication without a written agreement confirming such waiver.

15.4 Termination for Customer Dissatisfaction. In consideration for its authorization, Autodesk is relying upon VAR to behave in a professional and upstanding manner in its relationship with all End Users. Failure to attain a high level of customer satisfaction is considered a material breach of this VAR Agreement, and Autodesk reserves the right to terminate this VAR Agreement in the event that Autodesk receives customer dissatisfaction complaints from an End User, regarding VAR.

15.5 Termination for Failure to Meet Minimum Purchase Requirements. Failure by VAR to achieve the Minimum Purchase Requirements may result in the termination of this VAR Agreement or the applicable Authorized Product(s) and/or Authorization Level by Autodesk, in its sole discretion.

15.6 Breach of Other Agreements with Autodesk. In the event VAR has any other current agreements of any other type with Autodesk (“Other Autodesk Agreement(s)”), the breach of any term of any such Other Autodesk Agreement(s) may, at Autodesk’s option, be deemed a breach of this VAR Agreement and shall permit Autodesk to terminate this VAR Agreement in the same manner as if a breach of the terms of this VAR Agreement had occurred. Any alleged breach by Autodesk of any Other Autodesk Agreement(s) shall not be deemed a breach of this VAR Agreement by Autodesk and shall not constitute cause for termination by VAR or support an allegation by VAR of damages under this Agreement.

15.7 Partial Termination. In the event Autodesk exercises partial termination rights under this Section 15, said partial termination shall not affect this VAR Agreement’s application with respect to the remaining authorization(s) or affect any remaining part of any Other Autodesk Agreement(s).

15.8 Effect of Termination

(a) Monies Due and Payable. Notwithstanding any credit terms previously established with VAR or any other provision of this VAR Agreement, upon notice of termination of this VAR Agreement, all monies owed by VAR to Autodesk shall become immediately due and payable. Overdue amounts are subject to a late payment charge of one and one-half percent (1.5%) per month, or the maximum amount allowed by law, whichever is less.

(b) Fulfillment of VAR Orders. Upon delivery of notice of a breach or notice of termination of this VAR Agreement, Distribution Partners shall not be obligated to fulfill any orders received subsequent to the effective date of termination. In Autodesk’s sole discretion, Autodesk and Distribution Partners may continue to fulfill orders provided that VAR (i) submits prepayments for any such order and (ii) pays all outstanding obligations to Autodesk and/or Autodesk Distribution Partner prior to any shipment.

(c) Return of Materials. Within thirty (30) days after the termination of this VAR Agreement, VAR, at its own expense, shall return to Autodesk, all Autodesk confidential information, data, photographs, samples, literature and sales aids, and any other property of Autodesk then in VAR’s possession, and/or upon Autodesk’s written request, destroy all or part of the foregoing property and certify to its complete destruction.

15.9 Attorneys’ Fees for Collections. In any action brought by Autodesk to collect monies due under this VAR Agreement, Autodesk is entitled to recover all costs and attorneys’ fees incurred in maintaining such action.

15.10 No Termination Compensation. Except as expressly set forth herein, the parties expressly agree that no damages, indemnity or termination benefits whatsoever (including without limitation, any compensation for goodwill established by VAR during the term of this VAR Agreement or for any lost profits or expenses of VAR) shall be due or payable to VAR by reason of any termination of this VAR Agreement in accordance with its terms, and VAR expressly waives the application of any statute, law or custom to the contrary.

15.11 Other Remedies. In addition to the right to terminate this VAR Agreement, Autodesk reserves all rights and remedies available to Autodesk at law or in equity, including the right to seek damages and injunctive relief for breach or threatened breach of this VAR Agreement by VAR.

15.12 Reapplication Post Termination. In the Event this VAR Agreement is terminated or VAR loses one or more authorizations for any reason, VAR may not reapply for any Autodesk Channel Partner program, including any then existing VAR program, for a minimum of six (6) months after the effective date of the termination. Nothing herein shall require Autodesk to consider VAR for any Autodesk Channel Partner program.

