Attached files
file | filename |
---|---|
EX-9.1 - RAND WORLDWIDE INC | v194406_ex9-1.htm |
EX-4.1 - RAND WORLDWIDE INC | v194406_ex4-1.htm |
EX-2.1 - RAND WORLDWIDE INC | v194406_ex2-1.htm |
EX-10.1 - RAND WORLDWIDE INC | v194406_ex10-1.htm |
EX-16.1 - RAND WORLDWIDE INC | v194406_ex16-1.htm |
EX-10.2 - RAND WORLDWIDE INC | v194406_ex10-2.htm |
EX-10.6 - RAND WORLDWIDE INC | v194406_ex10-6.htm |
EX-10.4 - RAND WORLDWIDE INC | v194406_ex10-4.htm |
EX-10.3 - RAND WORLDWIDE INC | v194406_ex10-3.htm |
EX-99.1 - RAND WORLDWIDE INC | v194406_ex99-1.htm |
EX-10.5 - RAND WORLDWIDE INC | v194406_ex10-5.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of report (Date of earliest event reported): August 17, 2010
AVATECH
SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
001-31265
|
84-1035353
|
||
(State
of Incorporation)
|
(Commission
File No.)
|
(IRS
Employer Identification Number)
|
10715
Red Run Boulevard, Suite 101, Owings Mills, Maryland 21117
(Address
of principal executive offices, including Zip Code)
Registrant’s
telephone number, including area code: (410) 581-8080
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
|
INFORMATION
TO BE INCLUDED IN THE REPORT
Item
1.01. Entry into a Material Definitive
Agreement.
Acquisition of RAND
Worldwide, Inc.
On August
17, 2010 (the “Closing Date”), Avatech Solutions, Inc., a Delaware corporation
(“Avatech”, “we” or “us”), acquired all of the issued and outstanding capital
securities of Rand Worldwide, Inc., a Delaware corporation (“Rand Worldwide”),
in a reverse merger transaction (the “Acquisition”). The Acquisition was
consummated pursuant to an Agreement and Plan of Merger (the “Merger
Agreement”), dated as of the Closing Date, by and among Avatech, ASRW
Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of
Avatech (“Merger Sub”), Rand Worldwide, and RWWI Holdings LLC, a Delaware
limited liability company and the sole stockholder of Rand Worldwide
(“RWWI”). At the effective time of the Acquisition (the “Closing”), we
caused Merger Sub to merge with and into Rand Worldwide, with Rand Worldwide as
the surviving entity. As a result of the Acquisition, Rand Worldwide
became our wholly-owned subsidiary. The Acquisition is intended to qualify
as a tax-free reorganization within the meaning of Section 368 of Internal
Revenue Code of 1986, as amended. A copy of the Merger Agreement is filed
herewith as Exhibit 2.1 and is incorporated herein by reference.
Rand
Worldwide is one of the world’s leading providers of professional services and
technology to the engineering community, targeting organizations in the
building, infrastructure and manufacturing industries. Rand Worldwide
enables its customers to improve their competitiveness, productivity and
profitability by enhancing key aspects of their Product Lifecycle Management
(“PLM”) capabilities, including planning, development and management. As a
leading technology independent systems integrator, Rand Worldwide employs
approximately 250 people in over 40 sales and client service centers around the
world.
Issuance of Shares to
RWWI
On the
Closing Date, RWWI received an aggregate of 34,232,682 shares (the “Merger
Shares”) of our common stock, par value $.01 per share (“Common Stock”), in
exchange for all of the outstanding shares of capital stock of Rand
Worldwide. Of this number, 28,800,022 shares (the “Initial Shares”) are
currently held by RWWI and 5,432,660 shares (the “Escrowed Shares”) are being
held in escrow by us for the benefit of RWWI for up to 18 months from the
Closing Date (the “Escrow Period”). RWWI may be required to surrender some
or all of the Escrowed Shares to Avatech in certain circumstances described
below. After giving effect to the issuance of the Merger Shares, the
Merger Shares represent approximately 66.1% of our outstanding shares of Common
Stock.
2
In
addition to its Common Stock, Avatech has a total of 1,189,209 shares of its
Series D Convertible Preferred Stock and 937 shares of its Series E Convertible
Preferred Stock outstanding (each, an “Outstanding Preferred Share” and
collectively, the “Outstanding Preferred Shares”), which are presently
convertible into 2,180,234 and 1,441,539, respectively, shares of Common
Stock. The terms of the Outstanding Preferred Shares entitle the holders
thereof to vote together with holders of our Common Stock, as a single class, on
any matter submitted to holders of our Common Stock, with each Outstanding
Preferred Share entitled to one vote for each share of Common Stock into which
such Outstanding Preferred Share is then convertible. The Merger Shares
represent approximately 61.8% of the outstanding voting rights of the holders of
our capital stock, after giving effect to the voting rights of the Outstanding
Preferred Shares and the issuance of the Merger Shares. As a result of the
Acquisition, RWWI became a controlling stockholder of Avatech.
The
Merger Shares were issued in a private placement to a single sophisticated
purchaser without general solicitation in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(the “Securities Act”). The Merger Shares have not been registered under
the Securities Act and, thus, constitute “restricted securities” as defined in
Securities Act Rule 144.
