<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HLM DESIGN, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8712 56-2018819
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
121 WEST TRADE STREET, SUITE 2950
CHARLOTTE, NORTH CAROLINA 28202
TELEPHONE (704) 358-0779
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
MR. JOSEPH M. HARRIS
PRESIDENT AND CHAIRMAN OF THE BOARD
HLM DESIGN, INC.
121 WEST TRADE STREET, SUITE 2950
CHARLOTTE, NORTH CAROLINA 28202
TELEPHONE (704) 358-0779
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
GARY C. IVEY, ESQ. MICHAEL K. DENNEY, ESQ.
PARKER, POE, ADAMS & BERNSTEIN L.L.P. BRADLEY & RILEY, P.C.
2500 CHARLOTTE PLAZA 100 FIRST STREET, S.W.
CHARLOTTE, NORTH CAROLINA 28244 CEDAR RAPIDS, IOWA 52404
TELEPHONE (704) 372-9000 TELEPHONE (319) 363-0101
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C>
TITLE OF CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AGGREGATE OFFERING REGISTRATION
BE REGISTERED PRICE (1)(2) FEE
<S> <C> <C>
Common Stock
par value $.01 per share.................................................. $7,000,000 $2,121.22
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
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 THAT 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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1997
PROSPECTUS
SHARES
HLM DESIGN, INC.
COMMON STOCK
------------------------
All of the shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), are offered hereby (the "Offering") by HLM Design,
Inc. ("HLM Design").
Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the public offering price will be
between $ and $ per share. See "Underwriting" for information relating
to factors to be considered in determining the initial public offering price.
HLM Design intends to apply for listing of the Common Stock on the American
Stock Exchange under the symbol "HLM."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
[CAPTION]
<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT (1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total (3)........................................... $ $ $
</TABLE>
(1) HLM Design has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, payable by HLM Design, estimated at $ .
(3) HLM Design has granted to the Underwriters an option, exercisable within 45
days of the date hereof, to purchase up to an aggregate of additional
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to HLM Design will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The Shares are being offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Shares will be made in New York, New York on or about
, 1998.
BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC.
WESTPORT RESOURCES INVESTMENT SERVICES, INC.
The date of this Prospectus is , 1997.
<PAGE>
[Photographs of various projects completed by the Company]
------------------------
HLM Design intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and will
make available copies of its quarterly results for the first three quarters of
each year.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (A) GIVES RETROACTIVE
EFFECT TO A TO 1 STOCK SPLIT (EFFECTED IN THE FORM OF A STOCK DIVIDEND) OF
HLM DESIGN'S COMMON STOCK TO BE CONSUMMATED PRIOR TO THE CONSUMMATION OF THE
OFFERING (THE "STOCK SPLIT") AND (B) ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "UNDERWRITING." UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES HEREIN TO THE "COMPANY" MEAN HLM DESIGN, INC AND
THE ARCHITECTURAL, ENGINEERING AND PLANNING FIRMS ("AEP FIRMS") IT MANAGES
CONSIDERED AS ONE ENTERPRISE, REFERENCES TO A "MANAGEMENT AND SERVICES
AGREEMENT" MEAN A LONG-TERM AGREEMENT BETWEEN HLM DESIGN AND AN AEP FIRM AS
DESCRIBED HEREIN IN "BUSINESS -- HLM DESIGN OPERATIONS -- MANAGEMENT AND
SERVICES AGREEMENTS", AND REFERENCES TO THE "MANAGED FIRMS" MEAN (I) WITH
RESPECT TO THE PERIOD PRIOR TO THE DATE OF THIS PROSPECTUS, HLMI, HLMNC AND HLMO
(EACH AS DEFINED BELOW) WHICH ARE THE AEP FIRMS CURRENTLY OPERATING UNDER
MANAGEMENT AND SERVICES AGREEMENTS WITH HLM DESIGN, AND (II) WITH RESPECT TO THE
PERIOD FROM AND AFTER THE DATE OF THIS PROSPECTUS, HLMI, HLMNC AND HLMO AND SUCH
OTHER AEP FIRMS WITH WHICH HLM DESIGN SHALL, FROM TIME TO TIME, ENTER INTO
MANAGEMENT AND SERVICES AGREEMENTS. "HLM" IS A REGISTERED TRADEMARK OF HLM
DESIGN.
THE COMPANY
HLM Design, Inc. ("HLM Design") is a management company that enters into
management and services relationships with full service AEP Firms. HLM Design
was formed in March 1997 to pursue a strategy of consolidating non-professional
operations and providing management expertise to individual AEP Firms. HLM
Design believes it is the first company to pursue such a consolidation strategy
to take advantage of operating efficiencies and provide geographic and service
diversification for clients. Prior to March 1997, the current management team of
HLM Design operated Hansen Lind Meyer Inc., an Iowa corporation ("HLMI"), HLM of
North Carolina, P.C. ("HLMNC") and HLM of Oregon, Architecture and Planning,
P.C. ("HLMO"). HLMI has been in operation for over thirty years. HLMNC and HLMO
were organized in 1996 but have had no operations to date. These three AEP Firms
have each entered into a Management and Services Agreement with HLM Design. The
Managed Firms operate offices in Atlanta, Georgia, Iowa City, Iowa, Chicago,
Illinois, Orlando, Florida, Bethesda, Maryland, Denver, Colorado, Sacramento,
California, Philadelphia, Pennsylvania, Portland, Oregon and Charlotte, North
Carolina.
A full-service AEP Firm provides a spectrum of services in various
specialties to customers through a broad range of professionals, including
architects, mechanical, electrical, structural and civil engineers, landscape
architects, interior designers and construction administration personnel. HLM
Design has chosen to focus its effort on the management of full-service AEP
Firms because it believes these firms offer a competitive advantage -- the
ability to provide a full line of high-quality, cost effective services -- over
firms that provide a more narrow range of services. HLM Design believes that its
consolidation strategy will assist in attracting new AEP Firms as a result of
two major trends: (1) the increasing complexity, cost and competitiveness of the
design practice requiring operating and cost efficiencies, and (2) the need for
access to a wider pool of geographically dispersed professionals in order to
provide solutions for the evolving needs of their clients.
HLM Design's strategy is to expand revenues through (1) the development of
new long-term Management and Services Agreements with full-service AEP Firms
throughout the United States and (2) the expansion of services to existing
clients.
HLM Design's principal executive office is located at 121 West Trade
Street, Suite 2950, Charlotte, North Carolina and its telephone number is (704)
358-0779.
OPERATING STRATEGY
The Company provides, primarily through HLMI, a complement of
architectural, engineering and planning services to a variety of clients in
several industries. These services include, in addition to the provision of
architectural and engineering services, all phases of a project starting with
assistance in the funding process, development of a master plan at the inception
of a project, and oversight of all phases of the construction project. The
services also may involve the redesign of a workplace to make it efficient,
reliable and easy to maintain. The Company has developed a strength and is
recognized as a national leader in the following markets:
(Bullet) Healthcare -- In the last five years, HLMI has designed and
constructed more than 15 million square feet of healthcare facilities. Clients
have ranged from 20-bed hospitals in the rural mid-west to America's most
prestigious academic medical centers. Healthcare clients include Duke University
Medical Center, University of Chicago Hospitals, University of Iowa Hospitals
and Clinics, Rush-Presbyterian-St. Lukes Medical Center, Thomas Jefferson
University Hospital and Georgetown University Medical Center.
3
<PAGE>
(Bullet) Justice -- HLMI has designed over 10 million square feet of
justice facilities in the last ten years. It has designed jail and prison
projects valued at over $500 million and has designed emerging court facility
projects valued at over $555 million.
(Bullet) High-tech Research Facilities -- HLMI has designed research
facilities valued at over $500 million. The Company's clients in this market
include some of the most prestigious in the country including Johns Hopkins
University, the National Institutes of Health, the Mayo Foundation, and
Georgetown University. Planning for high-tech research facilities is intended to
optimize space utilization and provide flexibility to adapt to changing
technology and funding constraints.
GROWTH STRATEGY
HLM Design intends to implement an aggressive, yet disciplined, expansion
program by pursuing Management and Services Agreements with (i) large "regional"
AEP Firms with established operating histories located in large metropolitan and
high-growth suburban geographic markets that the Company does not currently
serve and (ii) small firms that provide operational diversity in geographic
areas that will complement the services that are either currently provided by
the Company in such geographic areas or that are intended to be provided in the
future. HLM Design believes its approach will be attractive to these large and
small AEP Firms because it will provide these firms with economies of scale and
the synergies that result from increased purchasing power, a greater breadth of
services, an increased pool of professionals, and geographical diversity.
Furthermore, this strategy will give these regional and local AEP Firms, as a
part of the Company, the ability to provide services to existing and future
clients with national operations that might otherwise have turned to "non-local"
firms to service their needs. The goal is for the Company to be the single
source provider for large national clients that have geographically diverse
operations.
HLM Design generally expects that AEP Firms that sign Management and
Services Agreements will retain existing high-quality professional employees and
continue to operate in an effective and efficient manner with architects,
engineers and planning professionals who understand the local market. HLM
Design's management team will provide all management and administrative services
to the AEP Firms. Additionally, management believes they are positioned to
pursue larger, well established AEP Firms as a result of the depth of HLM
Design's management team, HLM Design's capital structure and the reputation of
the management team in the design industry. Management also believes these goals
can be achieved at less cost than that which would be incurred by AEP firms
operating on a stand alone basis.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" beginning on page 6 for a discussion of factors that should be
considered by prospective purchasers of the Common Stock offered hereby.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by HLM Design.................... shares (1)
Common Stock to be outstanding after the Offering..... shares (1)(2)(3)
Total............................................ shares
Use of proceeds....................................... The net proceeds of the Offering will be used to repay certain
indebtedness of HLM Design, for working capital and for general
corporate purposes, including the funding of HLM Design's rights to
cash flows under future Management and Services Agreements. See "Use
of Proceeds."
Trading............................................... The Company intends to apply for listing of the Common Stock on the
American Stock Exchange (the "AMEX"), under the symbol "HLM."
</TABLE>
- ---------------
(1) Does not include up to an aggregate of shares that may be sold by HLM
Design upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
(2) Excludes (i) shares of Common Stock reserved for future issuance under
HLM Design's Stock Option Plan (as defined herein), including an option to
purchase shares of Common Stock that will be granted immediately
before the completion of the Offering with an exercise price equal to the
initial public offering price, (ii) shares of Common Stock reserved for
future issuance under HLM Design's ESPP (as defined herein) and (iii)
shares of Common Stock reserved for future issuance upon exercise of
the Warrants (as defined herein).
(3) Gives effect to the Stock Split.
4
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following summary historical and financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of HLM Design and
Affiliates and the Predecessor Company as defined below and the related notes
thereto included elsewhere in this Prospectus.
The following summary historical financial data for the Predecessor Company
for each of the three fiscal years ended April 25, 1997 are derived from audited
financial statements, which are included elsewhere in this Prospectus. The
summary financial data (Predecessor Company) for the one month ended May 30,
1997, and the six months ended October 25, 1996 are derived from the unaudited
financial statements of HLMI, which are included elsewhere in this Prospectus.
The selected financial data for the five months ended October 31, 1997 are
derived from the unaudited combined financial statements of HLM Design, HLMI,
HLMNC and HLMO, which are included elsewhere in this Prospectus. In the opinion
of management, these unaudited financial statements reflect all adjustments
necessary for a fair presentation of its results of operations and financial
condition. The results of operations for an interim period are not necessarily
indicative of results of operations for a full fiscal year or any other interim
period. All of the data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------------------------------------
SIX
FOR THE YEAR ENDED (1) MONTHS ONE MONTH
----------------------------------------- ENDED ENDED
APRIL 30, APRIL 26, APRIL 25, OCTOBER 25, MAY 30,
1995 1997 1997 1996 1997
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenue....................................... $29,122,557 $28,554,424 $26,754,710 $13,503,623 $2,233,036
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Direct cost of revenue........................ 15,685,671 14,261,952 13,376,251 7,534,491 898,979
Operating costs............................... 14,098,729 13,104,278 12,414,739 6,074,195 1,163,141
ESOP expenses................................. 573,837 584,202 408,765 271,652
Amortization on intangible assets............. 5,952 99,145 107,670 54,702 9,571
----------- ----------- ----------- ----------- -----------
Total costs and expenses...................... 30,364,189 28,049,577 26,307,425 13,935,040 2,071,691
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations................. (1,241,632) 504,847 447,285 (431,417 ) 161,345
----------- ----------- ----------- ----------- -----------
Other Income (Expense):
Net Interest.................................. (156,680) (394,068) (402,509) (192,794 ) (36,951 )
Non-Operating income.......................... 442,411 860,789 292,137
----------- ----------- ----------- ----------- -----------
Total Other Income (Expense).............. 285,731 466,721 (110,372) (192,794 ) (36,951 )
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes............. (955,901) 971,568 336,913 (624,211 ) 124,394
Income tax expense (benefit).................. (360,080) 435,459 219,799 (192,346 ) 43,000
----------- ----------- ----------- ----------- -----------
Net Income (Loss) (4)......................... $ (595,821) $ 536,109 $ 117,114 $ (431,865 ) $ 81,394
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Working capital(deficiency)................... $(1,705,986) $(1,619,720) $(1,902,363) $(1,717,490) $(2,238,531)
Total assets.................................. 9,419,189 12,577,992 12,874,503 12,376,973 17,639,673
Long-term debt................................ 840,302 564,577 103,792 453,870 2,476,008
Total liabilities............................. 8,713,076 11,819,796 11,670,962 11,639,830 16,354,738
Warrants outstanding..........................
Stockholders' equity (3)...................... 706,113 758,196 1,203,541 737,143 1,284,935
<CAPTION>
(HLM DESIGN)
COMBINED
SIX
MONTHS
ENDED
OCTOBER 31,
1997 (2)
------------
INCOME STATEMENT DATA:
<S> <C>
Revenue....................................... $13,186,803
------------
Costs and Expenses:
Direct cost of revenue........................ 5,944,762
Operating costs............................... 5,920,332
ESOP expenses.................................
Amortization on intangible assets............. 71,496
------------
Total costs and expenses...................... 11,936,590
------------
Income (Loss) from Operations................. 1,250,213
------------
Other Income (Expense):
Net Interest.................................. (496,973 )
Non-Operating income..........................
------------
Total Other Income (Expense).............. (496,973 )
------------
Income (Loss) Before Income Taxes............. 753,240
Income tax expense (benefit).................. 374,125
------------
Net Income (Loss) (4)......................... $ 379,115
------------
------------
BALANCE SHEET DATA:
Working capital(deficiency)................... $ 613,024
Total assets.................................. 17,426,156
Long-term debt................................ 4,474,234
Total liabilities............................. 16,768,230
Warrants outstanding.......................... 250,078
Stockholders' equity (3)...................... 407,848
</TABLE>
- ---------------
(1) The Predecessor Company is HLMI.
(2) Financial information for HLM Design includes the amounts for the Managed
Firms, HLMI, HLMNC and HLMO for the five months from May 31, 1997 to October
31, 1997 on a combined basis.
(3) The Company has paid no cash dividends from May 1, 1994 to October 31, 1997.
(4) Historical net income per share is not presented, as the historical capital
structure of the Company prior to the Offering is not comparable with the
capital structure that will exist after the Offering.
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AND EVALUATE ALL OF THE
INFORMATION SET FORTH IN THIS PROSPECTUS, INCLUDING THE PRINCIPAL RISK FACTORS
SET FORTH BELOW.
INNOVATIVE STRATEGY
HLM Design's operating and growth strategies are predicated upon its
ability to achieve significant consolidation of AEP Firm operations and to
generate profits from those firms. The process of identifying suitable
candidates for entering into Management and Services Agreements and proposing,
negotiating and implementing economically feasible affiliations with AEP Firms
is lengthy and complex. Such strategies require intense management direction in
a dynamic marketplace that is increasingly subject to cost containment and other
competitive pressures. There can be no assurance that these strategies will be
successful or that modifications to the Company's strategies will not be
required.
POTENTIAL CONFLICTS OF INTEREST
Joseph Harris and Vernon Brannon, the President and the Chief Financial
Officer, respectively, of HLM Design, are also principal stockholders in each of
HLMI, HLMNC and HLMO and have entered into stockholders' agreements with respect
to those firms that, among other things, permit the management by HLM Design of
each of HLMI, HLMNC and HLMO. Potential conflicts of interest could arise
between HLM Design and Messrs. Harris and Brannon in connection with the
operation and enforcement of the provisions of these stockholders' agreements
and the Management and Services Agreements. See "Certain Transactions." The
interests of HLM Design could be materially adversely affected if circumstances
arose in which it would be in the interest of Joseph Harris and Vernon Brannon
to interfere with the performance by HLMI, HLMNC or HLMO of the Management and
Services Agreements. Upon the execution of new Management and Services
Agreements with AEP Firms, similar conflicts of interest could arise between HLM
Design and stockholders of such firms.
LIMITED NUMBER OF FIRMS
HLM Design's revenues are currently derived from Management and Services
Agreements with three firms, only one (HLMI) of which had active operations at
October 31, 1997. There can be no assurance that HLM Design will be able to
successfully enter into Management and Services Agreements with additional
firms.
ADDITIONAL FINANCINGS
HLM Design's operating and growth strategies require substantial capital
resources. These requirements will result in HLM Design incurring long- and
short-term indebtedness and may result in the public or private issuance, from
time to time, of additional debt or equity securities, including the issuance of
such securities in connection with the execution of Management and Services
Agreements. There can be no assurance that any such financing will be obtainable
on terms acceptable to HLM Design. Additionally, issuing securities in
connection with the execution of Management and Services Agreements will dilute
the percentage of Common Stock owned by stockholders prior to such issuance.
There is also no assurance that such financings will not cause dilution in the
book value per share of the Common Stock.
EFFECT OF BANKRUPTCY
AEP Firms that have entered into Management and Services Agreements with
HLM Design have the right to terminate such agreements upon the filing by HLM
Design of a petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or upon other action taken voluntarily or involuntarily under any
federal or state law for the benefit of debtors. Because the substantial
majority of the assets of the Company are owned by the Managed Firms, if such
agreements are terminated, HLM Design would proceed through bankruptcy without
any meaningful assets. In such circumstances, it is likely that no significant
assets would be available for distribution to stockholders upon a liquidation.
GOVERNMENT REGULATION
The architectural and engineering industries are regulated at the state
level. The Company believes its operations are in material compliance with
applicable law. Nevertheless, because of the unique structure of the
relationships between HLM Design and its Managed Firms, many aspects of these
relationships have not been the subject of prior regulatory interpretation.
There can be no assurance that a review of the Company's business by applicable
regulatory authorities will not result in determinations that may adversely
affect the operations of the Company or prevent its continued operation. There
also can be no assurance that the regulatory environment will not change so as
to restrict the Company's existing operations or limit the expansion of the
Company's business. Expansion of the operations of the Company to certain
jurisdictions would likely require structural and organizational modifications
of HLM Design's form of relationships with its Managed Firms. Although the
Company believes its operations are in material compliance with existing
applicable law, there can be no assurance that the Company's existing Management
and Services Agreements will not be successfully challenged as, for example,
constituting the unlicensed practice of architecture, or that the enforceability
of the provisions thereof, including non-competition agreements, will not be
limited.
6
<PAGE>
DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES
The Company's success depends to a significant degree upon the continued
contributions of its management team (particularly its senior management) and
professional personnel. The loss of the services of one or more of these key
employees could have a material adverse effect on the Company. The Company has
employment and/or noncompetition agreements with Joseph M. Harris and Vernon B.
Brannon as well as with several members of its senior professional staff, but
does not have such agreements with all of its most important personnel. There
can be no assurance that a court would enforce the noncompetition agreements as
currently in effect. A court might, for example, narrow the geographical or
client restrictions contained in such agreement, lessen the length of the
agreement or, in some cases, refuse to enforce any provision of the agreement.