15.13 Surviving Provisions. The following terms and conditions shall survive and continue after termination/expiration of this VAR Agreement: 3.8, 5, 7.2, 9, 10, 11, 12, 13, 14, 15 and 16.

16. General Provisions

16.1 Assignment. VAR acknowledges that Autodesk is relying upon VAR’s reputation, business standing, and goodwill under VAR’s present ownership in entering into this VAR Agreement. Accordingly, VAR agrees that its rights and obligations under this VAR Agreement may not be transferred or assigned and its duties may not be delegated directly or indirectly without the prior written consent of Autodesk in its sole discretion. VAR shall notify Autodesk promptly in writing of any change of ownership of VAR or of any sale of all or substantially all of VAR’s assets. VAR also shall promptly notify Autodesk if it forms a subsidiary or an affiliate entity in connection with Autodesk’s business, or changes its legal or operating name. VAR acknowledges that any change of ownership, sale of all or substantially all of VAR’s assets, or attempted assignment by VAR of this VAR Agreement, or any part thereof, without Autodesk’s prior written consent may result in immediate termination of this VAR Agreement by Autodesk. Autodesk may assign or otherwise transfer its rights and obligations to successors-in-interest (whether by purchase of stock or assets, merger, operation of law, or otherwise) of that portion of its business related to the subject matter hereof. Subject to the restrictions set forth in this Section 16.1, all of the terms and conditions of this VAR Agreement shall be binding upon, inure to the benefit of, and be enforceable by the respective successors and permitted assigns of the parties hereto.

16.2 Dispute Resolution

(a) The parties will attempt in good faith to promptly resolve any controversy or claim arising out of or relating to this VAR Agreement through negotiations between the parties before resorting to other remedies available to them. Any such dispute shall be referred to appropriate senior executives of each party who shall have the authority to resolve the matter. If the senior executives are unable to resolve the dispute, the parties may by agreement refer the matter to an appropriate forum of alternative dispute resolution ranging from mediation to arbitration. If the parties cannot resolve the matter or if they cannot agree upon an alternative form of dispute resolution, then either party may pursue resolution of the matter through litigation pursuant to Section 16 herein.

(b) The forgoing shall not apply to a dispute or controversy involving either party’s Confidential Information or intellectual property. In the event of such a dispute or controversy, either may immediately seek any legal and/or equitable remedies it deems necessary.

16.3 Venue/Choice of Law. This VAR Agreement shall be construed in accordance with the laws of the State of California (excluding its rules regarding conflicts of law) and the United States of America. The parties hereby submit to the exclusive personal jurisdiction of and venue in the Superior Court of the State of California, County of Marin or County of Santa Clara, and the United States District Court for the Northern District of California in San Francisco.

16.4 Publicity. VAR may not issue any press release or any other public announcement regarding this VAR Agreement or any aspect of its relationship with Autodesk without the prior written consent of Autodesk, which may be withheld in its sole discretion. Additionally, VAR is prohibited from utilizing the Autodesk stock ticker (“ADSK”) in any press release or other public announcement unless such release is a joint release with Autodesk or Autodesk otherwise permits same, for each single release, in writing in advance.

16.5 Notices. Any notices required under the terms of this VAR Agreement will be given in writing either (i) to the persons at the addresses set forth below, or to such other address as either party may substitute by written notice to the other in the manner contemplated herein, and will be deemed served when received by Autodesk from VAR or when sent to VAR by Autodesk, or (ii) by facsimile, and will be deemed served when received by Autodesk from VAR or when sent to VAR by Autodesk.

If to Autodesk:	Autodesk, Inc.
	III McInnis Parkway
	San Rafael, California 94903
	Attn: General Counsel
	Facsimile: (415) 507-6126

If to VAR, to the address and facsimile number identified on the first page of this VAR Agreement. Additionally, Autodesk may notify VAR of any changes by posting such changes to OTW.