The Escrowed
Shares
The
Merger Agreement provides that if, at any time during the Escrow Period, we
redeem or repurchase any of the Outstanding Preferred Shares, then RWWI will
surrender to us that number of Escrowed Shares equal to 150% of the number of
shares of Common Stock into which such redeemed Outstanding Preferred Shares
could have been converted immediately following the Closing after giving effect
to the issuance of the Initial Shares. Any Escrowed Shares so surrendered
will be canceled and will constitute authorized but unissued shares of Common
Stock. During the Escrow Period, RWWI will have all the rights and
liabilities of a stockholder with respect to the outstanding Escrowed Shares,
including the right to vote such Escrowed Shares and the right to receive
dividends and other distributions thereon. Upon the expiration of the
Escrow Period, all Escrowed Shares that have not been surrendered to us during
the Escrow Period will be delivered to RWWI.
Indemnification
Agreements
On the
Closing Date, Avatech entered into indemnification agreements (the
“Indemnification Agreements”) with each of its directors and with Larry Rychlak,
Avatech’s President and Chief Financial Officer (each, an “Indemnitee” and
collectively, the “Indemnitees”), the form of which is filed herewith as Exhibit
10.1 and incorporated herein by reference. Under the Indemnification
Agreements, Avatech agreed to indemnify each Indemnitee to the fullest extent
permitted by law against any liability arising out of the Indemnitee’s
performance of his or her duties to Avatech. The indemnification provided by the
Indemnification Agreements is in addition to the indemnification required by
Avatech’s bylaws and applicable law. Among other things, each Indemnification
Agreement indemnifies the Indemnitee (and under certain circumstances,
investment funds affiliated with the Indemnitee) against certain expenses
(including reasonable attorneys’ fees) incurred by the Indemnitee in any action
or proceeding, including any action by or in the right of Avatech, arising out
of the Indemnitee’s service to Avatech or to any other entity to which the
Indemnitee provides services at Avatech’s request. Further, each
Indemnification Agreement requires Avatech to advance funds to the Indemnitee to
cover any expenses the Indemnitee incurs in connection with any proceeding
against the Indemnitee as to which the Indemnitee could be
indemnified.
3
Registration Rights
Agreement
At the
Closing, we entered into a Registration Rights Agreement with RWWI pursuant to
which we agreed to (i) file a registration statement (the “Shelf Registration
Statement”) under the Securities Act with the Securities and Exchange Commission
(the “SEC”) covering the resale of the Merger Shares by RWWI as soon as
practicable but no later than 75 days after the Closing Date, (ii) use our
reasonable best efforts to cause the Shelf Registration Statement to be declared
effective by the SEC as soon as practicable thereafter, and (iii) cause the
Shelf Registration Statement to remain effective thereafter until all Merger
Shares have been sold or may be sold without restriction pursuant to Securities
Act Rule 144.
In
addition, the Registration Rights Agreement grants RWWI a right to request that
we register for resale under the Securities Act all or part of the Merger Shares
(a “Demand Registration”) if we have failed to file, cause to be declared
effective or maintain the effectiveness of, the Shelf Registration Statement and
the number of Merger Shares covered by the Demand Registration would, if fully
sold, reasonably be expected to yield gross proceeds of at least
$3,000,000.
The
Registration Rights Agreement also grants piggyback registration rights to RWWI
if we propose (i) to register any shares of our Common Stock under the
Securities Act (other than on a registration statement on Form S-8, F-8, S-4 or
F-4), whether for our own account or for the account of another person or (ii)
to sell shares of our Common Stock that have already been registered “off the
shelf” by means of a prospectus supplement.
We agreed
in the Registration Rights Agreement to pay for all expenses, including the
reasonable legal expenses of RWWI, relating to the registration of any Merger
Shares.
A copy of
the Registration Rights Agreement is filed herewith as Exhibit 10.2 and is
incorporated herein by reference.
The Stockholders’
Agreement
At the
Closing, Avatech and each person who was serving as a director or an executive
officer immediately prior to the Closing (each, a “Holder”) entered into a
Stockholders’ Agreement with RWWI. Under the Stockholders’ Agreement,
until the date on which RWWI ceases to hold at least 25% of the Merger Shares
(the “Designation Period”), the parties agreed that (i) Avatech will maintain a
board of directors consisting of no more than six directors, (ii) our board of
directors will nominate three individuals designated by RWWI to serve on our
board of directors (each, a “Designator Nominee”) and will recommend that our
stockholders vote to elect such Designator Nominees as directors, (iii) the
board of directors will fill any vacancy that may arise upon the resignation,
removal, death or disability of any of the elected Designator Nominees with a
new director chosen by RWWI, and (iv) our board of directors will nominate for
election and recommend that our stockholders vote to elect our Chief Executive
Officer to serve as a director (upon such election, the “CEO Director”) until
our next Annual Meeting of Stockholders and that the initial CEO Director will
be Marc L. Dulude (who is also the Chief Executive Officer of Rand
Worldwide).
4
During
the Designation Period, each Holder agreed to vote, and to cause each of his
affiliates to vote, all of our voting securities held by such Holder or
affiliate (i) for the election of Designator Nominees, (ii) against the removal
of any elected Designator Nominee except for cause unless such removal is
directed or approved by RWWI, (iii) for the removal of any elected Designator
Nominee if such removal is directed or approved by RWWI, and (iv) for the
election of a nominee designated to fill any vacancy created by the resignation,
removal, death or disability of an elected Designator Nominee or the CEO
Director. All Holders agreed to execute, and to cause their affiliates to
execute, any written consents required to effectuate their obligations under the
Stockholders’ Agreement.