If courts refuse to enforce noncompetition agreements of HLM Design or the
Managed Firms, such decisions could have a material adverse effect on HLM
Design.
In addition, as the Company expands it may need to hire additional
personnel and will likely be dependent on the senior professional staff of any
firm with which HLM Design enters into a Management and Services Agreement. The
market for qualified employees in the industry and in the regions in which the
Company operates is competitive and may subject the Company to increased labor
costs in periods of low unemployment. The loss of the services of key employees
or the inability to attract additional qualified professional staff could have a
material adverse effect on the Company. In addition, the lack of qualified
professional staff or employees of the Company's potential candidates for
Management and Services Agreements may limit the Company's ability to consummate
future agreements. See "Business -- Growth Strategy," "Business -- Competition"
and "Management."
RISKS INHERENT IN PROVISION OF SERVICES
The Managed Firms and certain employees of the Managed Firms are involved
in the delivery of services to the public and, therefore, are exposed to the
risk of professional liability claims. Claims of this nature, if successful,
could result in substantial damage awards to the claimants that may exceed the
limits of any applicable insurance coverage. Insurance against losses related to
claims of this type can be expensive and varies widely from state to state.
Although HLM Design is indemnified under its Management and Services Agreements
for claims against the Managed Firms and their employees, HLM Design maintains
liability insurance for itself and negotiates liability insurance for its
Managed Firms the professionals employed by its Managed Firms. Successful
malpractice claims asserted against the Managed Firms, their employees or HLM
Design could have an adverse effect on the Company's profitability.
DEPENDENCE ON MANAGED FIRMS
HLM Design's revenues depend on fees and revenues generated by various AEP
Firms managed by HLM Design. Any material loss of revenue by such firms, whether
as a result of the loss of professionals or otherwise, could have a material
adverse effect on HLM Design. HLM Design does not control (i) the practice of
architecture, engineering or planning by professionals or (ii) the compliance
with certain regulatory requirements directly applicable to the Managed Firms.
COMPETITION
The business of providing architectural, engineering and planning related
services is highly competitive. The Company's competition includes many other
firms, including large national firms as well as regional or small local firms.
Several companies that have established operating histories and significantly
greater resources than the Company provide some of the services provided by the
Managed Firms. In addition, there are other companies with substantial resources
that may in the future decide to engage in activities similar to those in which
the Company engages. See "Business -- Competition."
CONCENTRATION OF VOTING POWER AND ANTI-TAKEOVER PROVISIONS
HLM Design's Certificate of Incorporation authorizes the Board of Directors
of HLM Design to issue 1,000,000 shares of "blank check" preferred stock with
such designations, rights and preferences as may be determined from time to time
by the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely effect the
voting power or other rights of the holders of HLM Design's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of preferred stock, there can be no assurance that the Company will
not do so in the future. The application of any such provisions or the issuance
of preferred stock could prevent stockholders from realizing a premium upon the
sale of their shares of Common Stock upon an acquisition of the Company. See
"Description of Capital Stock."
Certain provisions of the Company's Certificate of Incorporation and Bylaws
make it more difficult for stockholders of the Company to effect certain
corporate actions. See "Description of Capital Stock -- Delaware Law and Certain
Charter and Bylaw Provisions." Under the Company's Stock Option Plan, options
outstanding thereunder become immediately exercisable upon a change in control
of the Company. See "Management -- Stock Option Plan." Additionally, HLM
Design's
7
<PAGE>
Bylaws provide: (i) for a Board of Directors divided into three classes serving
staggered terms, (ii) that special meetings of stockholders may be called only
by the President or by the Company's Secretary or Assistant Secretary at the
request in writing of the majority of the Board of Directors and (iii) that any
stockholder seeking to bring business before an annual meeting of stockholders,
or to nominate candidates for election as directors at an annual or special
meeting of stockholders, must provide timely notice thereof in writing. These
provisions will impair the stockholders' ability to influence or control the
Company or to effect a change in control of the Company, and may prevent
stockholders from realizing a premium on the sale of their shares of Common
Stock upon an acquisition of the Company. See "Description of Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. HLM Design intends to apply for listing of its Common Stock on the
American Stock Exchange. The initial public offering price of the Common Stock
will be determined by negotiations among the Company and representatives of the
Underwriters. See "Underwriting." There can be no assurance that the market
price of the Common Stock prevailing at any time after this Offering will equal
or exceed the initial public offering price. Quarterly and annual operating
results of the Company, variations between such results and the results expected
by investors and analysts, changes in local or general economic conditions or
developments affecting the architecture or engineering industries, the Company
or its competitors could cause the market price of the Common Stock to fluctuate
substantially. As a result of these factors, as well as other factors common to
initial public offerings, the market price could fluctuate substantially from
the initial offering price. In addition, the stock market has, from time to
time, experienced extreme price and volume fluctuations, which could adversely
effect the market price for the Common Stock without regard to the financial
performance of the Company.
LACK OF INDEPENDENT DIRECTORS
Upon completion of the Offering, the majority of the members of HLM
Design's Board of Directors will be employees or representatives of holders of
Warrants (as defined herein). Although HLM Design intends to maintain at least
two independent directors on its Board following completion of the Offering,
such directors will not constitute a majority of the Board, and HLM Design's
Board may not have a majority of independent directors at any time in the
future. In the absence of a majority of independent directors, HLM Design's
executive officers, who also are principal stockholders and directors, could
establish policies and enter into transactions without independent review and
approval thereof, subject to certain restrictions under HLM Design's Certificate
of Incorporation. In addition, although HLM Design intends to establish audit
and compensation committees which will consist entirely of outside directors,
until those committees are established, transactions and compensation policies
could be approved without independent review. These and other transactions could
present the potential for a conflict of interest between HLM Design and its
stockholders generally and the controlling officers, stockholders or directors.
See "Management."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the amount of $ per share in net tangible
book value per share from the initial offering price. See "Dilution."
POTENTIAL ADVERSE MARKET PRICE EFFECT OF ADDITIONAL SHARES ELIGIBLE FOR FUTURE
SALE
The shares of Common Stock owned beneficially by existing
stockholders of HLM Design, the shares of Common Stock subject to options
to be granted under the Stock Option Plan on or before the consummation of the
Offering and the shares of Common Stock underlying the Warrants (as
defined herein) are "restricted securities" as defined in Rule 144 under the
Securities Act, and may in the future be resold in compliance with Rule 144. See
"Management -- Stock Option Plan" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." No prediction can be made as to the effect that resale of shares of
Common Stock, or the availability of shares of Common Stock for resale, will
have on the market price of the Common Stock prevailing from time to time. The
resale of substantial amounts of Common Stock, or the perception that such
resales may occur, could adversely affect prevailing market prices for the
Common Stock and the ability of HLM Design to raise equity capital in the
future. HLM Design has agreed, subject to certain exceptions, not to issue, and
all executive officers of HLM Design and the Managed Firms have agreed not to
resell, any shares of Common Stock or other equity securities of HLM Design for
365 days after the date of this Prospectus without the prior written consent of
the representatives of the Underwriters. See "Shares Eligible for Future Sale"
and "Underwriting."
8
<PAGE>
USE OF PROCEEDS
The net proceeds to HLM Design from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $ million ($ if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $ per share (the midpoint of the range of the
initial public offering price set forth on the cover page of the Prospectus) and
after deducting the underwriting discount and estimated expenses of the
Offering.
HLM Design intends to use approximately $ million of the net proceeds
to repay certain indebtedness consisting of (i) the $1.98 million due under the
Pacific/Equitas Loan (as defined herein), (ii) a $0.8 million term loan from
Berthel Leasing (as defined herein), an affiliate of one of the Underwriters,
and (iii) notes payable in an aggregate principal amount of $182,308 to employee
stockholders. Such indebtedness currently has an effective weighted interest
cost at an annual rate equal to 25%. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
HLM Design intends to use the remaining expected net proceeds of the
Offering for working capital and other general corporate purposes, including
payments made by HLM Design, for the rights to future cashflows, in connection
with the execution of new Management and Services Agreements. Until utilized,
the Company will invest the net proceeds in short-term, interest bearing,
investment grade instruments.
DIVIDEND POLICY
HLM Design has never declared or paid a dividend on its Common Stock. HLM
Design intends to retain all of its earnings to finance the growth and
development of its business, including the execution of new Management and
Services Agreements, and does not anticipate paying any cash dividends on its
Common Stock for the foreseeable future. Any future change in HLM Design's
dividend policy will be made at the discretion of the Board of Directors of HLM
Design and will depend upon HLM Design's operating results, financial condition,
capital requirements, general business conditions and such other factors as the
Board of Directors deems relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Capital Stock."
CAPITALIZATION
The following table sets forth, as of October 31, 1997, the combined
capitalization of HLM Design and Affiliates (a) on an actual basis, and (b) on a
pro forma basis, as adjusted to reflect the Offering and the application of the
estimated net proceeds thereof to be received by the Company. See "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the unaudited pro forma financial statements of HLM Design and Affiliates and
the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
------------------------
PRO FORMA
FOR THE
OFFERING
ACTUAL (1)
---------- ----------
<S> <C> <C>
Short-term debt:
Notes payable................................................................................... $2,250,000 $1,500,000
Current maturities of long-term debt............................................................ 728,011 728,011
---------- ----------
Total short-term debt........................................................................ $2,978,011 $2,228,011
---------- ----------
---------- ----------
Long-term debt, excluding current maturities...................................................... $4,474,233 $2,311,925
---------- ----------
Warrants outstanding.............................................................................. 250,078 250,078
---------- ----------
Stockholders' equity:
Preferred Stock of HLM Design, $.10 par value, 1,000,000 shares authorized; no shares issued and
outstanding.................................................................................. 0
Common Stock of HLM Design, $.01 par value, 9,000,000 shares authorized; 50,640 shares issued
and outstanding, actual; shares issued and outstanding, as adjusted (2)................... 506
Common Stock of HLMI, $.01 par value; Class A, voting authorized 2,000,000 shares; issued 200;
Class B, nonvoting, authorized 1,000,000 shares, no shares outstanding....................... 2
Common Stock of HLMNC $.01 par value, 10,000 shares authorized; 300 shares issued and
outstanding.................................................................................. 3
Common Stock of HLMO $.01 par value, 10,000 shares authorized; 300 shares issued and
outstanding.................................................................................. 3
Additional Paid-in capital...................................................................... 34,781
Retained earnings............................................................................... 379,115
Stock Subscription Receivable -- HLM Design, HLMNC, HLMO (3).................................... (6,562)
---------- ----------
Total stockholders' equity................................................................... 407,848
---------- ----------
Total capitalization....................................................................... $5,132,159 $
---------- ----------
---------- ----------
</TABLE>
9
<PAGE>
- ---------------
(1) Adjusted to give effect to the Offering and the application of the net
proceeds thereof. See "Use of Proceeds" and "Certain Transactions."
(2) shares if the Underwriters' over-allotment option is exercised in
full. See "Underwriting" and "Principal Stockholders." Excludes (i)
shares of Common Stock reserved for future issuance under HLM Design's
Stock Option Plan (including up to shares of Common Stock reserved
for issuance upon exercise of options to be granted on or before the
consummation of the Offering pursuant to the Stock Option Plan), (ii)
shares of Common Stock reserved for issuance under HLM Design's ESPP,
and (iii) shares of Common Stock reserved for issuance under the
Warrants (as defined herein). See "Management's Discussion of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Management -- Stock Option Plan" and "Management -- Employee Stock Purchase
Plan".
(3) Common stock had not been funded as of October 31, 1997.
DILUTION
The net tangible book value (deficit) of the Company (defined as the
combined net tangible book value (deficit) of HLM Design, HLMI, HLMNC, and HLMO)
as of October 31, 1997 was $ , or $ per share of Common Stock. Net
tangible book value (deficit) per share is determined by dividing the tangible
net worth of the Company by the total number of outstanding shares of Common
Stock. After giving effect to the sale of the shares of Common Stock
offered hereby and the receipt of an assumed $ million of net proceeds from
the Offering (based on an assumed initial public offering price of $ per share
and net of underwriting discounts and estimated offering expenses), net tangible
book value of the Company at October 31, 1997 would have been $ per share.
This represents an immediate increase in the net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share................................................................... $
Net tangible book value per share before giving effect to the Offering..........................................
Increase in net tangible book value per share attributable to the Offering......................................
Pro forma net tangible book value per share after giving effect to the Offering...................................
Dilution per share to new investors(1)............................................................................ $
</TABLE>
- ---------------
(1) Dilution is determined by subtracting the net tangible book value per share
of Common Stock after the Offering from the public offering price per share.
10
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the Predecessor Company for each
of the three fiscal years ended April 25, 1997 are derived from audited
financial statements, which are included elsewhere in this Prospectus. The
following selected financial data for the Predecessor Company for each of the
two fiscal years ended April 30, 1994 are derived from unaudited financial
statements, which are not included in this Prospectus. The selected financial
data (Predecessor Company) for the one month ended May 30, 1997, and the six
months ended October 25, 1996 are derived from the unaudited financial
statements of HLMI, which are included elsewhere in this Prospectus. The
selected financial data for the five months ended October 31, 1997 are derived
from the unaudited combined financial statements of HLM Design, HLMI, HLMNC and
HLMO, which are included elsewhere in this Prospectus. In the opinion of
management, these unaudited financial statements reflect all adjustments
necessary for a fair presentation of its results of operations and financial
condition. The results of operations for an interim period are not necessarily
indicative of results of operations for a full fiscal year or any other interim
period. All of the data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
(PREDECESSOR COMPANY)
----------------------------------------------------------------------------------
SIX
FOR THE YEAR ENDED (1) MONTHS
------------------------------------------------------------------- ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 26, APRIL 25, OCTOBER 25,
1993 1994 1995 1996 1997 1996
----------- ----------- ----------- ----------- ----------- ------------
Revenue........................... $33,464,656 $27,841,902 $29,122,557 $28,554,424 $26,754,710 $13,503,623
<S> <C> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- ----------- ------------
Costs and Expenses:
Direct cost of revenue............ 18,371,876 15,925,434 15,685,671 14,261,952 13,376,251 7,534,491
Operating costs................... 15,376,045 13,516,392 14,098,729 13,104,278 12,414,739 6,074,195
ESOP expenses..................... 474,403 564,918 573,837 584,202 408,765 271,652
Amortization on intangible
assets.......................... 4,464 5,952 5,952 99,145 107,670 54,702
----------- ----------- ----------- ----------- ----------- ------------
Total costs and expenses.......... 34,226,788 30,012,696 30,364,189 28,049,577 26,307,425 13,935,040
----------- ----------- ----------- ----------- ----------- ------------
Income (Loss) from Operations..... (762,132 ) (2,170,794 ) (1,241,632) 504,847 447,285 (431,417 )
----------- ----------- ----------- ----------- ----------- ------------
Other Income (Expense):
Net Interest...................... (55,510 ) (57,600 ) (156,680) (394,068) (402,509) (192,794 )
Non-Operating income.............. 37,072 14,542 442,411 860,789 292,137
----------- ----------- ----------- ----------- ----------- ------------
Total Other Income
(Expense).................... (18,438 ) (43,058 ) 285,731 466,721 (110,372) (192,794 )
----------- ----------- ----------- ----------- ----------- ------------
Income (Loss) Before Income
Taxes........................... (780,570 ) (2,213,852 ) (955,901) 971,568 336,913 (624,211 )
Income tax expense (benefit)...... (260,000 ) (779,000 ) (360,080) 435,459 219,799 (192,346 )
----------- ----------- ----------- ----------- ----------- ------------
Net Income (Loss) (4)............. $ (520,570 ) $(1,434,852) $ (595,821) $ 536,109 $ 117,114 $ (431,865 )
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
BALANCE SHEET DATA:
Working capital(deficiency)....... $2,059,840 $1,229,211 $(1,705,986) $(1,619,720) $(1,902,363) (1,717,490 )
Total assets...................... 11,586,309 10,147,420 9,419,189 12,577,992 12,874,503 12,376,973
Long-term debt.................... 1,598,727 1,050,330 840,302 564,577 103,792 453,870
Total liabilities................. 10,020,182 9,316,193 8,713,076 11,819,796 11,670,962 11,639,830
Warrants outstanding..............
Stockholders' equity (3).......... 1,566,127 831,227 706,113 758,196 1,203,541 737,143
<CAPTION>
HLM DESIGN
(COMBINED)
SIX
ONE MONTH MONTHS
ENDED ENDED
MAY 30, OCTOBER 31,
1997 1997 (2)
------------ -----------
Revenue........................... $ 2,233,036 $13,186,803
<S> <C> <C>
------------ -----------
Costs and Expenses:
Direct cost of revenue............ 898,979 5,944,762
Operating costs................... 1,163,141 5,920,332
ESOP expenses.....................
Amortization on intangible
assets.......................... 9,571 71,496
------------ -----------
Total costs and expenses.......... 2,071,691 11,936,590
------------ -----------
Income (Loss) from Operations..... 161,345 1,250,213
------------ -----------
Other Income (Expense):
Net Interest...................... (36,951 ) (496,973 )
Non-Operating income..............
------------ -----------
Total Other Income
(Expense).................... (36,951 ) (496,973 )
------------ -----------
Income (Loss) Before Income
Taxes........................... 124,394 753,240
Income tax expense (benefit)...... 43,000 374,125
------------ -----------
Net Income (Loss) (4)............. $ 81,394 $ 379,115
------------ -----------
------------ -----------
BALANCE SHEET DATA:
Working capital(deficiency)....... (2,238,531 ) 613,024
Total assets...................... 17,639,673 17,426,156
Long-term debt.................... 2,476,008 4,474,234
Total liabilities................. 16,354,738 16,768,230
Warrants outstanding.............. 250,078
Stockholders' equity (3).......... 1,284,935 407,848
</TABLE>
- ---------------
(1) The Predecessor Company is HLMI.
(2) Financial information for HLM Design includes the amounts for the Managed
Firms, HLMI, HLMNC and HLMO for the five months from May 31, 1997 to October
31, 1997 on a combined basis.
(3) The Company has paid no cash dividends from May 1, 1992 to October 31, 1997.
(4) Historical net income per share is not presented, as the historical capital
structure of the Company prior to the Offering is not comparable with the
capital structure that will exist after the Offering.
11
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined financial information includes
HLM Design, HLMI, HLMNC and HLMO to reflect their results assuming the
acquisition of HLMI through the merger of BBH Corp., a non-operating entity
controlled by the controlling Stockholders of HLM Design, into HLMI had occurred
at the beginning of the respective periods and the Management and Services
Agreements and related stockholder agreements had been effective as of the
beginning of the respective periods.
The Company believes that the assumptions used in the following statements
provide a reasonable basis on which to present the pro forma financial data. The
unaudited proforma combined financial data is provided for informational
purposes only and should not be construed to be indicative of the Company's
financial condition or results of operations had the transactions and events
described above been consummated on the dates assumed, and are not intended to
project the Company's financial condition on any future date or its results of
operation for any future period.