16.6 Independent Contractors. In performing their respective duties under this VAR Agreement, each of the parties will be operating as an independent contractor. Nothing contained herein will in any way constitute any association, partnership, or joint venture between the parties hereto, or be construed to evidence the intention of the parties to establish any such relationship. Neither of the parties will hold itself out in any manner that would be contrary to the provisions of this Section 16.6.

16.7 Entire Agreement. This document, together with its exhibits, contains the entire agreement and understanding between VAR and Autodesk concerning the subject matter of

this VAR Agreement including, but not limited to, its duration and manner of expiration, termination, and Autodesk’s sole discretion in determining to offer, or accept any extension of this VAR Agreement. This document supersedes all prior communications, discussions, negotiations, proposed agreements and all other agreements, whether written or oral, excepting solely all prior confidentiality and nondisclosure agreements to the extent they are not expressly superseded by this VAR Agreement. Autodesk has not made and VAR has not relied upon any representations not expressly set forth in this document in making this VAR Agreement. This VAR Agreement may be amended only by a writing signed both by authorized individuals for Autodesk and VAR. It is the express intent of the parties that this VAR Agreement and any amendment thereto shall be interpreted solely by reference to their written terms. Any handwritten or typed changes to this VAR Agreement must be initiated by both parties in order to become effective.

16.8 Severability. In the event that it is determined by a court of competent jurisdiction as a part of a final non-appealable judgment that any provision of this VAR Agreement or part thereof is invalid, illegal, or otherwise unenforceable, such provision will be enforced or reformed as nearly as possible in accordance with the stated intention of the parties, white the remainder of this VAR Agreement will remain in full force and effect.

16.9 Construction. This VAR Agreement has been negotiated by the parties and their respective counsel. This VAR Agreement will be interpreted in accordance with its terms and without any strict construction against either party. Ambiguity will not be interpreted against the drafting party.

16.10 Counterparts. This VAR Agreement may be executed in separate counterparts and shall become effective when the separate counterparts have been exchanged between the parties.

16.11 Force Majeure. Except for the failure to make payments, neither party will be liable for any loss, damage or penalty resulting from delays or failures in performance resulting from acts of God, supplier delay or other causes beyond the non-performing party’s reasonable control and not caused by the negligence of the non-performing party, provided that the non-performing party promptly notifies the other party of the delay and the cause thereof and promptly resumes performance as soon as it is possible to do so.

16.12 Waiver. The waiver of any breach or default will not constitute a waiver of any other right in this VAR Agreement or any subsequent breach or default. No waiver shall be effective unless in writing and signed by an authorized representative of the party to be bound. Failure to pursue, or delay in pursuing, any remedy for a breach shall not constitute a waiver of such breach.

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BEL0W TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070001471 Owings Mills MD     21117	01	MSD - Data Management	Std	150
0070001471 Owings Mills MD     21117	01	BSD - Engineering	Std	150
0070001471 Owings Mills MD     21117	01	BSD - Architectural	Std	150
0070001471 Owings Mills MD     21117	01	Horizontal	Std	150
0070001359 Omaha NE     68154	01	MSD - Data Management	Std	250
0070001359 Omaha NE     68154	01	ISD - Geospatial	Std	250
0070001359 Omaha NE     68154	01	MSD - Manufacturing	PSP	250
0070001359 Omaha NE     68154	01	Media & Entertainment	Select	States of IA, IL, Ml, NE

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070001359 Omaha NE     68154	01	Government - Federal	Select	250
0070000270 Irving TX     75038	01	BSD - Architectural	Std	125, plus West and East to TX border
0070001359 Omaha NE     68154	01	BSD - Architectural	Std	250
0070000270 Irving TX     75038	01	BSD - Engineering	Std	125, plus West and East to TX border
0070000270 Irving TX     75038	01	MSD - Data Management	Std	125, plus East to TX border
0070000270 Irving TX     75038	01	Government - Federal	Select	125, plus East to TX border
0070000270 Irving TX     75038	01	Government - State & Local	Select	125, plus East to TX border
0070000270 Irving TX     75038	01	ISD Desktop	Std	125, plus East to TX border