Until the
earlier of the expiration of the Designation Period and the date immediately
preceding the date of our second Annual Meeting of Stockholders following the
Closing (the “Continuing Director Period”), the parties agreed that (i) at our
first Annual Meeting of Stockholders following the Closing, our board of
directors will nominate for election and recommend that our stockholders vote to
elect two individuals, each of whom must have been serving on our board of
directors immediately prior to the Closing (each, “Continuing Director Nominee”)
to serve until the next Annual Meeting of Stockholders, and (ii) our board of
directors will fill any vacancy that may arise upon the resignation, removal,
death or disability of any elected Continuing Director with a new director who
was serving our board of directors immediately prior to the Closing, provided
that if no director who was serving on our board of directors immediately prior
to the Closing is willing or able to serve, then our board of directors will
have discretion to fill any such vacancy. In addition, during the
Continuing Director Period, RWWI agreed to vote, and to cause each of its
affiliates to vote, (a) for the election to our board of directors of the
Continuing Director Nominees, (b) against the removal of any elected Continuing
Director Nominee except for cause unless such removal is directed or approved by
the remaining elected Continuing Director, if any, (c) for the removal of any
elected Continuing Director Nominee if such removal is directed or approved by
the remaining elected Continuing Director Nominee, and (d) for the election of a
nominee designated by the remaining elected Continuing Director Nominee, if any,
to fill any vacancy created by the resignation, removal, death or disability of
an elected Continuing Director Nominee. RWWI agreed to execute, and to
cause its affiliates to execute, any written consents required to effectuate
their obligations under the Stockholders’ Agreement.
A copy of
the Stockholders’ Agreement is filed herewith as Exhibit 9.1 and is incorporated
herein by reference.
Accounting
Treatment
The
Acquisition is being accounted for as a reverse acquisition because the number
of Merger Shares represents more than 50% of the number of shares of our Common
Stock outstanding immediately after the Acquisition. For accounting and
SEC reporting purposes, Rand Worldwide is deemed to be the continuing reporting
entity, and the assets and liabilities and the historical operations that will
be reflected in our consolidated financial statements will be those of Rand
Worldwide.
5
Amendment to Avatech’s
Credit Facility
The Acquisition required the consent of
PNC Bank, National Association (“PNC”), the lender under Avatech’s credit
facility (the “Avatech Loan”), which is evidenced by a Loan and Security
Agreement dated as of January 27, 2006 (the “Loan Agreement”). PNC
conditioned its consent on Avatech’s agreement to modify the terms of the Loan
Agreement pursuant to a Fifth Modification Agreement (the “Fifth Modification”),
which the parties executed on August 17, 2010. Under the Fifth
Modification, (i) the maturity date of the Avatech Loan was amended to be the
earlier of the date which is 120 days after the Closing and December 31, 2010,
unless extended by the parties, (ii) Avatech and Avatech Solutions Subsidiary,
Inc. (the “Avatech Borrowers”) agreed to maintain Rand Worldwide as a separate
legal entity and wholly-owned subsidiary until such time as the Avatech
Borrowers and Rand Worldwide consolidate the Avatech Loan and Rand Worldwide’s
credit facility described in Item 2.03 of this report into a single credit
facility (a “New Credit Facility”), (iii) the Avatech Borrowers agreed not to
change the persons holding key management positions with the Avatech Borrowers,
(iv) the Avatech Borrowers agreed that a cross-default under the Loan Agreement
will occur if there is a default under the documents evidencing Rand Worldwide’s
credit facility or under any related guaranty, and (v) PNC agreed that the
financial covenants contained in the Loan Agreement will apply only to the
Avatech Borrowers until such time as a New Credit Facility is
established.
The Borrower Entities and Rand
Worldwide intend to secure a single credit facility within 120 days of the
Closing.
A copy of the Fifth Modification is
filed herewith as Exhibit 10.3 and is incorporated herein by
reference.
Miscellaneous Acquisition
Matters
The foregoing information relating to
the Acquisition and the related transactions is intended only as a summary and
is qualified in its entirety by reference to the terms of the Merger Agreement,
the Indemnification Agreement, the Registration Rights Agreement, and the
Stockholders’ Agreement (the “Operative Documents”). Likewise, the
information relating to the Fifth Modification is intended only as a summary and
is qualified in its entirety by reference to the terms of the Fifth
Modification. Avatech has included copies of the Operative Documents and
the Fifth Modification as exhibits to this report pursuant to Item 601 of the
SEC’s Regulation S-K and to provide investors and security holders with
information regarding their terms. This report is not intended to provide
any other factual or financial information about Avatech, Rand Worldwide, or
their respective subsidiaries or affiliates. The representations,
warranties and covenants contained in the Operative Documents and the Fifth
Modification were made only for purposes of those documents and as of specific
dates; were solely for the benefit of the parties to the Operative Documents and
the Fifth Modification; may be subject to limitations agreed upon by the
parties, including being qualified by confidential disclosures made for the
purposes of allocating contractual risk between the parties to the Operative
Documents and the Fifth Modification instead of establishing these matters as
facts; and may be subject to standards of materiality applicable to the parties
that differ from those applicable to investors. Investors should not rely
on the representations, warranties and covenants or any description thereof as
characterizations of the actual state of facts or condition of Avatech, Rand
Worldwide, or any of their subsidiaries or affiliates. Moreover,
information concerning the subject matter of the representations, warranties and
covenants may change after the date of the Operative Documents and/or the Fifth
Modification, which subsequent information may or may not be fully reflected in
public disclosures by Avatech and/or Rand Worldwide.