<TABLE>
<CAPTION>
(COMBINED)
(PREDECESSOR HLM DESIGN PRO FORMA
COMPANY) (COMBINED) FOR THE SIX
ONE MONTH SIX MONTHS PRO FORMA MONTHS ENDED
ENDED ENDED (1) ADJUSTMENTS PRO FORMA
MAY 30, OCTOBER 31, PRO FORMA FOR THE OCTOBER 31,
1997 1997 ADJUSTMENTS OFFERING 1997
----------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 2,233,036 $13,186,803 $15,419,839
Costs and Expenses:
Direct cost of revenue.................... 898,979 5,944,762 6,843,741
Operating costs........................... 1,163,141 5,920,332 $ (3,800)(7) 7,051,673
(28,000)(3)
Amortization of intangible assets......... 9,571 71,496 4,800(2) 85,867
----------- ----------- ------------- ------------- ------------
Total costs and expenses.................. 2,071,691 11,936,590 (27,000) 13,981,281
----------- ----------- ------------- ------------- ------------
Income from Operations.................... 161,345 1,250,213 27,000 1,438,558
Other Income (Expense)
Interest expense.......................... (36,951) (496,973) 26,000(4) $ (270,000)(6) (864,924 )
(35,000)(4) 200,000(6)
(48,000)(5) (204,000)(12)
----------- ----------- ------------- ------------- ------------
Total Other Expense..................... (36,951) (496,973) (57,000) (274,000) (864,924 )
----------- ----------- ------------- ------------- ------------
Income Before Income Taxes................ 124,394 753,240 (30,000) (274,000) 573,634
Income tax expense (benefit).............. 43,000 374,125 (9,639)(9) (104,805)(8) 302,681
----------- ----------- ------------- ------------- ------------
Net Income................................ $ 81,394 $ 379,115 $ (20,361) $ (169,195) $ 270,953
----------- ----------- ------------- ------------- ------------
----------- ----------- ------------- ------------- ------------
Pro forma net income per share (11)....... $
------------
Weighted average shares outstanding
(000s)..................................
------------
------------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
12
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA FOR THE TWELVE
FOR THE TWELVE (1) ADJUSTMENTS MONTHS ENDED
MONTHS ENDED PRO FORMA FOR THE PRO FORMA
APRIL 25, 1997 ADJUSTMENTS OFFERING APRIL 25, 1997
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Revenue.................................................. $ 26,754,710 $ 26,754,710
Costs and Expenses:
Direct cost of revenue................................... 13,376,251 13,376,251
Operating costs.......................................... 12,414,739 $(338,000)(3) 12,031,739
(45,000)(7)
ESOP expenses............................................ 408,765 (408,765)(10)
Amortization of intangible assets........................ 107,670 60,330(2) 168,000
-------------- ----------- ----------- --------------
Total costs and expenses................................. 26,307,425 (731,435) 25,575,990
-------------- ----------- ----------- --------------
Income from Operations................................... 447,285 731,435 1,178,720
-------------- ----------- ----------- --------------
Other Income (Expense)
Interest expense......................................... (402,509) 311,000(4) $(240,000)(6) (1,118,509)
(425,000)(4) 400,000(6)
(580,000)(5) (182,000)(12)
Non-Operating income..................................... 292,137 292,137
-------------- ----------- ----------- --------------
Total Other Expense.................................... (110,372) (694,000) (22,000) (826,372)
-------------- ----------- ----------- --------------
Income Before Income Taxes............................... 336,913 37,435 (22,000) 352,348
Income tax expense (benefit)............................. 219,799 78,579(9) (8,415)(8) 289,963
-------------- ----------- ----------- --------------
Net Income (loss)........................................ $ 117,114 $ (41,144) $ (13,585) $ 62,385
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
Pro forma net income per share (11)...................... $
--------------
Weighted average shares outstanding (000s)...............
--------------
--------------
</TABLE>
- ---------------
(1) On May 23, 1997 BBH Corp., affiliated with HLM Design through a majority of
stockholders in common, acquired HLMI in a transaction accounted for under
the purchase method of accounting. In connection with this transaction, BBH
Corp. was merged into HLMI with HLMI being the surviving entity. As a part
of the foregoing, the stockholders of HLMI, including the HLMI Employee
Stock Ownership Plan (the "ESOP") redeemed their shares in HLMI. As a result
of the foregoing, the change in voting control was 90%. The assets and
liabilities of HLMI were restated to fair value as of May 31, 1997, the date
purchase accounting was reflected for the acquisition. The excess of the
purchase cost over the fair value of tangible net assets was recorded as
goodwill and will be amortized over fifteen years.
(2) Reflects the adjustment necessary for the amortization of goodwill arising
from the acquisition of HLMI by BBH Corp. through the merger of BBH Corp.
into HLMI.
(3) Reflects the adjustment necessary to record the net decrease in depreciation
expense due to the extended lives of depreciable assets.
(4) Reflects the increase in interest expense resulting from the financing
arrangement, which was in the form of a sale-leaseback agreement which is
reduced by the interest costs associated with bank loans that were repaid.
(5) Reflects the adjustment to record interest expense for the debt incurred to
effect the acquisition of HLMI by BBH Corp. through the merger of BBH Corp.
into HLMI.
(6) Reflects the decrease in interest expense resulting from the repayment of
certain indebtedness which is offset by an increase in deferred fee expense
associated with the pay off of such indebtedness. See "Use of Proceeds".
(7) Reflects the adjustment necessary to record decreased depreciation expense
due to the reduction to fair value of certain leasehold improvements.
(8) Reflects the change in provision for income taxes resulting from adjustment
(5) above.
(9) Reflects the change in provision for income taxes resulting from adjustments
above.
(10) Reflects the elimination of ESOP expenses as a result of the acquisition of
HLMI by BBH Corp. through the merger of BBH Corp. into HLMI.
(11) Pro forma net income per share is based upon the assumption that _______
shares of Common Stock are outstanding after the offering. This amount
represents _______ shares of Common Stock to be issued in the offering and
_______ shares of Common Stock owned by the Company's stockholders prior to
the offering.
(12) Reflects the increase in interest expense resulting from warrants attached
to certain indebtedness which was repaid with proceeds of the offering. See
"Use of Proceeds".
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with HLM Design and
Affiliate's financial statements and Predecessor's financial statements and the
related notes thereto included elsewhere in this Prospectus.
OVERVIEW
HLM Design is a management company which enters into management and
services relationships with full-service architectural, engineering and planning
firms. Currently, HLM Design has entered into Management and Services Agreements
with HLMI, HLMNC and HLMO. These three firms operate in ten offices in Atlanta,
Georgia, Iowa City, Iowa, Chicago, Illinois, Orlando, Florida, Bethesda,
Maryland, Denver, Colorado, Sacramento, California, Philadelphia, Pennsylvania,
Portland, Oregon, and Charlotte, North Carolina. A full service AEP Firm
provides a spectrum of services in various specialties to customers through a
broad range of professionals, including architectural, mechanical, electrical,
structural and civil engineers, landscape architects, interior designers and
construction administration personnel.
In May 1997, BBH Corp., a corporation controlled by Joseph Harris and
Vernon Brannon, controlling shareholders of HLM Design, merged into HLMI with
HLMI being the surviving corporation. Funding of the acquisition through the
merger and "cash-out" of HLMI's existing stockholders, including the redemption
of the ESOP, was provided by loans of $3.2 million from HLM Design to BBH Corp.
See "Certain Transactions -- Merger Transaction."
Immediately following the merger, the Managed Firms, HLMI, HLMNC and HLMO,
entered into Management and Services Agreements with HLM Design. HLM Design,
under the terms of such agreements, is the sole and exclusive manager and
administrator of all of the Managed Firms' day-to-day business functions,
including financial planning, facilities, equipment and supplies, management and
administrative services, and receives as compensation all but 1% of each firm's
positive cash flow following the payment by each firm of all such firm's
expenses.
PRO FORMA RESULTS OF OPERATIONS (EXCLUDING THE EFFECT OF THE OFFERING)
As a result of the acquisition of HLMI through the merger of BBH Corp. into
HLMI and the consummation of the Management and Services Agreements and
Stockholders' Agreements, the discussion and analysis of results of operations
for the six months ended October 31, 1997 compared to six months ended October
25, 1996 is presented on a pro forma basis that reflects the acquisition of the
assets of HLMI through the merger of BBH Corp. into HLMI and the consummation of
the Management and Services Agreements and Stockholders' Agreements as though
they occurred at the beginning of the respective periods.
SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED WITH SIX MONTHS ENDED OCTOBER 31,
1996 -- PRO FORMA
This pro forma financial data does not reflect the results of the effect of
the Offering.
<TABLE>
<CAPTION>
COMBINED COMBINED
PRO FORMA PRO FORMA
OCTOBER 25, OCTOBER 31,
1996 1997
----------- -----------
<S> <C> <C>
Revenue........................................................................................ $13,503,623 $15,419,839
Costs and expenses:
Direct cost of revenue......................................................................... 7,534,491 6,843,741
Operating costs................................................................................ 5,909,546 7,051,673
Amortization of intangible assets.............................................................. 84,000 85,867
----------- -----------
Total costs and expenses....................................................................... 13,528,037 13,981,281
----------- -----------
Income (loss) from operations.................................................................. (24,414) 1,438,558
Other income (expense)
Interest expense............................................................................... (549,794) (590,924)
----------- -----------
Total other expense.......................................................................... (549,794) (590,924)
----------- -----------
Income (loss) before income taxes.............................................................. (574,208) 847,634
Income tax expense (benefit)................................................................... (147,344) 407,486
----------- -----------
Net Income (loss).............................................................................. $ (426,864) $ 440,148
----------- -----------
----------- -----------
</TABLE>
Revenues were $15.4 million for the six months ended October 31, 1997
compared to $13.5 million for the six months ended October 25, 1996, which is an
increase of 14.2%. The increase in revenues is attributable to management's
stronger focus on marketing efforts during the six months ended October 31,
1997.
14
<PAGE>
Direct costs primarily include, direct labor, subconsultant costs, and
reimbursable expenses. Direct costs were $6.8 million, or 44.4% of revenues, for
the six months ended October 31, 1997, as compared to $7.5 million, or 55.8% of
revenues for the six months ended October 25, 1996. This decrease as a percent
of revenue is principally due to a decrease in direct labor incurred as a
percentage of revenues due to improved productivity as a result of management's
closer monitoring of each project, as well as, a decrease in subconsultant
costs.
Operating expenses were $7.0 million, or 45.7% of revenues, for the six
months ended October 31, 1997 as compared to $5.8 million, or 43.8% of revenues,
for the six months ended October 25, 1996. This increase is principally due to
an increase in indirect labor and related costs as a result of aggressive
marketing efforts to increase revenues and an increase in rent expense
associated with rental of certain computer and software equipment.
Amortization of intangible assets were $0.1 million for both the six months
ended October 31, 1997 and October 25, 1996. The amortization expense relates to
the goodwill arising from the acquisition of HLMI by BBH Corp. through the
merger of BBH Corp. into HLMI. See Note 2 to the Notes to Combined Financial
Statements.
Interest expense was $0.6 million for the six months ended October 31, 1997
as compared to $0.5 million for the six months ended October 25, 1996.
Income tax expense for the six months ended October 31, 1997 was $0.4
million as compared to an income tax benefit of $0.1 million for the six months
ended October 25, 1996. The effective income tax rate was 48.1% for the six
months ended October 31, 1997 as compared to 24.6% for the six months ended
October 25, 1996. The effective income tax rate was higher due to non-deductible
goodwill amortization and the ratio of non-deductible penalties and meals and
entertainment expense to pre-tax income or loss.
PREDECESSOR RESULTS OF OPERATIONS
The following discussion of analysis and results of operations for the
fiscal years ended 1997, 1996 and 1995 relate to the predecessor company HLMI.
HLM Design was incorporated on March 6, 1997 had no significant activity as of
April 25, 1997.
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues were $26.8 million in fiscal 1997 compared to $28.6 million in
fiscal 1996, which was a decline of 6.3%. The decline in revenues was primarily
attributable to HLMI's decentralization of architectural personnel from one
location to multiple locations, shift in HLMI's mix from large academic
education facilities to smaller healthcare and criminal justice projects, and
HLMI's efforts to focus on the estimating process and selecting contracts with
profitability as the major goal, which resulted in some potential contracts not
being pursued. During fiscal 1997 and fiscal 1996, approximately 70% of HLMI's
revenues are related to health care projects and approximately 30% are from
criminal justice and other projects.
Direct costs include, among other things, direct labor, subconsultant
costs, and reimbursable expenses. Direct costs were $13.4 million, or 50.0% of
revenues, in fiscal 1997 as compared to $14.3 million, or 49.9% of revenues, in
fiscal 1996. This increase as a percent of revenue is principally from an
increase in the use of subconsultants to meet the requirements of the projects
(18.2% and 16.7% of revenue in fiscal 1997 and fiscal 1996, respectively) and an
increase in reimbursable expenses incurred (4.4% and 3.3% of revenue in fiscal
1997 and fiscal 1996, respectively). This increase is offset by a decrease in
direct labor incurred due to improved productivity as a result of HLMI's focus
on cost containment of each project (24.7% and 26.7% of revenue in fiscal 1997
and fiscal 1996, respectively). As a result of these fluctuations and decreased
sales, gross profit from revenue (revenue less direct cost of revenue) decreased
to $13.4 million in fiscal 1997 from $14.3 million in fiscal 1996.
Operating expenses decreased 6.4% to $12.4 million, or 46.4% of revenues,
in fiscal 1997 from $13.1 million, or 45.9% of revenues, in fiscal 1996. The
decrease of 5.3% is principally due to a reduction in personnel costs resulting
from HLMI's efforts to increase utilization of labor.
ESOP expenses were $0.4 million in fiscal 1997 as compared to $0.6 million
in fiscal 1996. These expenses represent principal and interest payments on the
ESOP debt.
Amortization of intangible assets was $0.1 million for both the six months
ended October 31, 1997 and October 25, 1996. The amortization relates to the
goodwill arising from the acquisition of MBP Architects, Inc. in April 1995. See
Note 2 to HLMI Financial Statements.
Interest expense was $0.4 million for both fiscal 1997 and fiscal 1996.
15
<PAGE>
Non-operating income was $0.3 million in fiscal 1997 compared to $0.9
million in fiscal 1996. Non-operating income is principally due to the gain, on
a lease termination, as a result of the cumulative excess of lease expense over
the lease payments made as of the termination dates. In fiscal 1997 and fiscal
1996, HLMI terminated facility leases resulting in a gain of $0.3 million and
$0.8 million, respectively.
Income tax expense was $0.2 million in fiscal 1997 compared to $0.4 million
in fiscal 1996. The effective income tax rate in fiscal 1997 was 65.3% compared
to 44.8% in fiscal 1996. The effective tax rate was higher for fiscal 1997 as
compared to fiscal 1996 due principally to nondeductible penalties (17.42% in
1997) and meals and entertainment expenses (9.3% in 1997). The increase in
penalty expense is due to HLMI's inability to timely fund payroll taxes.
FISCAL 1996 COMPARED WITH FISCAL 1995
Revenues were $28.6 million in fiscal 1996 compared to $29.1 million in
fiscal 1995, a decline of 2.0%. The decline in revenues was primarily
attributable to HLMI's decentralization of architectural services from one
location to multiple locations and its efforts to focus on the estimating
process and selecting contracts with profitability as the major goal, which
resulted in some potential contracts not being pursued. During fiscal 1996,
approximately 70% of HLMI's revenues were related to health care projects and
approximately 30% were from criminal justice and other projects as compared to
during fiscal 1995, approximately 73% of HLMI's revenues were related to health
care projects and approximately 27% were from criminal justice and other
projects.
Direct costs include, among other things, direct labor, subconsultants
costs, and reimbursable expenses. Direct costs were $14.3 million, or 49.9% of
revenues, in fiscal 1996 as compared to $15.7 million, or 53.9% of revenues, in
fiscal 1995. This decrease as a percent of revenues is principally from a
decrease in the use of subconsultants to meet the requirements of the projects
(16.7% and 18.2% of revenue in fiscal 1996 and fiscal 1995, respectively), a
decrease in direct labor incurred as a result of HLMI's focus on cost
containment of each project (26.7% and 27.3% of revenue in fiscal 1996 and
fiscal 1995, respectively) and a decrease in reimbursable expenses incurred
(3.3% and 5.3% of revenue in fiscal 1996 and fiscal 1995, respectively). As a
result of these reductions, gross profit from revenue (revenue less direct cost
of revenue) increased to $14.3 million in fiscal 1996 from $13.4 million in
fiscal 1995.
Operating expenses decreased 7.1% to $13.1 million, or 45.9% of revenues,
in fiscal 1996 from $14.1 million, or 48.4% of revenues, in fiscal 1995. The
decrease is principally due to a decrease in rent and occupancy costs resulting
from management's renegotiation of certain office leases and, to a lesser
extent, a decrease in the costs incurred for contingencies related to various
disputes and legal actions related to contract operations due to HLMI's focus on
prevention and resolution of such matters on an on going basis. This is
partially offset by an increase in salary and related costs and reproduction
costs.
ESOP expenses were $0.6 million for both fiscal 1996 and 1995. The expenses
represent principal and interest payments on the ESOP debt.
Amortization of intangible assets were $0.1 million in fiscal 1996 and
$5,952 in fiscal 1995. This increase relates to the goodwill arising from the
acquisition of MBP Architects, Inc. in April 1995. See Note 2 to Notes to HLMI
Financial Statements.
Interest expense was $0.4 million for fiscal 1996 and $0.2 million for
fiscal 1995. This increase is primarily due to increased borrowing for working
capital needs in fiscal 1996.
Non-operating income was $0.9 million in fiscal 1996 compared to $0.4
million in fiscal 1995. In fiscal 1996, the Company terminated facility leases
resulting in a gain of $0.8 million. In fiscal 1995, HLMI sold its airplane
which generated a gain on sale of assets of $0.4 million. See Note 4 to Notes to
HLMI Financial Statements.
Income tax expense was $0.4 million in fiscal 1996 compared to an income
tax benefit of $0.4 million in fiscal 1995. The effective income tax rate in
fiscal 1996 was 44.8% compared to 37.7% in fiscal 1995. The effective tax rate
was higher for fiscal 1996 as compared to fiscal 1995 due to the ratio of
non-deductible meals and entertainment expense to pre-tax income or loss.
LIQUIDITY AND CAPITAL RESOURCES
At April 25, 1997, HLMI's current liabilities of $11.6 million exceeded
current assets of $9.7 million, resulting in a working capital deficit of $1.9
million. During fiscal 1997, HLMI generated $0.5 million in cash from operating
activities. HLMI used $0.7 million in investing activities, primarily the
purchase of equipment. HLMI received proceeds from new debt
16
<PAGE>
of $0.5 million and repaid borrowings on notes payable of $0.4 million. These
transactions resulted in a net decrease in cash of $8,809 for the fiscal year.
At October 31, 1997, the Company's current assets of $11.7 million exceeded
current liabilities of $12.4 million resulting in a working capital of $0.7
million. During the six months ended October 31, 1997, the Company used $48,600
in cash from operating activities. The Company used $0.4 million for investing
activities, primarily the purchase of equipment. The Company generated $0.5
million for financing activities, primarily from long-term borrowings reduced by
the payment of the ESOP buyback.
The Company received proceeds, in June 1997, from financing, in the form of
a capital lease of $2.8 million (the "Lease Financing") from Berthel Fisher &
Company Leasing, Inc. ("Berthel Leasing"). The proceeds were used to repay a
line of credit and a note payable due to Firstar Bank of Iowa, N.A. In
connection with the Lease Financing, HLMI granted a security interest in all of
its personal property to Berthel Leasing and Joseph Harris, Vernon Brannon and
William Blalock, a former director of HLM Design, partially guaranteed the
amount due to Berthel Leasing. HLM Design also entered into a term loan, in
September 1997, of $0.8 million with Berthel Leasing for working capital
purposes. In consideration for this borrowing, HLM Design sold warrants to
purchase 2,515 shares of Common Stock, subject to adjustment in certain
circumstances, to Berthel Leasing (the "Berthel Warrants"). See "Certain
Transactions -- Berthel Leasing Lease Financing" and "Description of Capital
Stock -- Warrants."
In connection with the merger agreement with BBH Corp. and the payment of
the merger consideration to holders of HLMI common stock, the Company (i) issued
indebtedness in the aggregate principal amount of $2 million to Pacific Capital,
L.P. ("Pacific") and Equitas, L.P. ("Equitas") (the "Pacific/Equitas Loan"), and
(ii) obtained financing from First Charter National Bank in the form of a
revolving line of credit in an aggregate principal amount of $1 million (the
"First Charter Loan"). The Pacific/Equitas Loan is secured by, among other
things, a collateral assignment of HLM Design's interest in its Management and
Services Agreements and a security interest in HLM Design's personal property
and fixtures. Additionally, HLMI, as well as Joseph Harris and Vernon Brannon
has, under certain circumstances, guaranteed the Pacific/Equitas Loan. HLM
Design also sold warrants to purchase 14,372 shares of Common Stock, subject to
adjustment in certain circumstances, to Pacific and Equitas and Shannon LeRoy, a
representative of Equitas and a member of the Board of HLM Design and Clay R.