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070000270 Irving TX     75038	01	ISD -Geospatial	Std	125, plus East to TX border
0070001359 Omaha NE     68154	01	Horizontal	Std	250
0070000270 Irving TX     75038	01	MSD -Manufacturing	Std	125, plus East to TX border
0070001471 Owings Mills MD     21117	01	Government - Federal	Select	150
0070001359 Omaha NE     68154	01	ISD Desktop	Std	250
0070001359 Omaha NE     68154	01	Government - State & Local	Select	250
0070000270 Irving TX     75038	01	Horizontal	Std	125, plus East to TX border
0070001471 Owings Mills MD     21117	01	Media & Entertainment	Select	States of DC, DE, MD, VA

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070001471 Owings Mills MD     21117	01	MSD - Manufacturing	Std	150
0070001471 Owings Mills MD     21117	01	ISD - Geospatial	Std	150
0070001471 Owings Mills MD     21117	01	ISD Desktop	Std	150
0070001471 Owings Mills MD     21117	01	Government - State & Local	Select	150
0070001359 Omaha NE     68154	01	BSD - Engineering	Std	250
0070195691 Tampa FL     33614	02	Government -State & Local	Select	250
0070195691 Tampa FL     33614	02	BSD - Engineering	Std	250
0070195691 Tampa FL     33614	02	BSD - Architectural	Std	250

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province/ Territory (mile radius)
0070195691 Tampa FL     33614	02	Horizontal	Std	250
0070195691 Tampa FL     33614	02	ISO Desktop	Std	250
0070195691 Tampa FL     33614	02	ISD - Geospatial	Std	250
0070195691 Tampa FL     33614	02	Government - Federal	Select	250
5101466486 Houston TX     77063	03	MSD - Manufacturing	Std	125, plus Corpus Christi, south to TX border
0070039306 Cedar Rapids IA     52401	03	BSD - Architectural	Std	250 + 30 around St Louis, MO excluding within 50 miles of Chicago
0070039306 Cedar Rapids IA     52401	03	BSD - Engineering	Std	250 + 30 around St Louis, MO excluding within 50 miles of Chicago
0070039306 Cedar Rapids IA     52401	03	MSD - Data Management	Std	250 + 30 around St Louis, MO excluding within 50 miles of Chicago

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070039306 Cedar Rapids IA     52401	03	Government - Federal	Select	250 + 30 around St Louis, MO excluding within 50 miles of Chicago
0070039306 Cedar Rapids IA     52401	03	Government - State & Local	Select	250 + 30 around St Louis, MO excluding within 50 miles of Chicago
0070039306 Cedar Rapids IA     52401	03	MSD - Manufacturing	Std	250 + 30 around St Louis, MO excluding within 50 miles of Chicago
5101466486 Houston TX     77063	03	Horizontal	Std	125, plus Corpus Christi, south to TX border
5101466486 Houston TX     77063	03	MSD - Data Management	Std	125, plus Corpus Christi, south to TX border
0070039306 Cedar Rapids IA     52401	03	Horizontal	Std	250 + 30 around St Louis, MO excluding within 50 miles of Chicago
5070217162 St. Paul MN     55101	05	Horizontal	Std	250
5070217162 St. Paul MN     55101	05	MSD - Data Management	Std	250