6
Common Stock Purchase
Warrants
In
connection with the termination of the Financing Agreements described in Item
1.02 of this report, on the Closing Date, we entered into Amended and Restated
Common Stock Purchase Warrants to purchase an aggregate of 726,102 shares of
Common Stock (the “Restated Warrants”) with Sigma Opportunity Fund, LLC, Sigma
Capital Advisors, LLC, Garnett Y. Clark, Jr., Robert Post and George Davis to
(i) reduce the per-share exercise price from $1.5205 to $1.11, (ii) remove
certain anti-dilution provisions and (iii) make certain conforming changes to
reflect the termination of the Financing Agreements. Thom Waye, a former
director of Avatech, is the managing member of Sigma Capital Advisors, LLC,
which is the managing member of Sigma Opportunity Fund, LLC. Messrs. Clark
and Post are former directors of Avatech. Mr. Davis is Avatech’s former
Chief Executive Officer and a current director. The Restated Warrants
expire on January 29, 2011. The foregoing description of the Restated
Warrants is only a general description and is qualified in its entirety by
reference to the Form of Restated Warrant, a copy of which is attached hereto as
Exhibit 4.1 and incorporated herein by reference.
Item
1.02. Termination of a Material
Definitive Agreement.
In
connection with the Acquisition and the execution of the Restated Warrants, on
the Closing Date, the following agreements were terminated by Avatech and the
other parties thereto:
|
·
|
The
Common Stock and Warrant Purchase Agreement and the Investor Rights
Agreement, each dated January 29, 2007, by and among Avatech, Sigma
Opportunity Fund, LLC, Garnett Y. Clark, Jr., Robert Post and George Davis
(the “2007 Financing Agreements”);
and
|
|
·
|
The
Common Stock and Warrant Purchase Agreement and the Investor Rights
Agreement, each dated June 12, 2006, by and among Avatech, Sigma
Opportunity Fund, LLC and Pacific Asset Partners (together with the 2007
Financing Agreements, the “Financing
Agreements”).
|
Under the
Financing Agreements, the purchasers named above (the “Purchasers”) were
entitled to certain ongoing anti-dilution protections as well as certain ongoing
registration rights. In connection with the termination of the Financing
Agreements:
|
·
|
the
Purchasers (i) waived all rights arising as a result of any failures by
Avatech to comply with any of the provisions of the Financing Agreements
prior to the date of termination and (ii) received a total of 400,015
shares of Common Stock from Avatech, issued as follows: 284,031
shares to Sigma Opportunity Fund, LLC; 3,112 shares to each of Messrs.
Clark and Post; 12,448 shares to Mr. Davis; and 97,312 shares to Pacific
Asset Partners (together, the “Termination Shares”);
and
|
7
|
·
|
Avatech
agreed to include and register for resale in
the Shelf Registration Statement (i) the Termination
Shares and (ii) the Registrable Securities (as defined in the Financing
Agreements); in each case other than
those shares that are eligible for
resale without restriction pursuant to Securities Act Rule
144.
|
The
Termination Shares were issued to a limited number of accredited investors
without general solicitation in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act. The Termination Shares
have not been registered under the Securities Act and, thus, constitute
“restricted securities” as defined in Securities Act Rule 144.
Item 2.01.
|
Completion
of Acquisition or Disposition of
Assets.
|
The information set forth above in Item
1.01 of this report is incorporated herein by reference.
Item 2.03.
|
Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
|
Certain
of Rand Worldwide’s subsidiaries (together, the “Borrowing Companies”) are
parties to a $12.5 million credit facility consisting of revolving loans,
including a $500,000 sublimit for the issuance of standby or trade letters of
credit (the “RWW Credit Facility”) with PNC, as Agent and Lender. The RWW
Credit Facility is provided pursuant to a Revolving Credit and Security
Agreement dated as of August 14, 2009 and amended on January 22, 2010 and July
23, 2010 (as amended, the “RWW Credit Agreement”) among the Borrowing Companies
and PNC. A portion of the RWW Credit Facility is guaranteed by certain
funds (together, the “Ampersand Funds”) affiliated with Ampersand, a private
equity firm located in Wellesley, Massachusetts (“Ampersand”), pursuant to a
series of Amended and Restated Limited Guaranty and Suretyship Agreements, each
dated as of July 23, 2010 (collectively, the “Ampersand Guaranties”). The
Ampersand Guaranties collectively provide for a guaranty of $2.5 million of the
RWW Credit Facility, which represents the amount of the “Permitted Overadvance”
as defined in the RWW Credit Agreement. Beginning on February 1, 2011, and
on the first day of each May, August, November and February thereafter, the
Permitted Overadvance and the collective amount of the RWW Credit Facility
guarantied by the Ampersand Funds is reduced by approximately $357,000, until
the amount reaches $0. The Borrowing Companies currently have
approximately $4,727,213 outstanding under the RWW Credit Facility.
The RWW
Credit Facility has a term of three years, and matures on August 13, 2012.