Caroland, a representative of Pacific and a member of the Board of HLM Design
(the "Pacific/Equitas Warrants" and, together with the Berthel Warrants, the
"Warrants"). See "Certain Transactions -- Merger Transaction," "Description of
Capital Stock -- Warrants" and Note 4 to the Combined Financial Statements. The
First Charter Loan is secured by an unconditional guaranty from HLMI, which is
secured by a security interest in all of HLMI's accounts receivable. Joseph
Harris, Vernon Brannon and William Blalock, a former director of HLM Design,
have also guaranteed the First Charter Loan.
The Company's growth and operating strategy will require substantial
capital and may result in the Company incurring additional debt, issuing equity
securities or obtaining additional bank financing. The Company has received an
oral commitment from First Charter Bank for a new revolving line of credit,
contingent upon the Offering and other customary terms and conditions. The
Company believes that the net proceeds from the Offering, the new revolving line
of credit from First Charter Bank and anticipated funds from future operations
will be sufficient to meet its working capital needs for at least the next
twelve months.
The Company's operations are professional services and as such are not
capital intensive. However, in order to enhance productivity, the Company has
increased its purchase of computer hardware and software. The Company currently
has no material commitments for purchases of additional equipment. Capital
expenditures during fiscal year 1997 were $0.7 million. The Company expects
fiscal 1998 capital expenditures to be comparable to expenditures in fiscal
1997.
Subsequent to the Offering, the Company expects to fund AEP affiliations
with proceeds from the Offering and future offerings.
SEASONALITY
The Company's operations are not seasonal in nature.
EFFECTS OF INFLATION
Due to the relatively low levels of inflation in fiscal years 1995, 1996
and 1997, inflation did not have a significant effect on the Company's results
of operations for those periods.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 128, "Earnings Per Share." This Statement specifies
the computation, presentation and disclosure requirements for earnings per
share.
17
<PAGE>
The Company believes that the adoption of such Statement would not result in
earnings per share materially different than pro forma earnings per share
presented in the accompanying pro forma statements of income. It will be
effective for periods ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for HLMI's fiscal year ending April 24, 1998, and
the Company does not intend to adopt this statement prior to the effective date.
18
<PAGE>
BUSINESS
OVERVIEW
HLMI was founded in Iowa City, Iowa in 1962 to provide architectural,
engineering and planning services. HLMI enjoyed steady growth, expanding
geographically and establishing a national presence and is now recognized as a
leader in the healthcare arena. In 1987, the original founders of HLMI sold
their ownership in the company to the ESOP and a board of directors, consisting
of senior principals, took control of HLMI.
In 1994, as a result of the poor financial performance of HLMI, Joseph M.
Harris was hired as Chief Executive Officer and Vernon B. Brannon was hired as
Chief Financial Officer. Messrs. Harris and Brannon instituted significant
changes, cutting costs and personnel, with a focus on returning HLMI to
profitability. In 1996, HLMO and HLMNC were formed and the headquarters of HLMI
was moved from Iowa City, Iowa to Charlotte, North Carolina. HLMI, HLMO and
HLMNC currently operate offices in Atlanta, Georgia, Iowa City, Iowa, Chicago,
Illinois, Orlando, Florida, Bethesda Maryland, Denver, Colorado, Sacramento,
California, Philadelphia Pennsylvania, Portland, Oregon and Charlotte, North
Carolina.
On May 23, 1997, BBH Corp. merged into HLMI. See "Certain
Transactions -- Merger Transaction." Following the merger of BBH Corp. into
HLMI, Messrs. Harris and Brannon owned all of the outstanding common stock in
HLMI.
In March 1997, HLM Design was formed with the intent of managing the
nonprofessional operations of AEP Firms through Management and Services
Agreements. HLM Design believes it is the first company in the architectural,
engineering and planning industry to actively pursue the strategy of
consolidating non-professional operations and providing management expertise to
AEP Firms. HLM Design believes its strategy will take advantage of operating
efficiencies for AEP Firms and provide diversification, including services and
geography, for the AEP Firm's clients. The process of developing and entering
into management and services relationships is complex and usually requires
several months to complete. In May 1997, HLM Design entered into forty-year
Management and Services Agreements with HLMI, HLMNC and HLMO. All three of these
firms are related through common principal stockholders and these stockholders
have entered into Stockholders' Agreements. See "Certain Transactions."
OPERATING STRATEGY
The creation of a management relationship between HLM Design and an AEP
Firm involves, among other things, the signing of a Management and Services
Agreement between HLM Design and the AEP Firm. Under the terms of the Management
and Services Agreement, HLM Design is the sole and exclusive manager and
administrator of all of the Managed Firm's day-to-day business functions. These
functions include financial planning, facilities, equipment and supplies, and
management and administrative services. Management and administrative services
include bookkeeping and accounts, general administration services, contract
negotiation and administration for all non-architectural and non-engineering
aspects of all agreements pertaining to the provision of architectural and
engineering services by Managed Firms to third parties, personnel, security and
maintenance, architectural and engineering recruiting and training, insurance,
issuance of debt and additional capital stock, billing and collections. For
these services, HLM Design receives all but 1% of the firm's positive cash flow
(as determined in accordance with generally accepted accounting principles
applied on a consistent basis) following the payment by the AEP Firm of all such
firm's expenses. See " -- HLM Design Operations -- Management and Services
Agreements."
In addition to the Management and Services Agreement, HLM Design will
require stockholders of Managed Firms to enter into stockholders' agreements
(the "Stockholders' Agreements") which will provide the stockholders of those
entities with nominee stockholder status. Generally, the Stockholders'
Agreements will provide for the following: (i) the repurchase by the Managed
Firm of the stockholder's stock upon such stockholder's death, (ii) restrictions
on transferability of the stock, (iii) a "call-right" on the stock by the AEP
Firm and (iv) a voting agreement among the stockholders and Managed Firm. See
" -- HLM Design Operations -- Stockholders' Agreements."
The architects, engineers and planners employed by the Managed Firms offer
a broad range of specialty and ancillary services. The Managed Firms offer
services in master planning, architectural design, mechanical, electrical,
structural and civil engineering, interior design, environmental graphics,
landscape architecture, construction services and facility management. Each
office varies in the number and types of specialties offered. The Managed Firms
provide excellence in design and over the years have designed over a billion
square feet of buildings and completed hundreds of planning and feasibility
studies. Clients of the firms range from small companies to America's most
prestigious corporations. The professionals at the Managed Firms specialize in
the design of hospitals, criminal justice buildings and high-tech research
facilities. Design experience of professionals employed by the Managed Firms
includes corporate headquarters, physician office buildings, investment office
buildings, multi-use office complexes and related facilities. The Managed Firms'
professionals maintain full control over their architectural and engineering
practices, determine which projects to pursue and set their own standards of
practice in order to promote high-quality provision of services and retain
ownership of all contracts with clients. HLM Design is not engaged in the
practice of architecture, engineering or planning.
19
<PAGE>
The following more fully describes the services provided by the Managed
Firms:
FOCUS ON HEALTHCARE. The Managed Firms design healthcare facilities that
help their clients improve patient care and reduce operating costs. During the
last 33 years, HLMI has designed over one billion square feet of healthcare
facilities. Its experience includes more than 325 healthcare clients and over
825 major healthcare engagements including:
(Bullet) 201 health facility master plans
(Bullet) 118 ambulatory care centers
(Bullet) 77 ambulatory surgery centers
(Bullet) 119 academic medical centers and teaching facilities
(Bullet) 64 cancer centers
(Bullet) 69 women's facilities
(Bullet) 13 replacement hospitals
(Bullet) 44 medical office buildings
FOCUS ON JUSTICE. The Managed Firms design justice facilities that help
their clients build efficient and effective public facilities in times where
financing of construction and operation of these public facilities is
continually being scrutinized. Its experience includes:
(Bullet) 25 federal and state projects
(Bullet) 1.8 million square feet for the federal government
(Bullet) 3 million square feet of courthouse renovation
By integrating design and planning, the Company's professionals meet
project objectives by improving staff efficiency, accelerating the project
schedule or even addressing sensitive urban design issues. Teams explore options
to optimize the return on construction dollars, for example, by creatively
combining renovation and new construction. The Company helps bridge the gap
between need and public acceptance through public information campaigns and cost
control. The results are buildings -- courts, police, detention or corrections
facilities -- that meet stringent cost requirements yet still achieve a high
quality of design.
FOCUS ON RESEARCH FACILITIES. The Managed Firms design laboratories for
clients that focus on optimizing space utilization and provide flexibility to
adapt to changing technology or funding constraints. Systems are designed to
control operating costs while protecting the demands of the research function
and making safety and security the highest priority. Often, the goal is to
produce environments that stimulate creativity, promote interaction, enhance the
client's ability to recruit the best and brightest and attract funding. The
Managed Firms have completed 30 projects totalling over 3 million square feet
valued at $540 million in construction.
GROWTH STRATEGY
HLM Design intends to implement an aggressive, yet disciplined, expansion
program by pursuing Management and Services Agreements with (i) large "regional"
AEP Firms with established operating histories located in large metropolitan and
high-growth suburban geographic markets that the Company does not currently
serve and (ii) small firms that provide operational diversity in geographic
areas that will complement the services that are either currently provided by
the Company in such geographic areas or that are intended to be provided in the
future. HLM Design believes its approach will be attractive to these large and
small AEP Firms because it will provide these firms with economies of scale and
the synergies that result from increased purchasing power, a greater breadth of
services, an increased pool of professionals, and geographical diversity.
Furthermore, this strategy will give these regional and local AEP Firms, as a
part of the Company, the ability to provide services to existing and future
clients with national operations that might otherwise have turned to "non-local"
firms to service their needs. The goal is for the Company to be the single
source provider for large national clients with geographically diverse
operations.
HLM Design generally expects that AEP Firms that sign Management and
Services Agreements will retain existing high-quality professional staff and
continue to operate in an effective and efficient manner with personnel who
understand the local market. Additionally, management believes they are
positioned to pursue larger, well established AEP Firms as a result of the depth
of HLM Design's management team, its capital structure and the reputation of the
management team in the design industry. Management also believes these goals can
be achieved at less cost than that which would be incurred by AEP firms
operating on a stand alone basis.
20
<PAGE>
HLM DESIGN OPERATIONS
Pursuant to its Management and Services Agreements, HLM Design manages all
aspects of the Managed Firm other than the provision of professional
architectural, engineering and planning services. The provision of these
services is controlled by the Managed Firms themselves. HLM Design enhances firm
growth by assisting in the recruitment of new professionals and by expanding and
adding ancillary services.
One of HLM Design's goals is to negotiate national arrangements and provide
cost savings to Managed Firms through economies of scale in areas such as
malpractice insurance, supplies, equipment and business functions.
MANAGEMENT AND SERVICES AGREEMENTS
The Management and Services Agreements with the Managed Firms are for a
period of forty years. These agreements cannot be terminated by HLM Design or
the Managed Firm without a material default or bankruptcy. Under these
agreements, HLM Design is appointed as the sole and exclusive manager and
administrator of all of the Managed Firms' day-to-day business functions,
including financial planning, facilities, equipment and supplies, and management
and administrative services (including bookkeeping and accounts, general
administration services, contract negotiation and administration for all
non-architectural and non-engineering aspects of all agreements pertaining to
the provision of architectural and engineering services by Managed Firms to
third parties), personnel, security and maintenance, architectural and
engineering recruiting and training, insurance, and billing and collections. HLM
Design has no authority, directly or indirectly, to perform any function of the
Managed Firm's operations pertaining to services which are required to be
performed by duly licensed architects and engineers pursuant to any and all
applicable laws, rules or regulations adopted by any authority regulating the
licensing of architects or engineers. The Managed Firms will retain ownership of
all contracts with clients. Additionally, HLM Design has the authority to
approve or deny, on behalf of the Managed Firm, any and all proposals by
stockholders of such firm to encumber, sell, pledge, give or otherwise transfer
the capital stock of the Managed Firm, as well as the authority to approve
issuance of common stock or incurrence of indebtedness. As compensation for the
provision of its services under the Management and Services Agreement, HLM
Design receives all but 1% of each Managed Firm's positive cash flow (as
determined in accordance with generally accepted accounting principles applied
on a consistent basis) following the payment by the Managed Firm of all such
firm's expenses.
STOCKHOLDERS' AGREEMENTS
Stockholders of Managed Firms will enter into a Stockholders' Agreement
which will generally restrict the ability of these stockholders to exercise
certain rights commonly associated with ownership of common stock and will
effectively provide stockholders of such entities with nominee stockholder
status. Generally, such Stockholders' Agreements will provide that:
(i) upon the death of a stockholder, the Managed Firm will purchase
and the personal representative of such stockholder's estate will sell to
the Managed Firm all the stock owned by such deceased stockholder;
provided, however, in certain circumstances the sale of such stockholder's
stock may be made to one or more third parties, subject to the approval of
the Managed Firm;
(ii) stockholders may not sell, pledge, give or otherwise transfer any
or all of their stock to any third party, either voluntarily or
involuntarily, without first obtaining the AEP Firm's written approval of
such transfer;
(iii) the Managed Firm has the right at any time to purchase all, but
not less than all, of the stock then owned by any or all of the
stockholders; and
(iv) the stockholders agree that with respect to all matters which are
submitted to stockholder vote (and, to the extent that all or any of the
stockholders serve as a director of the Managed Firm, then also with
respect to all matters which are submitted to a vote of the board of
directors), the stockholders will, if not in unanimous agreement, follow
specified procedures to achieve unity in voting among all stockholders.
In addition, the Stockholders' Agreements will contain an acknowledgment on
the part of each stockholder that it is in the parties' best interest that
certain of the Managed Firm's administrative and managerial functions be
performed pursuant to a Management and Services Agreement with HLM Design and
that in order to ensure consistency and continuity in the management of the
firm's business and affairs, that with respect to all matters pertaining to the
initiation of stock "calls" and the approval or denial of proposed stock
transfers, the Managed Firm will in all cases act in accordance with the written
recommendation of HLM Design. The Stockholders' Agreement will provide that they
may be terminated upon the occurrence of any of the following events:
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(i) cessation of the Managed Firm's business,
(ii) bankruptcy, receivership or dissolution of the Managed Firm, or
(iii) the voluntary agreement of all parties bound by the terms of
such Stockholders' Agreement.
Each of the stockholders of HLMI, HLMNC, and HLMO have entered into
Stockholders' Agreements which provide each stockholder with nominee stockholder
status. It is anticipated that stockholders' agreements among stockholders of
the AEP Firm with whom HLM Design enters into Management and Services Agreements
in the future will have similar terms.
PROPERTIES
HLM Design's principal executive offices are located at 121 West Trade
Street, Suite 2950, Charlotte, North Carolina and its telephone number is (704)
358-0779, where the Company leases 7,254 square feet. The lease is for a term of
5 years and expires in 2000. The Company believes the office facility is
adequate for its current uses and anticipated growth. In addition to HLM
Design's principal executive offices, the Company leases office space in
Sacramento, California, Denver, Colorado, Orlando, Florida, Atlanta, Georgia,
Iowa City, Iowa, Chicago, Illinois, Bethesda, Maryland, Portland, Oregon and
Philadelphia, Pennsylvania.
COMPETITION
The business of providing architectural, engineering and planning services
is highly competitive. HLM Design, however, is not aware of any other company
actively pursuing a strategy of consolidating firms' administrative and
management functions. The Company believes, however, that additional companies
with similar objectives will be organized in the future. Potential sources of
competition include larger, nationally known, multi-specialty professional
groups or professional firms and others, a number of which may have
significantly greater resources than those of the Company.
The Managed Firms are in competition with many other AEP firms, including
large, national firms as well as many small, local firms. The Managed Firms
compete with these firms on the basis of technical capabilities, qualifications
and availability of personnel, experience, reputation, quality performance and,
to a lesser extent, price of services.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
Each state has enacted legislation governing the registration of architects
and engineers, and, in some cases, landscape architects, fire protection
engineers and interior designers. These state laws impose licensing requirements
upon individual design professionals and architectural-engineering firms and are
implemented by a more detailed set of administrative rules and regulations
overseen by a registration board. In general, the state laws define the practice
of architecture and engineering, restrict the use of the titles ARCHITECT and
ENGINEER to licensed individuals, establish rules for entry into the profession,
explain how professionals licensed in other states may become reciprocally
registered to practice in the jurisdiction and define and enforce standards of
professional conduct and misconduct.
The state laws, or the regulations established by a registration board, may
also establish requirements for the practice of architecture or engineering by a
corporation or partnership. A few states do not permit the practice of
architecture or engineering in a corporate form. Some states require design
professionals who want to incorporate to do so as a professional corporation
authorized and certified by the secretary of state. Most states permit practice
through either a professional corporation or a general business corporation.
Even if a state permits practice in a corporate form, the state may require that
a certain number of principals in the corporation must be registered architects
or engineers. Some states specify that a certain percentage of the principals,
directors or shareholders of a corporate entity must be registered architects or
engineers in order to practice in the state. A corporation seeking to practice
in a state other than that in which it is incorporated must register as a
foreign corporation in the other state and satisfy all of the registration
requirements.
There can be no assurance that the regulatory environment in which the
Company operates will not change significantly in the future.
Federal, state and local environmental laws and regulations have not
historically had a material impact on the operations of the Company; however,
the Company cannot predict the effect on its operations of possible future
environmental legislation or regulations.
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EMPLOYEES
At October 31, 1997, all employees used by HLM Design to carry out its
obligations under the Management and Services Agreements were employed by HLMI.
In January 1998, substantially all of such employees will be transferred to and
will be employed by HLM Design.
At October 31, 1997, HLMI employed approximately 246 persons of which
approximately 123 were registered professionals (engineers, architects and
others), approximately 71 were degreed professionals and approximately 52 were
administrative personnel. None of HLM Design's employees or the Managed Firm's
employees is represented by a labor union. HLM Design considers its relations
with its employees and the employees of the Managed Firms to be satisfactory.
The registered professional architects and engineers generally have degrees
from accredited architecture or engineering schools, several years of work
experience and have passed licensing examinations. Both registered and degreed
architects have either a five year architectural degree or a four year degree
and a two year advanced architectural degree. The Company's degreed
professionals who are not registered have not yet passed the required licensing
examinations.
LEGAL PROCEEDINGS
From time to time HLM Design or one or more of the Managed Firms are named
in claims involving contractual disputes or other matters arising in the
ordinary course of business. Currently, no legal proceedings are pending against
or involve HLM Design or the Managed Firms that, in the opinion of management,
when considering insurance coverage, could reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of HLM Design.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS; KEY PERSONNEL
The executive officers, directors and key personnel of the Company, and
their ages as of the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Joseph M. Harris 53 President, Chairman of the Board and Director*
Vernon B. Brannon 54 Senior Vice President, Chief Financial Officer, Treasurer,
Assistant Secretary and Director*
Clay R. Caroland III 43 Director
D. Shannon LeRoy 41 Director
Thomas G. Pinkerton, Sr. 53 Senior Vice President
Bradley A. Earl 50 Vice President
Viktor A. Lituczy 44 Vice President
Frank E. Talbert 41 Vice President
Robert P. Ludden 42 Vice President
</TABLE>
- ---------------
* Executive Officer
JOSEPH M. HARRIS, AIA, RIBA, has been President, Chairman of the Board, and
a Director of HLM Design since its organization in 1997. He has been President
and Chief Executive Officer of HLMI for the past three years. Prior to joining
HLMI in 1994, he served as President of Heery Architects and Engineers, Inc. and
an Executive Vice President and Director of Technical Services of Heery
International, Inc., one of the country's largest full-service
multi-disciplinary professional service firms. Prior to that, Mr. Harris was one
of the founders and served as President of Clark, Tribble, Harris and Li,
Architects, P.A. a multi-service architectural firm. Mr. Harris has over 30
years of professional experience and is an architect licensed in 32 states and
in the United Kingdom.