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
5070217162 St. Paul MN     55101	05	Government - Federal	Select	250
5070217162 St. Paul MN     55101	05	Government - State & Local	Select	250
5070217162 St. Paul MN     55101	05	MSD - Manufacturing	Std	250
0070004855 Virginia Beach VA     23462	06	MSD - Manufacturing	Std	150 North/250 South Plus State of VA
5070326051 Georgetown KY     40324	06	Government - State & Local	Select	250
5070326051 Georgetown KY     40324	06	MSD - Data Management	Std	250
5070326051 Georgetown KY     40324	06	MSD - Manufacturing	Std	250
5070326051 Georgetown KY     40324	06	Government - Federal	Select	250

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BEL0W TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070004855 Virginia Beach VA     23462	06	BSD - Engineering	Std	150 North/250 South Plus State of VA
0070004855 Virginia Beach VA     23462	06	Media & Entertainment	Select	State of VA
5070326051 Georgetown KY     40324	06	Horizontal	Std	250
0070004865 Virginia Beach VA     23462	06	BSD - Architectural	Std	150 North/250 South Plus State of VA
0070004855 Virginia Beach VA     23462	06	MSD - Data Management	Std	150 North/250 South Plus State of VA
0070004855 Virginia Beach VA     23462	06	Government - Federal	Select	150 North/250 South Plus State of VA
0070004855 Virginia Beach VA     23462	06	Government - State & Local	Select	150 North/250 South Plus State of VA
0070004855 Virginia Beach VA     23462	06	ISD Desktop	Std	150 North/250 South Plus State of VA

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070001091 Englewood CO     80111	07	Government - State & Local	Select	250
0070001091 Englewood CO     80111	07	ISD - Geospatial	Std	250
0070001091 Englewood CO     80111	07	ISD Desktop	Std	250
5100802839 Morrisville NC     27560	08	MSD - Data Management	Std	250
5100802839 Morrisville NC     27560	08	Horizontal	Std	250
5100802839 Morrisville NC     27560	08	MSD - Manufacturing	Std	250
5100802839 Morrisville NC     27560	08	Government - Federal	Select	250
5100802839 Morrisville NC     27560	08	Government - State & Local	Select	250

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
0070004855 Virginia Beach VA        23462	06	ISD - Geospatial	Std	150 North/250 South Plus State of VA
0070004855 Virginia Beach VA         23462	06	Horizontal	Std	150 North/250 South Plus State of VA
0070001091 Englewood CO         80111	07	MSD - Manufacturing	Std	250
0070001091 Englewood CO         80111	07	Government - Federal	Select	250
0070001091 Englewood CO         80111	07	Horizontal	Std	250
0070001091 Englewood CO         80111	07	BSD - Architectural	Std	250
0070001091 Englewood CO         80111	07	BSD - Engineering	Std	250
0070001091 Englewood CO         80111	07	MSD - Data Management	Std	250

FY07 NA VAR Agreement Exhibit A Dec 2005

EXHIBIT A

AUTHORIZATION MATRIX

Autodesk authorizes VAR to market and distribute the Authorized Products only from the Authorized Location(s) and only in the Authorized Territory(ies) identified below:

These are the Authorized Locations with authorizations, levels and territories, and as an authorized representative, I agree to be bound thereby.

/s/ WSF

Initials

* * *BELOW TO BE FILLED IN BY AUTODESK ONLY - NO MODIFICATIONS MAY BE MADE BY VAR* * *

Avatech Solutions Subsidiary, Inc.

Authorized Location		Authorization Type	Level	Authorized Province / Territory (mile radius)
5100810457 Charlotte NC         28217	09	Horizontal	Std	250
5100810457 Charlotte NC         28217	09	Government - State & Local	Select	250
5100810457 Charlotte NC        28217	09	MSD- Manufacturing	Std	250
5100810457 Charlotte NC        28217	09	Government - Federal	Select	250

FY07 NA VAR Agreement Exhibit A Dec 2005

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our reports dated September 21, 2005, in the Registration Statement (Form S-1) and related Prospectus of Avatech Solutions, Inc. for the registration of 5,143,777 shares of its common stock.

/s/ Ernst & Young LLP

Baltimore, Maryland

February 3, 2006