Amounts borrowed under the RWW Credit Facility bear interest at a rate equal to,
at the Borrowing Companies’ option, either (i) the “Eurodollar Rate”, which
is calculated by reference to the London Interbank Offered Rate (“LIBOR”) plus
an applicable margin ranging from 3.00% to 3.75% or (ii) PNC’s “Alternate
Base Rate”, which is determine by reference to the base commercial lending rate
of PNC as publicly announced to be in effect from time to time, the federal
funds open rate, or the daily LIBOR plus an applicable margin ranging from 2.25%
to 3.00%. The applicable margin is determined based on the ratio of the
Borrowing Companies’ (a) EBITDA (as defined in the RWW Credit Agreement), minus
unfunded capital expenditures made during such period, minus distributions
(including tax distributions made during such period) and dividends, minus cash
taxes paid during such period to (b) all cash payments in respect of
indebtedness (other than repayments of advances under the RWW Credit Facility
(the “Fixed Charge Coverage Ratio”). The ratio described above is measured
at each fiscal quarter end, and is calculated based on the financial results of
the Borrowing Companies for the nine month period ending October 31, 2010, and
for each fiscal quarter thereafter, on a rolling four quarter
basis.
8
All
amounts outstanding under the revolving loan will be due and payable upon the
earlier of August 13, 2012 or the acceleration of the loan upon an event of
default, as described below.
In
addition to guaranties provided pursuant to the Ampersand Guaranties, Rand
Worldwide is a guarantor of the Borrowing Companies’ obligations under the RWW
Credit Facility pursuant to a Guaranty and Suretyship Agreement dated as of
August 14, 2009. In addition, the Borrowing Companies’ obligations are
secured by (i) a first priority, perfected lien on substantially all the
property and assets of the Borrowing Companies and Rand Worldwide and
(ii) a pledge of 100% of the capital stock of certain of the Borrowing
Companies and their direct and indirect domestic subsidiaries and 65% of the
capital stock of Rand Worldwide’s Canadian subsidiary.
The RWW
Credit Agreement contains customary representations, warranties and covenants,
including covenants by the Borrowing Companies limiting additional debt, liens,
guaranties, mergers and consolidations, substantial asset sales, investments and
loans, sale and leasebacks and other fundamental changes. In addition, the
RWW Credit Agreement contains financial covenants by the Borrowing Companies
that impose a minimum Fixed Charge Coverage Ratio. The RWW Credit
Agreement also contains a covenant requiring that the RWW Credit Facilities and
the Loan Agreement be amended, restated and consolidated into one agreement or
such other agreements reasonably acceptable to PNC within 180 days after the
closing of the Acquisition; provided, that the Fifth Modification requires such
amendment, restatement and consolidation within 120 days after the closing of
the Acquisition.
The RWW
Credit Agreement provides for events of default customary for credit facilities
of this type, including but not limited to non payment, misrepresentation,
breach of covenants and bankruptcy. Upon an event of default, the interest
rate on all outstanding obligations will be increased and PNC may accelerate
payment of all outstanding loans and may terminate the lenders’
commitments. Upon the occurrence of an event of default relating to
insolvency, bankruptcy or receivership, the lender commitments will be
automatically terminated and the amounts outstanding under the RWW Credit
Facility will become payable immediately.
Prior to
the Acquisition, the holders of the common stock, redeemable preferred stock and
term notes of Rand Worldwide exchanged their respective securities for
membership interests in RWWI, formerly a subsidiary of Rand Worldwide.
Simultaneously, Rand Worldwide merged with a subsidiary of RWWI with Rand
Worldwide being the surviving entity. As a result of this exchange of Rand
Worldwide securities for RWWI membership interests, (i) RWWI became the sole
stockholder of Rand Worldwide and (ii) all of the associated financial
obligations of the then outstanding redeemable preferred stock and term notes in
Rand Worldwide were settled in full and such securities no longer remain
outstanding. Following this exchange, pursuant to the Acquisition, all of
RWWI’s ownership in Rand Worldwide was exchanged for shares of Avatech Common
Stock as described in Item 1.01 of this report.
9
Item
2.05 Costs Associated with Exit
or Disposal Activities.
In
connection with the Acquisition, Avatech and Rand Worldwide have committed to a
plan of termination for certain employees. Avatech and Rand Worldwide
expect to incur costs in the range of $800,000 to $1.2 million related to this
plan over the course of 15 months after the Closing Date.
Item
3.02. Unregistered Sales of Equity
Securities.
The
information set forth above in Item 1.01 and Item 1.02 of this report is
incorporated herein by reference.
Item
4.01. Changes in Registrant’s
Certifying Accountant.
Change
in Certifying Accountant by Virtue of Reverse Merger
Prior to the Acquisition, Rand
Worldwide’s fiscal year end was October 31. The annual financial
statements of Rand Worldwide for the years ended October 31, 2009 and 2008 were
audited by the independent registered public accounting firm of
PricewaterhouseCoopers LLP (“PWC”). We intend to file an amendment to this
report within 71 calendar days of its filing date to include these financial
statements as required by Item 9.01 of Form 8-K. Prior to the Acquisition,
Avatech’s consolidated financial statements for the fiscal years ended June 30,
2009 and 2008 were audited by Stegman and Company ("Stegman").
The SEC
has released guidance that, unless the same accountant reported on the most
recent financial statements of both the accounting acquirer and the acquired
company, a reverse acquisition results in a change in accountants.
On August
17, 2010, Avatech’s Board of Directors dismissed PWC as Avatech’s independent
registered public accounting firm. Such dismissal will become effective
upon completion by PWC of its procedures on the financial statements of Rand
Worldwide and the filing of the respective financial statements on the
Transition Report on Form 10-K for the period between November 1, 2009 and June
30, 2010.
On August
17, 2010, Avatech’s Board of Directors engaged Stegman as Avatech’s independent
registered public accounting firm. During the two most recent fiscal years
and through August 17, 2010, Rand Worldwide has not consulted with Stegman
regarding any of the matters described in Item 304(a)(2)(i) or Item
304(a)(2)(ii) of Regulation S-K.