VERNON B. BRANNON has been Senior Vice President, Chief Financial Officer,
and a Director of HLM Design since its organization in 1997. Along with Mr.
Harris, he is a stockholder of HLMI which he joined in 1994 as Chief Financial
Officer and was appointed Senior Vice President soon after joining the firm.
Prior to joining HLMI, from 1988 to 1994 Mr. Brannon was Chief Operating Officer
of UAV Corporation, a video distribution firm, with responsibility for
manufacturing, finance, accounting, and all other functions except sales.
23
<PAGE>
CLAY R. CAROLAND III has been a partner since 1987 in Health Investors, LP
and its affiliates. From 1996 to 1997 he also served as President of the General
Partner of Pacific Capital, L.P. Health Investors and Pacific are investment
firms. In 1989, he, along with Health Investors, organized and capitalized
ClinTrials, Inc., which grew to become a leading CRO. In 1981, he co-founded
Liberty Street Capital, NY, a Wall Street investment boutique and was Managing
Director there until 1987. Mr. Caroland has served on the boards of directors of
a number of companies including EquiVision and ClinTrials.
D. SHANNON LEROY currently serves as President of Tennessee Business
Investments, Inc., the general partner of Equitas, L.P., a licensed Small
Business Investment Company. From 1988 until 1994, Mr. LeRoy served as a Senior
Vice President of First Union National Bank of Tennessee, where he managed
commercial banking. Mr. LeRoy is a Director of Power Designs, Inc., a
manufacturer of power supply and power line conditional products, and Laure
Beverage Company, a consumer beverage company.
BRADLEY A. EARL is a Vice President managing the Philadelphia office of
HLMI. He joined HLMI in 1996. Prior to that he served in various leadership
positions in architectural firms and as an independent architect. He was
Director of Architecture at The Klett Organization from 1994 to 1996 and
Executive Architect to Children's Hospital of Philadelphia from 1992 to 1994. He
is a registered architect with 21 years of experience.
VIKTOR A. LITUZAY rejoined HLMI in 1996 as Vice President managing the
firm's Portland, Oregon office. Prior to leaving HLMI in 1989. Mr. Lituczy was
Corporate Vice President for the Chicago office as well as director of high-tech
laboratory projects firmwide. From 1992 until 1996 he had his own architectural
practice in Portland and consulted with a number of healthcare clients and
architects on projects. From 1989 until 1992 he was an Associate Principal for
KMD Architects & Planners in Portland. He is a registered architect with 20
years of experience.
ROBERT P. LUDDEN is a Vice President managing the Orlando office of HLMI.
He joined HLMI in 1993. Prior to that, from 1986 to 1993, he was a Vice
President at Cannon, a large architectural firm that focuses on healthcare
architecture. Mr. Ludden's career has focused on the leadership and direction of
significant architectural and engineering projects. His work spans a number of
markets including justice, healthcare, research and commercial. He is a
registered architect.
THOMAS G. PINKERTON is a Senior Vice President of the Company. He joined
the firm in 1994 as National Director of Justice Architecture. Prior to joining
HLMI he was an associate with Hellmuth, Obata & Kassabaum, Inc., one of the
largest architectural firms in the country. A registered architect with 33 years
of experience, he has devoted his practice exclusively to the design of justice
facilities.
FRANK E. TALBERT is a registered architect with 17 years experience. He
joined HLMI in 1994 and is Vice President managing the Chicago office of the
firm. Prior to joining HLMI he was President of FibreCem Corporation from 1992
to 1994 where he led the successful turnaround of that company. His success was
achieved with a combination of an intensive, hands-on sales effort, and a
reorganization of operations. From 1990 to 1992 he managed the Carolinas office
of Kajima International Inc., the world's largest turnkey developer/builder
where he established a program for financial enhancements on free standing not
leased retail projects. Mr. Talbert is a registered architect.
As soon as practicable after the Offering, HLM Design intends to name two
individuals not employed by or affiliated with HLM Design to HLM Design's Board
of Directors.
The Board of Directors of the Company is divided into three classes, each
of which, after a transitional period, will serve for three years, with one
class being elected each year. The executive officers are elected annually by,
and serve at the discretion of, HLM Design's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since HLM Design's organization in March 1997, all matters concerning
executive officer compensation have been addressed by the entire Board of
Directors. Since HLM Design's organization, Vernon Brannon and Joseph Harris
have been executive officers of HLM Design and, together with Clay R. Caroland
III and Shannon LeRoy, who each represent creditors of HLM Design, have
constituted the majority of the Board of Directors. As soon as practicable after
the Offering, HLM Design intends to name two independent directors who will
thereafter comprise its Compensation Committee.
LIMITATIONS OF DIRECTORS' LIABILITY
HLM Design's Certificate of Incorporation includes a provision that
effectively eliminates the liability of directors to HLM Design or to HLM
Design's stockholders for monetary damages for breach of the fiduciary duties of
a director, except for breaches of the duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or a knowing
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<PAGE>
violation of law, certain actions with respect to unlawful dividends, stock
repurchases or redemptions and any transaction from which the director derived
an improper personal benefit. This provision does not prevent stockholders from
seeking nonmonetary remedies covering any such action, nor does it affect
liabilities under the federal securities laws. HLM Design's Bylaws further
provide that HLM Design shall indemnify each of its directors and officers, to
the fullest extent authorized by Delaware law, with respect to any threatened,
pending or completed action, suit or proceeding to which such person may be a
party by reason of serving as a director or officer. Delaware law currently
authorizes a corporation to indemnify its directors and officers against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such officers or
directors 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. Indemnification is permitted in more limited circumstances with
respect to derivative actions. HLM Design believes that these provisions of its
Certificate of Incorporation and Bylaws are necessary to attract and retain
qualified persons to serve as directors and officers.
COMMITTEES OF THE BOARD
The Board of Directors of HLM Design intends to establish a Compensation
Committee and an Audit Committee consisting of independent directors upon the
election of at least two independent directors. The Compensation Committee will
review and approve compensation for the executive officers, and administer, and
determine awards under, the Stock Option Plan and any other incentive
compensation plan for employees of the Company. See " -- Stock Option Plan" and
" -- Employee Stock Purchase Plan." The Audit Committee will recommend the
selection of auditors for the Company and will review the results of the audit
and other reports and services provided by the Company's independent auditors.
HLM Design has not previously had either of these committees.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company will
be compensated for their services in amounts to be determined. The Company will
also reimburse all directors for their expenses incurred in connection with
their activities as directors of the Company. Directors who are also employees
of the Company receive no compensation for serving on the Board of Directors.
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<PAGE>
EXECUTIVE COMPENSATION
Set forth below is information for the years ended April 1997, 1996 and
1995 with respect to compensation for services to the Managed Firms:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- NUMBER OF
OTHER SHARES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION(S) YEAR SALARY(1) BONUS(2) COMPENSATION OPTIONS(3) COMPENSATION(4)
--------------------- ---- --------- -------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Harris 1997 $ 230,878 $ 50,000 -0- -0- -0-
Chairman, President 1996 192,307 0
and Director 1995 188,784 60,000
Vernon B. Brannon 1997 178,847 50,000
Senior Vice President 1996 144,281 0
Chief Financial Officer 1995 117,614 30,000
and Director
</TABLE>
- ---------------
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) The amounts shown are cash bonuses earned in the specified year and paid in
the first quarter of the following year.
(3) The Company's Stock Option Plan was adopted in , 1997. No options
were granted to any of the Company's executive officers in the years ended
April 1997, 1996 or 1995.
(4) The aggregate amount of perquisites and other personal benefits received did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer.
EMPLOYMENT AGREEMENTS
Prior to the consummation of the Offering, the Company intends to enter
into new employment agreements with Messrs. Harris and Brannon (the "Employment
Agreements"), effective upon consummation of the Offering, which will provide
for an annual base salary and certain other benefits. The executives will also
receive such additional increases as may be determined by the Compensation
Committee. The Employment Agreements will provide for the payment of annual
performance-based bonuses equal to a percentage of the executive's base salary,
upon achievement by the Company of certain performance objectives, based on the
Company's pre-tax income, to be established by the Compensation Committee.
STOCK OPTION PLAN
On , 1997, the Board of Directors and stockholders of HLM Design
adopted the HLM Design, Inc. 1997 Stock Option Plan (the "Stock Option Plan") in
order to attract and retain key personnel. The following discussion of the
material features of the Stock Option Plan is qualified by reference to the text
of such plan filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Under the Stock Option Plan, options to purchase up to an aggregate of
shares of Common Stock may be granted to key employees of HLM Design
and its Managed Firms and to officers, directors, consultants and other
individuals providing services to the Company. Unless designated as "incentive
stock options" ("ISOs")intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), options granted under the Stock
Option Plan are intended to be "nonstatutory stock options" ("NSOs").
The Compensation Committee of the Board of Directors of HLM Design will
administer the Stock Option Plan and will determine, among other things, the
persons who are to receive options, the number of shares to be subject to each
option, and the vesting schedule of options; provided, that the Board of
Directors of HLM Design will make such determinations with respect to the
initial grants made under the Stock Option Plan. Members of the Board of
Directors who serve on the Compensation Committee must qualify as "non-employee
directors," as that term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. The Board of Directors of HLM
Design will determine the terms and conditions upon which HLM Design may make
loans to enable an optionee to pay the exercise price of an option. In selecting
individuals for options and determining the terms thereof, the Compensation
Committee may consider any factors it considers relevant, including present and
potential contributions to the success of the Company. Options granted under the
Stock Option Plan must be exercised within a period fixed by the Compensation
Committee, which period may not exceed ten years
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<PAGE>
from the date of the grant of the option or, in the case of ISOs granted to any
holder on the date of the grant of more than ten percent of the total combined
voting power of all classes of stock of HLM Design and its affiliated firms,
five years from the date of grant of the option. Options may be made exercisable
in whole or in installments, as determined by the Compensation Committee.
Options generally may not be transferred other than by will or the laws of
descent and distribution and during the lifetime of an optionee may be exercised
only by the optionee. Notwithstanding the foregoing, the Compensation Committee,
in its absolute discretion, may grant transferable options if such options are
not ISOs. The exercise price of options that are not ISOs will be determined at
the discretion of the Compensation Committee. The exercise price of ISOs may not
be less than the market value of the Common Stock on the date of the grant of
the option. In the case of ISOs granted to any holder on the date of grant of
more than ten percent of the total combined voting power of all classes of stock
of HLM Design and its affiliated firms, the exercise price may not be less than
110% of the market value of the Common Stock on the date of the grant of the
ISOs. The exercise price may be paid in cash, in shares of Common Stock owned by
the optionee, in options granted under the Stock Option Plan (except that the
exercise price of an ISO may not be paid in NSOs) or in any combination of cash,
shares and NSOs.
Options granted under the Stock Option Plan may include the right to
acquire a "reload" option. In such case, if an optionee pays all or part of the
exercise price of an option with shares of Common Stock held by the optionee for
at least six months, then, upon exercise of the option, the optionee is granted
a second option to purchase, at the fair market value as of the date of exercise
of the original option, the number of whole shares used by the optionee in
payment of the exercise price of the original option. A reload option is not
exercisable until one year after the grant date of such reload option or the
expiration date of the original option. If the exercise price of a reload option
is paid for with shares of Common Stock that have been held by the Optionee for
more than six (6) months, then another reload option will be issued. Shares of
Common Stock covered by a reload option will not reduce the number of shares of
Common Stock available under the Stock Option Plan.
The Stock Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
adjustments will automatically be made in the number and kind of shares
available for issuance and in the number and kind of shares covered by
outstanding options. It further provides that, in connection with any merger or
consolidation in which HLM Design is not the surviving corporation and which
results in the holders of the Common Stock owning less than a majority of the
surviving corporation or any sale or transfer by HLM Design of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then-outstanding voting securities of HLM Design, all outstanding options
under the Stock Option Plan will become exercisable in full on and after (i) the
15th day prior to the effective date of such merger, consolidation, sale,
transfer or acquisition or (ii) the date of commencement of such tender offer or
exchange offer, as the case may be.
The Board of Directors of HLM Design on or before the consummation of the
Offering intends to grant NSOs and ISOs to purchase an aggregate of shares
of Common Stock under the Stock Option Plan to executive officers
and other employees of the Company. All executive officers as a group are to
be granted NSOs to purchase an aggregate of shares and ISOs to purchase an
aggregate of shares. Non-executive officer employees are to be granted NSOs
to purchase an aggregate of shares and ISOs to purchase an aggregate of
shares.
The issuance and exercise of ISOs have no federal income tax consequences
to the Company. While the issuance and exercise of ISOs generally have no
ordinary income tax consequences to the holder, upon the exercise of an ISO, the
holder will treat the excess of the Common Stock's fair market value on the date
of exercise over the exercise price as an item of tax adjustment for alternative
minimum tax purposes. If the holder of Common Stock acquired upon the exercise
of an ISO holds such stock until a date that is more than two years following
the grant of the ISO and one year following the exercise of the ISO, the
disposition of such Common Stock will ordinarily result in capital gain or loss
to the holder for federal income tax purposes equal to the difference between
the amount realized on disposition of the Common Stock and the option exercise
price. If the holding period requirements described above are not met, the
holder will recognize ordinary income for federal income tax purposes upon
disposition of the Common Stock in an amount equal to the lesser of (i) the
excess of the Common Stock's fair market value on the date of exercise over the
option exercise price, and (ii) the excess of the amount realized on disposition
of the Common Stock over the option exercise price. Any additional gain upon the
disposition will be taxed as capital gains. The Company will be entitled to a
compensation expense deduction for the Company's taxable year in which the
disposition occurs equal to the amount of ordinary income recognized by the
holder. Any capital gain will be subject to reduced rates of tax if such shares
were held more than twelve months, and will be subject to further reduced rates
if such shares were held more than eighteen months.
The issuance of NSOs has no federal income tax consequences to the Company
or the holder. Upon the exercise of an NSO, NSO holders will recognize ordinary
income for federal income tax purposes at the time of option exercise equal to
the amount by which the fair market value of the underlying shares on the date
of exercise exceeds the exercise price. The
27
<PAGE>
Company generally will be allowed a federal income tax deduction in the same
amount. In the event of the disposition of shares acquired by exercise of a NSO,
any appreciation or depreciation after the exercise date generally will be taxed
as capital gain or loss; provided, that any gain will be subject to reduced
rates of tax if such shares were held for more than twelve months and will be
subject to further reduced rates if such shares were held for more than eighteen
months.
HLM Design intends to register the shares underlying the Stock Option Plan
as required by the federal securities laws. If such registration is not
required, such shares may be issued upon option exercise in reliance upon the
private offering exemption codified in Section 4(2) of the Securities Act.
Resale of such shares may be permitted subject to the limitations of Rule 144.
EMPLOYEE STOCK PURCHASE PLAN
In , 1997, the Board of Directors and stockholders of HLM Design
adopted the HLM Design, Inc. Employee Stock Purchase Plan (the "ESPP"). The ESPP
is intended to promote the interests of the Company by providing employees of
the Company the opportunity to acquire a proprietary interest in the Company
through the purchase of Common Stock. The following discussion of the material
features of the ESPP is qualified by reference to the text of such Plan filed in
an exhibit to the Registration Statement of which this Prospectus is a part.
The ESPP is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. The ESPP is administered by the Compensation Committee,
which, subject to the terms of the ESPP, has plenary authority in its discretion
to interpret and construe the ESPP. The Compensation Committee will construe the
provisions of the ESPP so as to extend and limit participation in a manner
consistent with the requirements of Section 423 of the Code. A total of
shares of Common Stock have been reserved for purchase under the ESPP.
On January 1 of each year during the term of the ESPP (and also on the
effective date of the ESPP) (the "Grant Date"), all eligible employees electing
to participate in the ESPP ("Participating Employees") will be granted options
to purchase shares of Common Stock. Prior to each Grant Date, the Compensation
Committee will determine the number of shares of Common Stock available for
purchase under each option, with the same number of shares to be available under
each option granted on the same Grant Date; provided, that the Board of
Directors of HLM Design will make such determination with respect to the initial
grants made under the ESPP. No Participating Employee may be granted an option
which would permit such employee to purchase stock under the ESPP and all other
employee stock purchase plans of HLM Design at a rate which exceeds $25,000 of
the fair market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
A Participating Employee may elect to designate a limited percentage of
such employee's compensation (as defined in the ESPP) to be deferred by payroll
deduction as a contribution to the ESPP. To the extent a Participating Employee
has accumulated enough funds, his or her contributions to the ESPP will be used
to exercise the option granted under the ESPP through purchases of Common Stock
on the last business day of January, April, July and October, on which the
principal trading market for the Common Stock is open for trading and on any
other interim dates during the year which the Compensation Committee designates
for such purpose (the "Exercise Date"). Contributions which are not enough to
purchase a whole share of Common Stock will be carried forward and applied on
the next Exercise Date in that calendar year.
The purchase price at which Common Stock will be purchased through the ESPP
shall be eighty-five percent of the lesser of (i) the fair market value of the
Common Stock on the applicable Grant Date, and (ii) the fair market value of the
Common Stock on the applicable Exercise Date. Any option granted to a
Participating Employee will be exercised automatically on each Exercise Date
during the calendar year of the option's Grant Date in whole or in part such
that the Participating Employee's accumulated contributions as of such Exercise
Date will be applied to the purchase of the maximum number of whole shares of
Common Stock that such contribution will permit at the applicable option price
limited to the number of shares available for purchase under the option.
Any option granted to a Participating Employee will expire on the last
Exercise Date of the calendar year in which granted. However, if a Participating
Employee withdraws from the ESPP or terminates employment prior to such Exercise
Date, the option may expire earlier.
Upon termination of a Participating Employee's employment for any reason
other than cause, death or leave of absence in excess of ninety days, such
employee may, at his or her election, request the return of contributions not
yet used to purchase Common Stock or continue participation in the ESPP until
the Exercise Date next following the date of termination of employment such that
any unexpired option held will be exercised automatically on such Exercise Date.
If a Participating Employee dies while employed by the Company or prior to the
Exercise Date next following the date of termination of employment, such
employee's estate will have the right to elect to withdraw all contributions not
yet used to purchase Common Stock or to exercise the Participating Employee's
option for the purchase of Common Stock on the Exercise Date next following the
date of such employee's death.
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<PAGE>
The Board of Directors of HLM Design may at any time amend, suspend or
terminate the ESPP; provided, however, that the ESPP may not be amended to
increase the maximum number of shares of Common Stock for which options may be
granted under the ESPP, other than in connection with a change in
capitalization, without obtaining the approval of HLM Design stockholders.
No federal taxable income will be recognized by Participating Employees
upon the grant of an option to purchase Common Stock under the ESPP. In
addition, a Participating Employee will not recognize federal taxable income on
the exercise of an option granted under the ESPP.
If the Participating Employee holds shares of Common Stock acquired upon
the exercise of an option granted under the ESPP until a date that is more than
two years from the Grant Date of the relevant option and one year from the date
of option exercise (or dies while owning such shares), the employee must report
as ordinary income in the year of disposition of the shares (or at death) the
lesser of (a) the excess of the fair market value of the shares at the time of
disposition (or death) over the option exercise price and (b) the excess of the
fair market value of the shares on the date the relevant option was granted over
the option exercise price. For this purpose, the option exercise price is 85% of
the fair market value of the shares on the date the relevant option was granted
(assuming the shares are offered at a 15% discount). Any additional income is
treated as long-term capital gain. If these holding period requirements are met,
the Company is not entitled to any deduction for income tax purposes. If the
Participating Employee does not meet the holding period requirements, the
employee recognizes at the time of disposition of the shares ordinary income
equal to the difference between the option exercise price for the shares and the
fair market value of the shares on the date of exercise, irrespective of the
price at which the employee disposes of the shares, and an amount equal to such
ordinary income is generally deductible by the Company. Any gain or loss
realized on the disposition of the shares will generally be capital gain or
loss; provided that any gain will be subject to reduced rates of tax if the
shares were held for more than twelve months and will be subject to further
reduced rates if the shares were held for more than eighteen months.
Because the ESPP is based on voluntary participation, benefits thereunder
are not determinable.
The Company intends to register the shares underlying the ESPP as required
by the federal securities laws. If such registration is not required, such
shares may be issued upon option exercise in reliance upon the private offering
exemption codified in Section 4(2) of the Securities Act. Resale of such shares
may be permitted subject to the limitations of Rule 144.
29
<PAGE>
CERTAIN TRANSACTIONS
RELATIONSHIPS WITH MANAGED FIRMS
Joseph Harris and Vernon Brannon, executive officers and principal
stockholders of HLM Design, are also the principal stockholders and officers of
the Managed Firms, HLMI, HLMNC and HLMO. As officers of the Managed Firms, they
caused the Managed Firms to enter into Management and Services Agreements with
HLM Design and as stockholders of each of the Managed Firms they entered into
Stockholders' Agreements. The primary purpose of the Stockholders' Agreement is
to restrict the ability of stockholders to exercise the rights commonly
associated with ownership of common stock and to effectively provide
stockholders of the Managed Firms with nominee stockholder status in order to
facilitate the execution and operation of the Management and Services
Agreements.
VOTING AGREEMENT
Joseph Harris, Vernon Brannon and William Blalock, as stockholders in HLM
Design, are all parties to a Voting Agreement. Pursuant to the Voting Agreement,
Messrs. Harris, Brannon and Blalock agree to cast all of their votes in unity
with respect to all matters of "Fundamental Significance" (as defined below)
which are submitted to them in their capacity as stockholders. Matters of
Fundamental Significance are defined to be (i) the issuance, exercise, purchase
or redemption by HLM Design of any capital stock, stock warrant, stock option or
debenture of HLM Design, (ii) the formation, acquisition or divestiture by HLM
Design of any business entity, whether in the form of a division, subsidiary or
other affiliated or non-affiliated entity, (iii) the incurring of indebtedness,
directly or indirectly (including, without way of limitation, the guaranty of
debt of any other person or entity) by HLM Design, or the modification of any
such existing indebtedness or instrument, or (iv) the merger, share exchange, or
dissolution of HLM Design, or any sale of HLM Design's assets other than in the
ordinary course of business. The Voting Agreement will be terminated upon the
cessation of HLM Design's business, the bankruptcy, receivership or dissolution
of HLM Design, or the voluntary agreement of Messrs. Harris, Brannon and
Blalock.
MERGER TRANSACTION
In April 1997, HLMI and BBH Corp., a Delaware corporation controlled by
Joseph Harris and Vernon Brannon, entered into a Merger Agreement (the "Merger
Agreement") whereby HLMI and BBH Corp. would merge, with HLMI being the
surviving corporation. Upon consummation of the transactions contemplated by the
Merger Agreement each share of HLMI common stock (excluding shares of common
stock held by BBH Corp., which were contributed to BBH Corp. and Messrs. Harris
and Brannon as their initial capital contribution to BBH Corp. but including the
shares of common stock held by the ESOP) would be converted into the right to
receive $64.00 in cash (the "Merger Consideration") and each share of BBH Corp.
then outstanding would be converted into one share of HLMI common stock.
Following the consummation of the transactions contemplated by the Merger
Agreement, Joseph Harris and Vernon Brannon owned all of the outstanding common
stock of HLMI.
The payment of the Merger Consideration was financed indirectly by the
Pacific/Equitas Loan and the First Charter Loan through the purchase of
additional HLMI capital stock by BBH Corp., effective simultaneously with the
Merger. In connection with the Pacific/Equitas Loan, HLM Design issued the
Pacific/Equitas Warrants to Pacific, Equitas and Messrs. Caroland and LeRoy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company intends to repay the
principal of and interest on the Pacific/Equitas Loan from the proceeds of the
Offering. Once such loan is repaid, Messrs. Harris and Brannon will be released
from their personal guarantees of the Pacific/Equitas Loan.
BERTHEL LEASING LEASE FINANCING
Berthel Leasing, an affiliate of Berthel Fisher & Company Financial
Services, Inc., one of the Underwriters in the Offering, has entered into the
Lease Financing with HLMI and has provided HLM Design with an $0.8 million term
loan for working capital purposes. In addition, Berthel Leasing received the
Berthel Warrants and received certain registration rights which begin in
September 2000, with respect to the Common Stock which underlies the Berthel
Warrants. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." A portion of the
proceeds of the Offering will be used to repay the $0.8 million term loan.
30
<PAGE>
CONSULTING AGREEMENT
Blalock and Company, an investment banking firm controlled by William
Blalock, a stockholder of HLM Design and a former member of the Board of
Directors of HLM Design, entered into a financial advisory agreement (the
"Advisory Agreement") with HLMI in February 1995. Blalock and Company agreed to
serve as a financial advisor to HLMI in connection with the structuring of one
or more potential transactions, including, but not limited to, a financing or
financings through the issuance of debt and/or equity, a merger, divestiture or
acquisition, or a joint venture. Compensation under such agreement was
originally $15,000 per month (plus reimbursement for reasonable out-of-pocket
expenses) but has been increased to $20,000 per month (plus reimbursement for
reasonable out-of-pocket expenses). During the years ended April 26, 1996 and
April 25, 1997 Blalock and Company earned $254,137 and $257,017, respectively
under the Advisory Agreement.
BOARD REPRESENTATION
It is a condition of the Underwriting Agreement that HLM Design has agreed
to use its best efforts to cause a designee of Berthel Fisher & Company
Financial Services, Inc. (one of the Underwriters in the Offering), who is
reasonably satisfactory to HLM Design, to be elected as a full voting member of
the Board of Directors of HLM Design upon the consummation of this Offering. As
of the date of this Prospectus, Berthel Fisher & Company Financial Services,
Inc. has not named a designee for election to board membership.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of HLM Design's Common Stock as of November 14, 1997 by (i) each
stockholder who is known by HLM Design to own beneficially more than five
percent of the outstanding Common Stock, (ii) each director of HLM Design, (iii)
each executive officer of HLM Design, and (iv) all directors and executive
officers of HLM Design as a group, and as adjusted to reflect the sale by HLM
Design of the shares of Common Stock in this Offering.
<TABLE>
<CAPTION>
PERCENTAGE OF ALL
OUTSTANDING
COMMON STOCK
NUMBER OF SHARES -----------------------
OF COMMON STOCK BEFORE AFTER
NAME (1) OWNED(2) OFFERING OFFERING(3)
- ------------------------------------------------------------------------------------- ---------------- -------- -----------
<S> <C> <C> <C>
Joseph M. Harris(4)(5) 20,500 40.48% %
Vernon B. Brannon(4)(5) 20,500 40.48% %
William Blalock(4) 7,500 14.81% %
Clay R. Caroland 862 1.7%
Shannon LeRoy(6) -- *
All directors and executive officers as a group (5 persons) 49,362 97.47%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise noted, each person has sole voting and investment power
over the shares listed opposite his name subject to community property laws
where applicable. Messr. Harris, Brannon and Blalock are parties to a Voting
Agreement. See "Certain Transactions -- Voting Agreement."
(2) Without giving effect to the Stock Split.
(3) If the Underwriters' over-allotment option is exercised in full, then after
the Offering, will own shares or approximately % of the
shares then outstanding.
(4) The address of such person is care of HLM Design at 121 West Trade Street,
Suite 2950, Charlotte, North Carolina 28202.
(5) Does not give effect to options granted under HLM Design's Stock Option Plan
to purchase shares of Common Stock at the public offering price since none
of such options become exercisable prior to , 1998. See
"Management -- Stock Option Plan."
(6) Does not include shares of Common Stock which underlie Warrants held by such
person.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
HLM Design's authorized capital stock consists of (i) 9,000,000 shares of
Common Stock, $.01 par value, and (ii) 1,000,000 shares of Preferred Stock, $.10
par value. Upon completion of this Offering, HLM Design will have
outstanding shares of Common Stock (giving effect to the Stock Split) and no
shares of preferred stock.
The following summary description of HLM Design's capital stock does not
purport to be complete and is qualified in its entirety by reference to HLM
Design's Certificate of Incorporation, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the Delaware
General Corporation Law (the "DGCL"). Reference is made to such exhibit and the
DGCL for a detailed description of the provisions thereof summarized below.
COMMON STOCK
The holders of validly issued and outstanding shares of Common Stock are
entitled to one vote per share of record on all matters to be voted upon by
stockholders. At a meeting of stockholders at which a quorum is present, a
majority of the votes cast decides all questions, unless the matter is one upon
which a different vote is required by express provision of law or HLM Design's
Certificate of Incorporation or Bylaws. There is no cumulative voting with
respect to the election of directors (or any other matter), but HLM Design's
Board of Directors is classified. The holders of a majority of the shares at a
meeting at which a quorum is present can, therefore, elect all of the directors
of the class then to be elected if they choose to do so, and, in such event, the
holders of the remaining shares would not be able to elect any directors of that
class.
The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities.
Subject to the rights of holders of Preferred Stock, if any, in the event
of a liquidation, dissolution or winding up of HLM Design, holders of Common
Stock are entitled to participate equally, share for share, in all assets
remaining after payment of liabilities.
The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared. The payment by HLM Design of dividends, if any, rests
within the discretion of its Board of Directors and will depend upon HLM
Design's results of operations, financial condition and capital expenditure
plans, as well as other factors considered relevant by the Board of Directors.
See "Dividends."
TRANSFER AGENT AND REGISTRAR
HLM Design has appointed as the transfer agent and registrar for the
Common Stock.
WARRANTS
In May 1997 and September 1997, HLM Design issued Warrants to purchase an
aggregate of 16,887 shares of Common Stock at an exercise price of $.01 per
share to Pacific, Equitas and Berthel Leasing and two representatives of Pacific
and Equitas in connection with financing arrangements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." By their terms, the
Pacific/Equitas Warrants will expire in July 2002 and the Berthel Warrants will
expire in September of that year; however, for a period of 30 days prior to
expiration the holder of any or all of the Warrants has the right and option to
sell to HLM Design any or all of the Warrants at a purchase price equal to the
Fair Market Value (as defined therein) of the shares of Common Stock issuable to
the holder upon exercise of the Warrant less the exercise price. The kind of
securities purchasable upon the exercise of the Warrants and the number of
shares of Common Stock purchasable upon exercise of the Warrants is subject to
adjustment upon the occurrence of certain events such as reclassification of
securities, consolidation or merger of HLM Design, subdivision or combination of
Common Stock or stock dividends. Additionally, if the indebtedness pursuant to
which the Warrants were issued is not repaid in full on or before May 30, 1999,
the number of shares of Common Stock each Warrant holder is able to purchase
will increase and will further increase on each May 30 thereafter until such
indebtedness is repaid in full. The Common Stock underlying the Berthel Warrants
and the Warrants issued to Pacific and Equitas are subject to certain
registration rights which begin in September 2000. Pursuant to the applicable
registration rights agreement, upon the request of holders of at least 25% of
Registrable Securities (as defined therein) HLM Design will, within 90 days,
effect registration under the Securities Act. Additionally, such agreements
provide Berthel Leasing, Pacific and Equitas with certain piggyback registration
rights that permit them to have their shares of Common Stock, as selling
security holders, included in any registration statements pertaining to the
registration of Common Stock for issuance by the Company or for resale by other
selling security holders.
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<PAGE>
These registration rights will be limited or restricted to the extent an
underwriter of an offering, if an underwritten offering, determines that
marketing factors require a limitation of the number of shares to be
underwritten.
PREFERRED STOCK
No shares of Preferred Stock are outstanding. HLM Design's Certificate of
Incorporation authorizes the Board of Directors to issue up to 1,000,000 shares
of Preferred Stock in one or more series and to establish such designations and
such relative voting, dividend, liquidation, conversion and other rights,
preferences and limitations as the Board of Directors may determine without
further approval of the stockholders of HLM Design. The issuance of Preferred
Stock by the Board of Directors could, among other things, adversely affect the
voting power of the holders of Common Stock and, under certain circumstances,
make it more difficult for a person or group to gain control of HLM Design.
The issuance of any series of Preferred Stock, and the relative
designations, rights, preferences and limitations of such series, if and when
established, will depend upon, among other things, the future capital needs of
the Company, the then-existing market conditions and other factors that, in the
judgment of the Board of Directors, might warrant the issuance of Preferred
Stock. As of the date of this Prospectus, there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the DGCL and of HLM Design's Certificate of
Incorporation and Bylaws, summarized in the following paragraphs, may be
considered to have an antitakeover effect and may delay, deter or prevent a
tender offer, proxy contest or other takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including such an attempt as
might result in payment of a premium over the market price for shares held by
stockholders.
DELAWARE ANTITAKEOVER LAW. HLM Design, a Delaware corporation, is subject
to the provisions of the DGCL, including Section 203. In general, Section 203
prohibits a public 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 such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by holders of at
least 66 2/3% of the corporation's outstanding voting stock, excluding shares
owned by the interested stockholder. For these purposes, the term "business
combination" includes mergers, asset sales and other similar transactions with
an "interested stockholder." An "interested stockholder" is a person who,
together with affiliates and associates, owns (or, within the prior three years,
did own) 15% or more of the corporation's voting stock. Although Section 203
permits a corporation to elect not to be governed by its provisions, HLM Design
to date has not made this election.
SPECIAL MEETINGS OF STOCKHOLDERS. HLM Design's Bylaws provide that special
meetings of stockholders may be called only by the President or by the Secretary
or any Assistant Secretary at the request in writing of a majority of the Board
of Directors of HLM Design. This provision may make it more difficult for
stockholders to take action opposed by the Board of Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. HLM Design's Bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or a special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of the Company, (i) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 60 days nor more than 90
days prior to such anniversary date, and, (ii) in the case of an annual meeting
that is called for a date that is not within 30 days before or after the
anniversary date of the immediately preceding annual meeting, or in the case of
a special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth day following the day on which
notice of the date of the meeting was mailed or public disclosure of the date of
the meeting was made, whichever occurs first. The Bylaws also specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from bringing matters before the
stockholders at an annual meeting or from making nominations for directors at an
annual or special meeting.
33
<PAGE>
CLASSIFIED BOARD OF DIRECTORS. HLM Design's Bylaws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected each year. Classification of the Board of Directors expands the
time required to change the composition of a majority of directors and may tend
to discourage a takeover bid for HLM Design. Moreover, under Delaware Law, in
the case of a corporation having a classified board of directors, the
stockholders may remove a director only for cause. This provision, when coupled
with the provision of the Bylaws authorizing only the board of directors to fill
vacant directorships, will preclude stockholders of HLM Design from removing
incumbent directors without cause, simultaneously gaining control of the Board
of Directors by filing the vacancies with their own nominees.
34
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, HLM Design will have outstanding
shares of Common Stock (assuming no exercise of the Underwriters' over-allotment
option). Of such amount, the Shares sold in this Offering will be freely
transferable and may be resold without further registration under the Securities
Act, except for any shares purchased by an "affiliate" of HLM Design (as defined
below), which shares will be subject to the resale limitations of Rule 144 under
the Securities Act ("Rule 144"). The shares (the "Restricted Shares") of
Common Stock held by affiliates of the Company are "restricted securities"
within the meaning of Rule 144. The shares of Common Stock, which
underlie (i) options to be granted on or before the consummation of Offering
under the Company's Stock Option Plan, and (ii) the Warrants, may be resold only
pursuant to a registration statement under the Securities Act or applicable
exemption from registration thereunder, such as an exemption provided by Rule
144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year may, under certain circumstances, resell within any
three-month period, such number of shares as does not exceed the greater of one
percent of the then-outstanding shares of Common Stock or the average weekly
trading volume of Common Stock during the four calendar weeks prior to such
resale. Rule 144 also permits, under certain circumstances, the resale of shares
without any quantity limitation by a person who has satisfied a two-year holding
period and who is not, and has not been for the preceding three months, an
affiliate of HLM Design. In addition, holding periods of successive
non-affiliate owners are aggregated for purposes of determining compliance with
these one-and two-year holding period requirements.
Upon completion of this Offering, none of the shares of Common Stock
outstanding on the date of this Prospectus and not sold in the Offering will
have been held for at least one year. Since all such shares are restricted
securities, none of them may be resold pursuant to Rule 144 upon completion of
this Offering.
The Restricted Shares will not be eligible for sale under Rule 144 until
the expiration of the one-year holding period from the date such Restricted
Shares were acquired.
The availability of shares for sale or actual sales under Rule 144 and the
perception that such shares may be sold may have an adverse effect on the market
price of the Common Stock. Sales under Rule 144 also could impair the Company's
ability to market additional equity securities.
HLM Design and all directors and executive officers of HLM Design have
agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock or securities convertible into or exchangeable for Common Stock
for 365 days from the date of this Prospectus without the prior written consent
of the representatives of the Underwriters.
35
<PAGE>
UNDERWRITING
Each of the underwriters named below (the "Underwriters") have severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock set forth
opposite their respective names below. The nature of the obligations of the
Underwriters is such that if any of such shares are purchased, all must be
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------ ---------
<S> <C>
Berthel Fisher & Company Financial Services, Inc..........................................
Westport Resources Investment Services, Inc...............................................
---------
Total................................................................................
---------
</TABLE>
The Underwriters have advised HLM Design that they propose initially to
offer the Common Stock offered hereby to the public at the price to the public
set forth on the cover page of this Prospectus. The Underwriters may allow a
concession to selected dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") not in excess of $
per share, and the Underwriters may allow, and such dealers may reallow, to
members of the NASD a concession not in excess of $ per share. After the
public offering, the price to the public, the concession and the reallowance may
be changed by the Underwriters.
HLM Design has granted an option to the Underwriters, exercisable within 45
business days after the date of the Prospectus, to purchase up to an aggregate
of additional shares of Common Stock at the initial price to the public,
less the underwriting discount, set forth on the cover page of this Prospectus.
The Underwriters may exercise the option only for the purpose of covering
over-allotments. To the extent that the Underwriters exercise such option, each
Underwriter will be committed, subject to certain conditions, to purchase from
HLM Design on a pro rata basis that number of additional shares of Common Stock
which is proportionate to such Underwriters' initial commitment.
HLM Design, certain shareholders and certain executive officers have
agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell,
grant any option to purchase or otherwise transfer or dispose of any Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock, or file a registration statement under the Securities Act with respect to
the foregoing or (ii) enter into any swap or other agreement or transaction that
transfers, in whole or part, the economic consequence of ownership of the Common
Stock, without the prior written consent of Berthel Fisher, for a period of 365
days after the date of this Prospectus.
Prior to this Offering, there has been no market for the Common Stock and
there can be no assurance that a regular trading market will develop upon the
completion of this Offering. The initial public offering price was determined by
negotiations between the Company and the Underwriters. The primary factors
considered in determining such offering price included the history of and
prospects for the Company's business and the industry in which the Company
competes, market valuation of comparable companies, market conditions for public
offerings, the prospects for future earnings of the Company, an assessment of
the Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors.
HLM Design has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriter may be required to make in respect
thereof.