10
The
reports of PWC on the consolidated financial statements of Rand Worldwide for
the fiscal years ended October 31, 2009 and 2008 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle, except that the report for the year ended
October 31, 2009 included an explanatory paragraph expressing substantial doubt
about Rand Worldwide’s ability to continue as a going concern, as, at that date,
Rand Worldwide had a working capital deficit and outstanding preferred stock
that could be redeemed upon request of at least a majority of holders, which
would require a payment of approximately $36.2M if called.
During
the years ended October 31, 2009 and 2008, and during the interim period from
the end of the most recently completed fiscal year through August 17, 2010,
there were no disagreements between Rand Worldwide and PWC on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
PWC would have caused it to make reference to such disagreement in its reports
on the financial statements for such years.
During
the years ended October 31, 2009 and 2008, and during the interim period from
the end of the most recently completed fiscal year through August 17, 2010,
there were no reportable events between Rand Worldwide and PWC, except that
during the year ended October 31, 2008, PWC advised Rand Worldwide that it had
identified a material weakness relating to the insufficiency of appropriate
resources (personnel and systems) in the finance function, leading to an
inability of Rand Worldwide to independently record all transactions (in
accordance with US GAAP) without error and to timely report results in its
financial statements. Rand Worldwide has since remediated that weakness for the
year ended October 31, 2009.
We provided PWC with a copy of this
report prior to the date it was filed with the SEC and requested that PWC
furnish us with a letter addressed to the SEC stating whether it agrees with
above statements and, if it does not agree, the respects in which it does not
agree. A copy of the letter, dated August 17, 2010, is filed as Exhibit
16.1 to this report.
Item
5.01. Changes in Control of
Registrant.
The
information set forth above in Item 1.01 of this report is incorporated herein
by reference.
11
Item
5.02. Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
Departure of Directors and
Certain Officers; Election of Directors
In
connection with the Acquisition, the size of our Board of Directors was reduced
to six directors, and, effective at the Closing, each of Garnett Y. Clark, Jr.,
George W. Cox, Aris Melissaratos, Robert J. Post, David C. Reymann and Thom Waye
(the “Resigning Directors”) resigned as directors of Avatech. Eugene J.
Fischer and George Davis will continue to serve on our Board of Directors until
their successors are duly elected and qualified, subject to the terms of the
Stockholders’ Agreement. Mr. Davis has resigned as CEO of Avatech and,
following a brief transition period, will no longer be employed by
Avatech. The termination of Mr. Davis’ employment is being treated as a
termination without cause, which entitles him to receive certain severance
benefits as set forth in his employment agreement. Immediately prior to
the Closing, each stock option held by the Resigning Directors was amended to
extend the period during which the Resigning Director may exercise the option
until the earlier of (i) one year following the Closing Date and (ii)
the expiration of the option’s term. The amendments were approved by the
full Board of Directors, which recognized that the Resigning Directors were
resigning in furtherance of the Acquisition. Prior to the amendments, the
2002 Stock Option Plan and stock option agreements did not separately address
the period of exercisability when a director resigns in furtherance of a Change
in Control (as defined in the 2002 Stock Option Plan). The form of
amendment to the stock option agreement is filed herewith as Exhibit 10.4 and
incorporated herein by reference.
As stated
in Item 1.01 of this report, pursuant to the Stockholders’ Agreement, the number
of directors who will serve on our Board of Directors has been reduced to
six. In accordance with our bylaws, the Board filled the four resulting
vacancies by electing Richard Charpie (Chairman), Marc L. Dulude, Suzanne
MacCormack, and Charles D. Yie as directors of Avatech, each of whom will serve
until his or her successor is duly elected and qualified, subject to the terms
of the Stockholders’ Agreement. The Board intends to consider and, if
deemed appropriate, appoint committees of the Board at a later date and will act
until such time as a full Board for all actions that may have previously been
taken by such committees. Unless and until modified, our current director
compensation plan (discussed in our definitive proxy statement filed with the
SEC on September 29, 2009) will apply to each of our directors.
Richard
A. Charpie, PhD, 58, has nearly 30 years of private equity experience and is a
Managing Partner of Ampersand. Ampersand was, prior to the Acquisition,
the largest stockholder in Rand Worldwide and is currently the largest equity
owner of RWWI. Dr. Charpie joined Ampersand’s predecessor in 1980 and led
its activities beginning in 1983. He has served as a director of more than
35 companies and as Chairman of more than 10. He holds an M.S. in Physics
and a Ph.D. in Economics and Finance, both from the Massachusetts Institute of
Technology. Dr. Charpie serves on the boards of directors of CoreLab
Partners, a clinical trial services company, Endeca Technologies, Inc., an
internet search application company, and Talecris Biotherapeutics Holdings Corp.
(NASDAQ: TLCR), a biotherapeutics company, and prior to the Acquisition, of Rand
Worldwide. Dr. Charpie previously served on the board of directors of
Panacos Pharmaceuticals, Inc., a drug delivery and development
company.
Marc L.
Dulude, 49, has served as the President, Chief Executive Officer, and Chairman
of the Board of Rand Worldwide since April 1, 2009. He acted in these
roles on an interim basis starting in May 2008. Mr. Dulude joined
Ampersand in 2002 and served as General Partner through 2008. Prior to
joining Ampersand, he spent six years at Moldflow Corporation, a product design
simulation software company, where he was Chairman, President and CEO. Mr.