The Underwriters have advised HLM Design that they do not intend to confirm
sales of Common Stock offered hereby to any accounts over which they exercise
discretionary authority.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
36
<PAGE>
The Underwriters may also impose a penalty bid on certain members of the
underwriting group and selling group members. This means that if an Underwriter
purchases shares of Common Stock in the open market to reduce the Underwriter's
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriter and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither HLM Design nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
HLM Design nor any of the Underwriters make any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
HLM Design has agreed to pay to the Underwriters a nonaccountable expense
allowance of 3% of the gross proceeds derived from the sale of the shares of
Common Stock underwritten (including the sale of any shares of Common Stock
subject to the Underwriters' overallotment option), of which has been
paid as of the date of this Prospectus. HLM Design has also agreed to pay all
expenses in connection with qualifying the Common Stock offered hereby for sale
under the laws of such states as the Underwriters may designate, including
filing fees and fees and expenses of counsel retained for such purposes by the
Underwriters, and registering the Offering with the NASD.
In connection with this Offering, HLM Design has agreed to sell to the
Underwriters, for a price of $ per warrant, warrants (the "Underwriters'
Warrants") to purchase shares of Common Stock equal to 10% of the total number
of shares of Common Stock sold pursuant to this Offering, excluding shares
subject to the over-allotment option. The Underwriters' Warrants are exercisable
at a price equal to 120% of the initial public offering price ($ assuming
an initial public offering price of $ per share (the low point of the range
set forth on the cover of this prospectus)) for a period of four years
commencing one year from the date of this Prospectus (the "Exercise Period").
The Underwriters' Warrants grant to the holders thereof, with respect to the
registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the Underwriters' Warrants, one demand registration
right during the Exercise Period, as well as piggyback registration rights at
any time.
HLM Design has agreed with the Underwriters to use its best efforts to
cause a designee of Berthel Fisher & Co. Financial Services, Inc. who is
reasonably satisfactory to HLM Design to be elected as a full voting member of
its Board of Directors. As of the date of this Prospectus, Berthel Fisher & Co.
Financial Services Inc. has not named a designee for election to board
membership. See "Certain Transactions."
Berthel Leasing, an affiliate of Berthel Fisher & Company Financial
Services, Inc., provided lease financing to HLMI in an aggregate principal
amount of $2.8 million under the Lease Financing and provided HLM Design with a
$0.8 million term loan for working capital purposes. More than 10% of the net
proceeds of the Offering will be received by Berthel Leasing, by reason of the
use of such proceeds to repay a portion of such borrowings. Accordingly, the
Offering will be conducted in accordance with NASD Conduct Rule 2710(c)(8),
which requires that the public offering price of the Common Stock be no higher
than the price recommended by a Qualified Independent Underwriter which has
participated in the preparation of the Registration Statement and performed its
usual standard of due diligence with respect thereto. Westport Resources
Investment Services, Inc. will act as the Qualified Independent Underwriter for
the Offering, and the public offering price will not be higher than the price
recommended by Westport Resources Investment Services, Inc.
LEGAL MATTERS
Parker, Poe, Adams & Bernstein L.L.P., Charlotte, North Carolina, counsel
to the Company, will render an opinion that the Shares offered hereby, when
issued and paid for in accordance with the terms of the Underwriting Agreement,
will be duly authorized, validly issued, fully paid and nonassessable. Bradley &
Riley, P.C., Cedar Rapids, Iowa, has served as counsel to the Underwriters in
connection with this Offering.
EXPERTS
The audited financial statements of HLMI (Predecessor) as of April 25, 1997
and for each of the years in the three-year period ended April 25, 1997, and the
audited financial statements of HLM Design, Inc. as of April 25, 1997 and from
inception, March 6, 1997, to the period ended April 25, 1997, included in this
Prospectus and elsewhere in the Registration Statement of which this Prospectus
is a part, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in
37
<PAGE>
their reports appearing herein and elsewhere in the registration statement, and
have been so included in reliance upon the reports of such firm given upon the
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 under the Securities Act with
respect to the Shares offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Shares offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules filed as part thereof. Statements contained
in this Prospectus as to the contents of any contract or any other documents are
not necessarily complete, and, in each such instance, reference is made to the
copy of the contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
thereto. The Registration Statement, together with its exhibits and schedules,
may be inspected at the Public Reference Section of the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of such materials may be obtained from
any such office upon payment of the fees prescribed by the SEC. Such information
may also be inspected and copied at the office of the AMEX at 86 Trinity Place,
New York, New York 10006-1881. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
38
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HLM DESIGN, INC. AND AFFILIATES:
INDEPENDENT AUDITORS' REPORT......................................................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheet at April 25, 1997 and unaudited Combined Balance Sheet at October 31, 1997.......................... F-3
Statements of Operations (unaudited) for the six months ended October 26, 1996 (Predecessor), the one month ended
May 30, 1997 (Predecessor) and the Combined Statements of Income for the six months ended October 31, 1997 (HLM
Design Inc.)..................................................................................................... F-4
Statements of Stockholders' Equity for the period ended April 25, 1997 and (unaudited) Combined statement of
stockholder's equity for the six months ended October 31, 1997................................................... F-5
Statements of Cash Flows (unaudited) for the six months ended October 26, 1996 (unaudited) (Predecessor), the one
month ended May 30, 1997 (Predecessor) and Combined Statements of Cash Flows for the six months ended October 31,
1997 (HLM Design Inc.)........................................................................................... F-6
Notes to Financial Statements..................................................................................... F-7
HANSEN LIND MEYER, INC. ("HLMI")
INDEPENDENT AUDITORS' REPORT......................................................................................... F-14
FINANCIAL STATEMENTS:
Balance Sheets at April 26, 1996 and April 25, 1997............................................................... F-15
Statements of Operations for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.................... F-16
Statements of Stockholders' Equity for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.......... F-17
Statements of Cash Flows for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.................... F-18
Notes to Financial Statements..................................................................................... F-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
HLM DESIGN, INC.
Charlotte, North Carolina
We have audited the accompanying balance sheet of HLM Design, Inc. (the
"Company") as of April 25, 1997, and the related statements of stockholders'
equity, for the period from inception March 6, 1997 to April 25, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of April 25,
1997, and the changes in stockholders equity for the period from inception March
6, 1997 to April 25, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
November 11, 1997
Charlotte, North Carolina
F-2
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
BALANCE SHEETS
APRIL 25, 1997 AND OCTOBER 31, 1997
<TABLE>
<CAPTION>
HLM
DESIGN COMBINED
APRIL 25, OCTOBER 31,
1997 1997
--------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash.............................................................................................. $ 6,508
Trade and other receivables, less allowance for doubtful accounts of $192,000 at October 31,
1997........................................................................................... 7,215,108
Costs and estimated earnings in excess of billings on uncompleted projects (Note 3)............... 4,149,864
Prepaid expenses.................................................................................. 309,492
-----------
Total current assets......................................................................... 11,680,972
-----------
OTHER ASSETS:
Deferred income taxes (Note 8).................................................................... 671,865
Goodwill, less amortization of $71,496 at October 31, 1997 (Note 2)............................... 2,502,371
Other noncurrent assets........................................................................... 765,995
-----------
Total other assets........................................................................... 3,940,231
-----------
PROPERTY AND EQUIPMENT:
Leasehold improvements............................................................................ 745,760
Furniture and fixtures............................................................................ 1,342,947
Construction in progress..........................................................................
-----------
Total property and equipment................................................................. 2,088,707
-----------
Less accumulated depreciation..................................................................... (283,754)
-----------
Property and equipment, net.................................................................. 1,804,953
-----------
TOTAL ASSETS........................................................................................ $17,426,156
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4)............................................................................ $ 2,250,000
Accounts payable.................................................................................. 3,455,471
Accrued expenses.................................................................................. 888,692
Income taxes payable.............................................................................. 30,571
Billings in excess of costs and estimated earnings on uncompleted projects (Note 3)............... 3,334,779
Deferred income taxes (Note 7).................................................................... 1,606,472
Current maturities of long-term debt (Note 4)..................................................... 728,011
-----------
Total current liabilities.................................................................... 12,293,996
-----------
LONG-TERM DEBT (Note 4)............................................................................. 4,474,234
-----------
TOTAL LIABILITIES................................................................................... 16,768,230
-----------
COMMITMENTS AND CONTINGENCIES (Note 5)
WARRANTS OUTSTANDING (Note 4)....................................................................... 250,078
-----------
STOCKHOLDERS' EQUITY:
HLM Design, Inc. Capital Stock
Common, $.01 par value, voting, authorized 9,000,000 shares; issued 48,500 and 50,640,
respectively.................................................................................. 485 506
Preferred, $.10 par value, voting, authorized 1,000,000, no shares outstanding.................
HLMNC and HLMO, Capital Stock, common, $.01 par value, authorized, outstanding 600................ 6
Hansen Lind Meyer Inc. Capital stock, common, $.01 par value (Note 6):
Class A, voting, authorized 2,000,000 shares; issued 200....................................... 2
Class B, nonvoting, authorized 1,000,000 shares, no shares outstanding.........................
Additional paid in capital........................................................................ 2,515 34,781
Retained earnings................................................................................. 379,115
Stock Subscription Receivable..................................................................... (3,000) (6,562)
--------- -----------
Total stockholders' equity.......................................................................... 407,848
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................................... $ $17,426,156
--------- -----------
--------- -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
STATEMENTS OF OPERATIONS
ONE MONTH ENDED MAY 30, 1997 (PREDECESSOR) AND SIX MONTHS ENDED
OCTOBER 25, 1996 (PREDECESSOR) AND OCTOBER 31, 1997 (COMBINED)
<TABLE>
<CAPTION>
(HLM
(PREDECESSOR (PREDECESSOR DESIGN)
COMPANY) COMPANY) COMBINED
----------- ---------- -----------
SIX MONTHS ONE MONTH SIX MONTHS
ENDED ENDED ENDED
----------- ---------- -----------
OCTOBER 25, MAY 30, OCTOBER 31,
1996 1997 1997
----------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES (Note 1):
Fee income..................................................................... $12,759,941 $1,852,249 $10,294,060
Reimbursable income............................................................ 743,682 380,787 2,892,743
----------- ---------- -----------
Total revenues............................................................ 13,503,623 2,233,036 13,186,803
----------- ---------- -----------
CONSULTANT EXPENSES.............................................................. 3,004,859 192,862 1,976,901
----------- ---------- -----------
PROJECT EXPENSES:
Direct expenses................................................................ 360,099 35,404 535,341
Reimbursable expenses.......................................................... 685,456 68,617 369,677
----------- ---------- -----------
Total project expenses.................................................... 1,045,555 104,021 905,018
----------- ---------- -----------
NET PRODUCTION INCOME............................................................ 9,453,209 1,936,153 10,304,884
DIRECT LABOR..................................................................... 3,484,077 602,096 3,062,843
INDIRECT EXPENSES................................................................ 6,400,549 1,172,712 5,991,828
----------- ---------- -----------
OPERATING INCOME (LOSS).......................................................... (431,417) 161,345 1,250,213
----------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income................................................................ 2,192 54 1,561
Interest expense............................................................... (194,986) (37,005) (498,534)
----------- ---------- -----------
Total other income (expense), net......................................... (192,794) (36,951) (496,973)
----------- ---------- -----------
INCOME (LOSS) BEFORE TAXES....................................................... (624,211) 124,394 753,240
INCOME TAXES (Note 7):
Current tax expense (benefit).................................................. 5,115 (11,907) 65,712
Deferred tax expense (benefit)................................................. (197,461) 54,907 308,413
----------- ---------- -----------
Total income tax expense (benefit)........................................ (192,346) 43,000 374,125
----------- ---------- -----------
NET INCOME (LOSS)................................................................ $ (431,865) $ 81,394 $ 379,115
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
STATEMENTS OF STOCKHOLDERS' EQUITY
INCEPTION MARCH 6, 1997 TO APRIL 25, 1997 AND THE
SIX MONTHS ENDED OCTOBER 31, 1997 COMBINED
<TABLE>
<CAPTION>
COMMON STOCK STOCK TOTAL
----------------- ADDITIONAL RETAINED SUBSCRIPTION STOCKHOLDERS'
SHARES AMOUNT PAID-IN-CAPITAL EARNINGS RECEIVABLE EQUITY
------- ------ --------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ORGANIZATION OF HLM DESIGN,
MARCH 6, 1997................................. $ $ $ $ $
Issuance of HLM Design, Inc. shares........... 48,500 485 2,515 (3,000)
------- ------ --------------- ------------
BALANCE, APRIL 25, 1997......................... 48,500 485 2,515 (3,000)
------- ------ --------------- -------- ------------ -------------
Equity of Combining Entities May 31, 1997
(UNAUDITED):
HLMI..................................... 200 2 2
HLMNC.................................... 300 3 297 (300)
HLMO..................................... 300 3 297 (300)
Stock Issuance - HLM Design (unaudited)....... 2,140 21 31,672 (2,962) 28,731
Net Income -- Combined (unaudited)............ 379,115 379,115
------- ------ --------------- -------- ------------ -------------
BALANCE OCTOBER 31, 1997 -- COMBINED
(UNAUDITED)................................... 51,440 $ 514 $34,781 $379,115 $ (6,562) $ 407,848
------- ------ --------------- -------- ------------ -------------
------- ------ --------------- -------- ------------ -------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
STATEMENTS OF CASH FLOWS
ONE MONTH ENDED MAY 30, 1997 (PREDECESSOR),
AND THE SIX MONTHS ENDED OCTOBER 25, 1996 (PREDECESSOR) AND OCTOBER 31, 1997
(COMBINED)
<TABLE>
<CAPTION>
(PREDECESSOR COMPANY) (HLM
------------------------------ DESIGN)
COMBINED
SIX MONTHS ONE MONTH SIX MONTHS
ENDED ENDED ENDED
------------- ------------- -----------
OCTOBER 25, MAY 30, OCTOBER 31,
1996 1997 1997
------------- ------------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................ $ (431,865) $ 81,394 $ 379,115
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation.................................................................. 287,382 55,544 118,176
Amortization of goodwill...................................................... 54,702 9,571 71,496
Amortization of deferred loan fees............................................ 26,922
Deferred rent................................................................. 18,739
Deferred income taxes......................................................... (197,461) 54,907 308,413
Changes in certain working capital items:
(Increase) decrease in trade and other receivables.......................... 336,683 (1,500,472) (1,481,816)
Increase in costs and estimated earnings compared to billings on uncompleted
contracts, net............................................................. 1,282,939 1,199,028 1,506,233
(Increase) decrease in refundable income taxes.............................. 7,520 (11,157) 41,835
(Increase) decrease in prepaid expenses..................................... 33,926 (10,427) (101,899)
(Increase) decrease in other assets......................................... (122,251) (1,152)
Increase (decrease) in accounts payable..................................... (505,214) 233,659 (1,005,222)
Increase (decrease) in accrued expenses..................................... (214,198) (278,500) 88,146
Increase (decrease) in other non-current liabilities........................ 15,000
------------- ------------- -----------
Net cash (used in) provided by operating activities...................... 550,902 (152,605) (48,601)
------------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............................................. (440,428) (2,023) (391,974)
Note receivable from officer..................................................... (20,000)
------------- ------------- -----------
Net cash provided by (used in) investing activities...................... (440,428) (2,023) (411,974)
------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on line of credit........................................................ (2,360,000)
Proceeds from long-term borrowings............................................... 2,800,000 3,750,000
Payments on long-term borrowings................................................. (120,275) (285,372) (240,916)
Payment of deferred loan fees.................................................... (40,000)
Payment on ESOP buyback.......................................................... (3,221,824)
Proceeds from issuance of notes payable to shareholders.......................... 182,308
Proceeds from the issuance of warrants........................................... 23,501
Proceeds from issuance of common stock........................................... 11,693
------------- ------------- -----------
Net cash provided by (used in) financing activities...................... (120,275) 154,628 464,762
------------- ------------- -----------
INCREASE (DECREASE) in Cash........................................................ (9,801) 4,187
CASH BALANCE:
Beginning of year................................................................ 11,130 2,321 2,321
------------- ------------- -----------
End of year...................................................................... $ 1,329 $ 2,321 $ 6,508
------------- ------------- -----------
------------- ------------- -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the year for:
Interest...................................................................... $ 180,458 $ 6,827 $ 332,414
Income tax payments (refunds)................................................. $ 7,169 $ (750) $ (24,750)
Noncash investing and financing transactions:
Retirement of common stock through issuance of note payable................... $ 10,170
Reduction of ESOP debt........................................................ $ 206,093
Issuance of warrants to certain debtholders................................... $ 226,577
</TABLE>
See notes to financial statements.
F-6
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
INCEPTION MARCH 6, 1997 TO APRIL 25, 1997 AND THE SIX MONTHS ENDED OCTOBER 25,
1996
(PREDECESSOR -- UNAUDITED), THE ONE MONTH PERIOD ENDED MAY 30, 1997
(PREDECESSOR -- UNAUDITED) AND THE SIX MONTHS ENDED OCTOBER 31, 1997
COMBINED -- UNAUDITED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- HLM Design, Inc. ("Design") is a Management
Services Company incorporated March 6, 1997 for the purpose of providing
management and services to architectural, engineering and planning design
entities under long term management services agreement.
In May 1997, Design executed long term management and services agreements
with Hansen Lind Meyer Inc. ("HLMI"), HLM of North Carolina, P.C. ("HLMNC") and
HLM of Oregon, Architecture and Planning, P.C. ("HLMO"). HLMNC and HLMO,
organized in 1996 and have had no operations as of October 31, 1997 (HLMI, HLMNC
and HLMO are referred to herein collectively as "AEP"). Design and AEP are
referred to herein collectively as "the Company". In May 1997, HLMI entered into
a merger agreement with BBH Corp., a newly formed entity controlled by the
principal shareholders of Design, whereby Design loaned BBH Corp $3.2 million
which BBH Corp utilized to buy common stock in HLMI. Under the merger agreement,
BBH Corp merged into HLMI with HLMI being the surviving entity. As a part of the
merger agreement, HLMI redeemed previously outstanding common stock of HLMI,
from its' employee Stock Ownership Plan ("ESOP") and other shareholders, except
the shareholders of BBH Corp. the shares redeemed represented over 90% of the
pre-merger voting interest. As a result of the change in control, the assets and
liabilities of HLMI were fair valued using purchase accounting principles and
the excess of the fair value over the identified tangible net assets was
reflected as goodwill.
The management and service agreements are for 40 years. HLM Design is the
sole and exclusive manager and administrator of all of the Managed Firm's
day-to-day business functions including financial planning, facilities,
equipment and supplies, and management and administrative services (bookkeeping
and accounts, general administration services, contract negotiation and
administration for all non-architectural and non-engineering aspects of all
agreements (pertaining to the provision of architectural and engineering
services by Managed Firms to third parties), personnel, security and
maintenance, architectural and engineering recruiting and training, insurance,
issuance of debt and capital stock, billing and collections). For these
services, HLM Design receives all but 1% of the firm's positive cash flow (as
determined in accordance with generally accepted accounting principles applied
on a consistent basis) following the payment by the Managed Firm of all such
firm's expenses.
In addition, as a result of the consummation of the Management and Services
Agreements and the stockholders' agreements with the AEP's, the financial
statements of Design and the managed firm's are presented on a Combined basis
from May 31, 1997.
FINANCIAL STATEMENT PRESENTATION
The financial statements included herein reflect the following:
(Bullet) HLM Design, Inc. as of April 25, 1997, HLM Design, Inc. had no
operations or cash flows from March 6, 1997, date of inception, to
April 25, 1997
(Bullet) Hansen Lind Meyer Inc. (Predecessor Company) for the one month
ended May 30, 1997 (unaudited) and for the six months ended
October 25, 1996 (unaudited)
(Bullet) HLM Design, Inc. combined with HLMI, HLMNC and HLMO, all from May
31, 1997 the effective date of the Management Services Agreements
a shareholders agreements, as of October 31, 1997 and for the six
months then ended (unaudited).
HLMI provides architectural and engineering consulting and design services,
which constitutes one business segment nationally from offices in Iowa City,
Chicago, Denver, Orlando, Atlanta, Bethesda, Philadelphia, Portland and
Sacramento.