Dulude has nearly two decades of experience as a senior information technology
executive, including serving as Senior VP of Marketing at Parametric Technology
Corporation (NASDAQ: PMTC), a product lifecycle management company, and in
various positions at Nortel, a telecommunications company. Mr. Dulude
holds an M.Eng. in Mechanical Engineering from Carleton University. Mr.
Dulude is on the boards of directors of FirstRain, Inc., a search and analytics
technology company and Kortec, Inc., a PET packaging equipment manufacturing
company.
12
Suzanne
E. MacCormack, 52, has been a Partner at Ampersand since 2005. Prior to
that, she served as Executive VP of Finance and Administration and as CFO at
Moldflow Corporation for eight years. Ms. MacCormack holds a B.A. in
Business from Stonehill College and is a C.P.A. Ms. MacCormack is on the
board of directors of CoreLab Partners, and prior to the Acquisition, was on the
board of directors of Rand Worldwide.
Charles
D. Yie, 52, joined Ampersand’s predecessor in 1985 and serves as a General
Partner. Mr. Yie has been a director of more than 10 companies. Mr.
Yie formerly served as a systems engineer and manufacturing specialist at
Hewlett-Packard Company, a leading global provider of
products, technologies, software, solutions and services to individual
consumers, small- and medium-sized businesses, and large enterprises, including
customers in the government, health and education sectors. He holds
a B.S. in Electrical Engineering and an M.S. in Management, both from
Massachusetts Institute of Technology. Mr. Yie currently serves on the
board of directors of Kortec, Inc.
Appointment of Executive
Officer; Compensatory Arrangements
Effective
at the Closing, Marc L. Dulude was elected as our Chief Executive
Officer.
Rand Technologies of Michigan, Inc., a
wholly-owned subsidiary of Rand Worldwide (“RTOMI”), and Mr. Dulude are parties
to an Employment Agreement dated August 17, 2010, a copy of which is filed
herewith as Exhibit 10.5 and incorporated herein by reference (the “Dulude
Employment Agreement”). Pursuant to the Dulude Employment Agreement, Mr.
Dulude is entitled to an annual base salary of $275,000 plus an annual
discretionary bonus of up to $125,000. The term of the Dulude Employment
Agreement runs through December 31, 2010, but may be terminated sooner by RTOMI
or Mr. Dulude. If the Dulude Employment Agreement is terminated by Mr.
Dulude, the termination must be preceded by a written notice given not less than
90 days before the termination date. If RTOMI terminates the Dulude
Employment Agreement without “Cause” (as defined in Dulude Employment
Agreement), Mr. Dulude is entitled to RTOMI’s costs of continuing Mr. Dulude’s
employee benefits over the following 12 months. RTOMI will be deemed to
have terminated Mr. Dulude without “Cause” if within 12 months following a
“Change of Control” (as defined in Dulude Employment Agreement) Mr. Dulude
terminates the Dulude Employment Agreement and any of the following events occur
and RTOMI does not take action to remedy such event within 30 days of receiving
notice from Mr. Dulude of such event: (i) RTOMI substantially reduces or
diminishes Mr. Dulude’s duties and responsibilities without “Cause”; (ii) RTOMI
reduces Mr. Dulude’s base salary (other than in connection with a proportional
reduction of the base salaries of a majority of the executive employees of Rand
Worldwide); or (iii) RTOMI permanently relocates Mr. Dulude without his
written consent to another primary office unless Mr. Dulude’s primary office
following such relocation is within 50 miles of his primary office imediately
before the relocation or his permanent residence immediately prior to the date
of his relocation. If Mr. Dulude is terminated by RTOMI with “Cause” or if
Mr. Dulude voluntarily resigns, then Mr. Dulude is entitled only to the amount
owed to Mr. Dulude for work done prior to the termination or resignation.
In connection with the Dulude Employment Agreement, Mr. Dulude executed an
Employee Confidentiality, Assignment of Inventions, Non-Competition and
Non-Solicitation Agreement (the “Confidentiality Agreement”) pursuant to which
he agreed, among other things, not to compete with RTOMI or any of its
affiliates, including Avatech, during the term of his employment or for 12
months thereafter.
13
Pursuant
to the terms of the Dulude Employment Agreement, Mr. Dulude was granted a stock
option to purchase 528,500 shares of Rand Worldwide common stock, of which 25%
vest on each of the first four anniversaries of the Dulude Employment Agreement.
In addition, during his period of employment by Rand Worldwide, Mr. Dulude was
granted other options to purchase shares of Rand Worldwide common stock
(collectively, the “Dulude Options”). The Dulude Employment Agreement
provides that if RTOMI terminates, or is deemed to terminate, Mr. Dulude without
“Cause” within 12 months of a “Change of Control”, all of the Dulude Options
vest and become exercisable immediately. In connection with the
Acquisition all of the options to purchase common stock of Rand Worldwide,
including the Dulude Options, were automatically converted into options to
purchase membership interests of RWWI and the terms and conditions of the Dulude
Options continue in full force and effect with respect to such entity. The
Acquisition was not a Change of Control under the Dulude Employment
Agreement.
Lawrence
Rychlak will continue to serve as our President and Chief Financial
Officer. On the Closing Date, Avatech and Mr. Rychlak entered into an
Amended and Restated Employment Agreement, a copy of which is filed herewith as
Exhibit 10.6 (the “Amended Rychlak Agreement”), to ensure that Mr. Rychlak’s
employment agreement complies with Section 409A of the Internal Revenue Code and
also to provide that, in the event Mr. Rychlak terminates his employment for
“Good Reason” (as defined in the Amended Rychlak Agreement”), he will be
entitled to the severance benefits. As was the case under his original
employment agreement, the Amended Rychlak Agreement provides for severance
benefits if we terminate Mr. Rychlak’s employment without “Cause” (as defined in
the Amended Rychlak Agreement”) or if he voluntarily resigns upon a Change in
Control (as defined in the Rychlak Agreement). These severance benefits
were amended to provide for the continuation of base salary and benefits (to the
extent those benefit plans permit continued participation) for (i) 24 months if
the termination occurs at any time prior to June 30, 2011, (ii) a period of
months equal to 12 plus the number of full months remaining before July 1, 2012
if the termination occurs on or after June 30, 2011 but before June 30, 2012,
and (iii) 12 months if the termination occurs on or after June 30, 2012.
Mr. Rychlak agreed in the Amended Rychlak Agreement that the Acquisition is not
a “Change in Control” that entitles him to voluntarily resign and thereafter
receive severance.
Certain Relationships;
Arrangements with Directors and Executive Officers
RWWI, the
holder of the Merger Shares, is majority-owned by funds associated with
Ampersand, and, as such, these funds collectively are the controlling
stockholders of Avatech. These funds collectively are guarantors of a
portion of the indebtedness under the RWW Credit Facility as described under
Section 2.03 of this report and such description is incorporated herein by
reference.
14
The
information provided in Item 1.01 under the heading “Indemnification Agreements”
is incorporated herein by reference.
Item
5.03.
|
Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
|
In
connection with the Acquisition, the board of directors of Rand Worldwide
changed its fiscal year end from October 31st to June
30th
to match our fiscal year end. Because Rand Worldwide is considered the
accounting acquirer in the Acquisition, this change in fiscal year end is deemed
to be a change in our fiscal year end. A Transition Report on Form 10-K
covering the transition period of November 1, 2009 to June 30, 2010 will be
filed as required by applicable SEC rules.
Item 7.01.
Regulation
FD Disclosure.
On August 17, 2010, Avatech and Rand
Worldwide issued a press release announcing the Acquisition. A copy of
this press release is furnished herewith as Exhibit 99.1.
The information contained in this Item
7.01 and in Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or
incorporated by reference in any filing under the Securities Act or the Exchange
Act, except as shall be expressly set forth by specific reference in such a
filing.
Item
9.01. Financial Statements and
Exhibits.
(a),
(b) Financial Statements of Business Acquired; Pro Forma Financial
Information.
The
financial statements and pro forma financial information required by paragraphs
(a) and (b) of this Item will be filed by amendment within 71 calendar days of
the date this report is filed with the SEC.
(d)
Exhibits.
The
exhibits filed or furnished with this report are listed on the Exhibit
Index that immediately follows the signatures hereto, which Exhibit Index is
incorporated herein by reference.
15
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
AVATECH
SOLUTIONS, INC.
|
||
Date:
August 17, 2010
|
By:
|
/s/ Lawrence Rychlak
|
Lawrence
Rychlak
|
||
President
and Chief Financial Officer
|
16
EXHIBIT
INDEX
Exhibit No.
|
Description
|
|
2.1
|
Agreement
and Plan Merger dated as of August 17, 2010 by and among Avatech
Solutions, Inc, ASRW Acquisition Sub, Inc., RAND Worldwide, Inc., and the
RWWI Holdings LLC (filed herewith)*
|
|
4.1
|
Form
of Amended and Restated Warrant (filed herewith)
|
|
9.1
|
Stockholders’
Agreement dated as of August 17, 2010 by and among Avatech Solutions,
Inc., RWWI Holdings LLC and certain holders of Common Stock (filed
herewith)
|
|
10.1
|
Form
of Indemnification Agreement (filed herewith)
|
|
10.2
|
Registration
Rights Agreement dated as of August 17, 2010 by and between Avatech
Solutions, Inc. and RWWI Holdings LLC (filed herewith)
|
|
10.3
|
Fifth
Modification Agreement dated as of August 17, 2010 by and among Avatech
Solutions, Inc., Avatech Solutions Subsidiary, Inc. and PNC Bank, National
Association (filed herewith)
|
|
10.4
|
Form
of First Amendment to Stock Option (filed herewith)
|
|
10.5
|
Employment
Agreement dated as of August 17, 2010 by and between Marc L. Dulude and
Rand Worldwide, Inc. (filed herewith)
|
|
10.6
|
Amended
and Restated Employment Agreement dated as of August 17, 2010 by and
between Avatech Solutions, Inc. and Lawrence Rychlak (filed
herewith)
|
|
16.1
|
Letter
from PricewaterhouseCoopers, LLP dated August 17, 2010 (filed
herewith)
|
|
99.1
|
Press
release dated August 17, 2010 (furnished herewith)
|
|
99.2
|
Audited
financial statements of Rand Worldwide, Inc. for each of the years ended
October 31, 2009 and 2008**
|
|
99.3
|
Pro
forma financial information**
|
*
|
All
exhibits (other than Exhibit A) and schedules to the Agreement and Plan of
Merger have been omitted pursuant to Item 601(b)(2) of Regulation
S-K. The Company hereby agrees to furnish supplementally a copy of
any omitted exhibit or schedule to the Securities and Exchange Commission
upon request.
|
**
|
To
be filed by amendment within 71 calendar days after the date this report
is filed.
|
17