PROPOSED STOCK OFFERING -- HLM Design intends to undertake an initial
public offering of HLM Design's Common Stock (the "Offering"). In connection
with the anticipated Offering, HLM Design intends to issue shares of its common
stock.
F-7
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
FISCAL YEAR-END POLICY -- The Company uses a 52-53 week fiscal year for
accounting purposes which defines the fiscal year-end date as the last Friday in
April. Thus, the current fiscal year-end is April 25, 1997.
OPERATING CYCLE -- Assets and liabilities related to long-term contracts
are included in current assets and current liabilities in the accompanying
balance sheets, as they will be liquidated in the normal course of contract
completion, although this may require more than one year.
REVENUE RECOGNITION -- Revenue is recognized, at estimated collectible
amounts, in the period the services are performed. More specifically, the
Company recognizes revenues either on the percentage-of-completion method
measured by the percentage of cost incurred to date to estimated total cost for
each contract, or based upon a fixed hourly rate. Consultant expenses, project
expenses, direct labor and indirect expenses are charged to expense as incurred.
Provisions for estimated losses on uncompleted projects are made in the period
in which such losses are first subject to reasonable estimation. Unanticipated
changes in project performance, project conditions and estimated profitability
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined.
The asset "costs and estimated earnings in excess of billings on
uncompleted projects" represents revenues recognized in excess of amounts
billed. The liability "billings in excess of costs and estimated earnings on
uncompleted projects" represents billings in excess of revenues recognized.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant estimate impacting the accompanying financial statements
relates to revenue recognition.
PROPERTY AND EQUIPMENT -- Leasehold improvements and equipment are stated
at cost. Depreciation is computed using the double-declining balance or
straight-line method over the estimated useful lives of the assets or the lease
term, including anticipated renewals. The estimated useful lives are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMBINED
----------------------------- -----------------------------
<S> <C> <C>
Computer equipment and
software..................... 5 years 5 years
Furniture...................... 7 years 5 years
Lease term, not to exceed Lease term, not to exceed
Leasehold improvements......... the useful life of the asset the useful life of the asset
</TABLE>
GOODWILL -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired (HLMI) and is being amortized
over a fifteen-year period (Combined) and over a four year period for
predecessor acquisition of MPB Architects.
DEFERRED INCOME TAXES -- Deferred income tax assets and liabilities are
calculated based upon differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future. Such deferred income tax asset or liability computations are based
on enacted tax laws and rates applicable to periods in which the differences are
expected to affect taxable income.
FINANCIAL INSTRUMENTS -- The carrying amount of cash, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of the
short maturities of these instruments. The Company's bank borrowings approximate
fair value because their interest rates are based on variable reference rates.
PREFERRED STOCK -- HLM Design's Certificate of Incorporation authorizes the
Board of Directors of HLM Design to issue 1,000,000 shares of preferred stock
with such designations, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely effect the
voting power or other rights of the holders of HLM Design's Common Stock. As of
October 31, 1997 there were no preferred shares outstanding.
F-8
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
STOCK SUBSCRIPTIONS RECEIVABLE -- The amount due from shareholders for
outstanding Common Stock.
NEW ACCOUNTING STANDARD -- Effective April 27, 1996, HLMI adopted Statement
of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
during the year. It requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Management has reviewed all long-lived assets and
intangible assets as of October 25, 1996 and October 31, 1997 and believes that
the carrying amounts reported in the balance sheet will be recovered over the
remaining useful lives of those assets.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 128, "Earnings Per Share." This Statement specifies
the computation, presentation and disclosure requirements for earnings per
share. It will be effective for periods ending December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending April 24, 1998,
and the Company does not intend to adopt this Statement prior to the effective
date.
INTERIM FINANCIAL INFORMATION -- The accompanying unaudited financial
information for the six months ended October 25, 1996 (Predecessor) and October
31, 1997 (Combined) has been prepared on substantially the same basis as the
audited financial statements, and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information set forth therein. The results for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal year.
2. BUSINESS ACQUISITION
Effective May 23, 1997, HLMI sold 50,000 newly issued shares to BBH Corp.,
a Delaware corporation, for approximately $3.2 million. On May 23, 1997, BBH
Corp. merged into HLMI and each BBH Corp. share outstanding at the time of
merger was converted into one share of HLMI's stock. All HLMI shares held by BBH
Corp. were canceled and retired.
Effective as of May 31, 1997, HLMI repurchased all 46,858 shares from the
ESOP for $64 per share as part of a merger agreement with BBH Corp. As a result
of this transaction, the ESOP will effectively cease once the proceeds of the
sale have been distributed by the Trustee to the ESOP's participants following
IRS approval of the ESOP's termination.
The total purchase price as well as acquisition costs has been allocated to
the assets and liabilities acquired at their estimated fair market value at
acquisition date as follows:
<TABLE>
<S> <C>
Accounts receivable........................................................ $ 5,716,254
Property and equipment..................................................... 1,531,155
Other assets............................................................... 6,320,087
Liabilities assumed........................................................ (12,761,346)
Goodwill................................................................... 2,573,867
-----------
Total...................................................................... $ 3,380,017
-----------
-----------
</TABLE>
The following unaudited pro forma financial data is presented as if the
transaction had occured at the beginning of the respective six month periods.
<TABLE>
<CAPTION>
6 MONTHS ENDED OCTOBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues................................................... $13,503,623 $15,419,839
----------- -----------
----------- -----------
Net Income (loss).......................................... $ (426,864) $ 444,148
----------- -----------
----------- -----------
</TABLE>
F-9
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. BUSINESS ACQUISITION -- Continued
The pro forma information presented above is not necessarily indicative of
the operating results that would have occurred had the transaction occurred at
the beginning of the respective six month periods. These results are also not
necessarily indicative of the results of future operations.
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress at October 31, 1997 is as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
1997
-----------
<S> <C>
Costs incurred on uncompleted projects......................................................................... $33,960,220
Estimated earnings thereon..................................................................................... 35,776,610
-----------
Total.......................................................................................................... 69,736,830
Less billings to date.......................................................................................... 68,921,745
-----------
Net underbillings.............................................................................................. $ 815,085
-----------
-----------
</TABLE>
Net underbillings are included in the accompanying balance sheet as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
1997
-----------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted projects......................................................................................... $ 4,149,864
Billings in excess of costs and estimated earnings on
uncompleted projects......................................................................................... (3,334,779)
-----------
Net underbillings.............................................................................................. $ 815,085
-----------
-----------
</TABLE>
4. FINANCING ARRANGEMENTS
A summary of notes payable at October 31, 1997 is as follows:
In September 1996, the Company entered into a financing facility with First
Charter National Bank which provides a line of credit of up to $500,000.
Interest is charged at the bank's prime rate plus 1.5% and principal payments
are to be made at the Company's discretion. The loan has an annual maturity date
which is subject to review.
In May 1997, the Company entered into a financing facility with First
Charter National Bank which provides a line of credit of up to $1,000,000.
Interest is charged at the bank's prime rate plus 1.5% and principal payments
are to be made at the Company's discretion. The loan has maturity date of May
1998.
In September 1997, the Company entered into debt agreements with Berthel
Fisher, a planned Underwriter of the Offering, of $250,000 and $500,000.
Interest is charged at 12%, and monthly interest payments are due through May 1,
1998. The final payment for all accrued interest and principal is due on May 1,
1998.
F-10
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. FINANCING ARRANGEMENTS -- Continued
A summary of long-term debt at October 31, 1997 is as follows:
<TABLE>
<CAPTION>
10/31/97
----------
<S> <C>
Notes payable to two key employees of the Company at 15%, with a final payment due December 31, 1997 in full.... $ 125,000
Notes payable to a former stockholder, due in annual payments of $49,522, plus interest at the prime interest
rate of Chase Manhattan Bank as of the date each installment is due (8.25% at April 25, 1997 and April 26,
1996); collateralized by 3,088 shares of the Company's unissued common stock, with a final payment due April
2000.......................................................................................................... 148,567
Notes payable to former stockholders, due in installments plus interest at prime plus 1% at various dates to
October 1999.................................................................................................. 13,594
Notes payable, MPB Architects, due in annual payments of $127,500, including interest at a rate of 10.5%, with a
final payment due April 1, 1998............................................................................... 114,850
Notes payable to Pacific Capital/Equitas, payable June 1, 2002.................................................. 1,980,000
Notes payable to shareholders at 6% with final payment due ................................................ 182,308
Lease financing with Berthel Fisher, due in monthly payments of $64,501, including interest at 14.07%, with
final lease and interest payments made on 4/30/2002........................................................... 2,637,926
----------
Total long-term debt............................................................................................ 5,202,245
----------
Less current maturities (based on refinanced terms)............................................................. 728,011
----------
Long-term portion............................................................................................... $4,474,234
----------
----------
</TABLE>
In May 1997 HLMI entered into a financing arrangement, in the form of a
capital lease agreement, with Berthel Fisher Leasing, a subsidiary of Berthel
Fisher, the proposed underwriter, for $2.8 million. The substance of such
agreement is a financing arrangement and has been presented as such in the
financial statements.
Substantially all assets are pledged under lending agreements.
Under certain of the lending arrangements the company is restricted from
paying cash dividends. Certain of the financing agreements contain debt service
coverage ratios. As of October 31, 1997 the Company was in compliance with such
covenants.
Repayment of the various financing agreements are as follows:
<TABLE>
<S> <C>
Six months ended April 24, 1998................................. $ 576,877
Fiscal 1999..................................................... 559,441
Fiscal 2000..................................................... 592,345
Fiscal 2001..................................................... 991,006
Fiscal 2002..................................................... 2,449,243
Thereafter...................................................... 33,333
----------
Total......................................................... $5,202,245
----------
----------
</TABLE>
In May 1997, warrants to purchase 14,372 shares of common stock were
attached to the notes issued to Pacific Capital and Equitas. In addition,
warrants to purchase 2,515 shares of common stock were attached to the notes
issued to Berthel Fisher in September 1997. All of the warrants issued with the
debt were outstanding at October 31, 1997. Each warrant allows holders to
purchase a share of stock for $.01 a share for a five year period.
In the event that the indebtedness owed by HLM Design to the Holder
pursuant to that Note issued to Holder from HLM Design is not repaid in full on
or before the two year anniversary of the issuance then the number of shares of
HLM Design's Common Stock that may be purchased by the Holder of this Warrant
shall increase by a predetermined amount on each annual anniversary thereafter,
until the indebtedness is paid in full.
HLM Design issued to the Holders the right and option to sell to HLM Design
this warrant for a period of 30 days immediately prior to the expiration at a
purchase price equal to the fair market value of the shares of common stock
issuable to the Holder upon exercise of this warrant less the exercise price.
F-11
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. FINANCING ARRANGEMENTS -- Continued
The Company obtained, as of May 1997, a valuation of the Company as a basis
for assigning value to the warrants. The portion of such determined value in
excess of the amounts paid for the warrants was $226,605 and has been reflected
as deferred financing fees and is being amortized over the respective loan terms
using an effective yield method.
See Note 9 for discussion of warrant activity subsequent to October 31,
1997.
5. LEASE COMMITMENTS
The total minimum rental commitment under non-cancellable operating leases
at October 31, 1997, which has been reduced by minimum rentals to be received
under subleases, are as follows:
<TABLE>
<S> <C>
6 months ended April 24, 1998.......................................................... $ 1,167,997
Fiscal 1999............................................................................ 2,072,140
Fiscal 2000............................................................................ 1,913,474
Fiscal 2001............................................................................ 1,798,392
Fiscal 2002............................................................................ 1,721,236
Thereafter............................................................................. 6,664,881
-----------
Total $15,338,120
-----------
-----------
</TABLE>
6. CONTINGENCIES
The Company is involved in various disputes and legal actions related to
contract operations. In the opinion of Company management, the ultimate
resolution of these actions will not have a material effect on the Company's
financial position or future results of operations.
7. RELATED PARTY TRANSACTIONS
During the six months ended October 31, 1997, the Company incurred $22,911
in financing advisory fees related to debt financings, for services provided by
a director.
See Note 4 for related party transactions with respect to debt financing.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
OCTOBER 25, OCTOBER 31,
1996 1997
----------- -----------
<S> <C> <C>
Current:
Federal................................................................... $ 4,476 $ 57,827
State..................................................................... 639 7,885
Deferred.................................................................... (197,461) 308,413
----------- -----------
Provision for Income Taxes.................................................. $ (192,346) $ 374,125
----------- -----------
----------- -----------
</TABLE>
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income rate is as follows:
F-12
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. INCOME TAXES -- Continued
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
OCTOBER 25, OCTOBER 31,
1996 1997
----------- -----------
<S> <C> <C>
Statutory federal rate...................................................... (35.0)% 35.0%
State Income Taxes, net of federal benefit.................................. (3.3) 3.3
Penalties................................................................... 4.9 3.8
Meals and Entertainment..................................................... 2.5 2.5
Goodwill.................................................................... -- 5.9
Other....................................................................... .1 (1.0)
----------- -----------
Effective Tax Rates....................................................... (30.8)% 49.5%
----------- -----------
----------- -----------
</TABLE>
The tax effect of temporary differences giving rise to deferred income tax
assets and liabilities as of October 31, 1997 is as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
1997
-----------
<S> <C>
Deferred income tax liabilities -- difference between the accrual basis and cash basis
of accounting related to certain assets and liabilities.............................. $(1,606,472)
-----------
Deferred income tax assets:
Contribution carryforwards........................................................... 42,980
Property and equipment............................................................... 357,565
Net operating loss carryforward...................................................... 271,320
-----------
Total deferred income tax assets....................................................... 671,865
-----------
Deferred income tax liabilities, net................................................... $ (934,607)
-----------
-----------
</TABLE>
9. SUBSEQUENT EVENTS
In November 1997, 862 warrants were exercised resulting in the issuance of
862 shares of common stock.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
HANSEN LIND MEYER INC.
Charlotte, North Carolina
We have audited the accompanying balance sheets of Hansen Lind Meyer Inc.
("HLMI") as of April 25, 1997 and April 25, 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended April 25, 1997. These financial statements are the
responsibility of HLMI's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HLMI as of April 25, 1997
and April 26, 1996, and the results of its operations and its cash flows for
each of the three years in the period ended April 25, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
October 31, 1997
Charlotte, North Carolina
F-14
<PAGE>
HLMI
BALANCE SHEETS
APRIL 26, 1996 AND APRIL 25, 1997
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................................................... $ 11,130 $ 2,321
Trade and other receivables, less allowance for doubtful accounts of $399,000 at April 26,
1996; $111,000 at April 25, 1997.......................................................... 5,559,290 4,215,782
Costs and estimated earnings in excess of billings on uncompleted projects (Note 3).......... 3,512,711 5,181,432
Refundable income taxes...................................................................... 141,521 59,891
Prepaid expenses............................................................................. 106,250 205,381
----------- -----------
Total current assets.................................................................... 9,330,902 9,664,807
----------- -----------
OTHER ASSETS:
Deferred income taxes (Note 8)............................................................... 492,505 464,694
Goodwill, less amortization of $93,193 at April 26, 1996; $196,646 at April 25, 1997......... 345,807 242,354
Other noncurrent assets...................................................................... 352,700 511,972
----------- -----------
Total other assets...................................................................... 1,191,012 1,219,020
----------- -----------
PROPERTY AND EQUIPMENT:
Leasehold improvements....................................................................... 2,153,312 2,307,040
Furniture and fixtures....................................................................... 6,953,360 7,365,909
Automobiles.................................................................................. 16,813 16,813
Construction in progress..................................................................... 28,309
----------- -----------
Total property and equipment............................................................ 9,151,794 9,689,762
----------- -----------
Less accumulated depreciation................................................................ (7,095,716) (7,699,086)
----------- -----------
Property and equipment, net............................................................. 2,056,078 1,990,676
----------- -----------
TOTAL ASSETS................................................................................... $12,577,992 $12,874,503
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4)....................................................................... $ 2,450,000 $ 2,860,000
Current maturities of long-term debt (Note 4)................................................ 778,392 642,432
Accounts payable............................................................................. 4,579,651 4,227,034
Accrued expenses............................................................................. 1,139,812 920,853
Billings in excess of costs and estimated earnings on uncompleted projects (Note 3).......... 876,245 1,661,086
Deferred income taxes (Note 8)............................................................... 1,059,316 1,255,765
Deferred rent (Note 5)....................................................................... 67,974
----------- -----------
Total current liabilities............................................................... 10,951,390 11,567,170
----------- -----------
LONG-TERM DEBT (Note 4)........................................................................ 564,577 103,792
----------- -----------
DEFERRED RENT (Note 5)......................................................................... 288,829
----------- -----------
OTHER NONCURRENT LIABILITIES................................................................... 15,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 9 and 10)
STOCKHOLDERS' EQUITY:
Capital stock, common, $.01 par value (Note 6):
Class A, voting, authorized 2,000,000 shares; issued 55,998 and 54,700, respectively...... 560 547
Class B, nonvoting, authorized 1,000,000 shares; issued 740 and 1,111, respectively....... 7 11
Retained earnings......................................................................... 1,140,403 1,202,983
----------- -----------
1,140,970 1,203,541
Less ESOP debt guarantee (Notes 4 and 9)....................................................... (382,774)
----------- -----------
Total stockholders' equity.............................................................. 758,196 1,203,541
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $12,577,992 $12,874,503
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-15
<PAGE>
HLMI
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1995, APRIL 26, 1996 AND APRIL 25, 1997
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Fee income.................................................................... $27,388,379 $27,206,637 $24,839,560
Reimbursable income........................................................... 1,734,178 1,347,787 1,915,150
----------- ----------- -----------
Total revenues........................................................... 29,122,557 28,554,424 26,754,710
----------- ----------- -----------
CONSULTANT EXPENSES............................................................. 5,351,073 4,782,482 4,857,891
----------- ----------- -----------
PROJECT EXPENSES:
Direct expenses............................................................... 854,540 936,962 716,449
Reimbursable expenses......................................................... 1,529,272 928,479 1,183,618
----------- ----------- -----------
Total project expenses................................................... 2,383,812 1,865,441 1,900,067
----------- ----------- -----------
NET PRODUCTION INCOME........................................................... 21,387,672 21,906,501 19,996,752
DIRECT LABOR.................................................................... 7,950,786 7,614,029 6,618,293
INDIRECT EXPENSES............................................................... 14,678,518 13,787,625 12,931,174
----------- ----------- -----------
OPERATING INCOME (LOSS)......................................................... (1,241,632) 504,847 447,285
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income............................................................... 13,936 10,516 6,502
Interest expense.............................................................. (156,680) (394,068) (402,509)
Gain on lease termination (Note 5)............................................ 841,809 344,059
Gain (loss) on sale of property............................................... 428,475 8,464 (58,424)
----------- ----------- -----------
Total other income (expense), net........................................ 285,731 466,721 (110,372)
----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES...................................................... (955,901) 971,568 336,913
INCOME TAXES (Note 8):
Current tax benefit........................................................... (3,080) (114,560) (4,461)
Deferred tax expense (benefit)................................................ (357,000) 550,019 224,260
----------- ----------- -----------
Total income tax expense (benefit)....................................... (360,080) 435,459 219,799
----------- ----------- -----------
NET INCOME (LOSS)............................................................... $ (595,821) $ 536,109 $ 117,114
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
HLMI
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1995, APRIL 26, 1996 AND APRIL 25, 1997
<TABLE>
<CAPTION>
COMMON STOCK ESOP DEBT
------------------ RETAINED GUARANTEE
CLASS A CLASS B EARNINGS (NOTES 4 AND 9)
------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 30, 1994....................................... $ 638 $ 3 $1,693,915 $(1,260,925)
Net Loss.................................................... (595,821)
Issuance of 2,119 shares of common stock.................... 21 135,616
Retirement of 7,782 shares of common stock.................. (75) (3) (528,185)
Class A common stock exchanged for Class B
common stock............................................. (11) 11
Proceeds on Employee Stock Ownership Plan debt.............. (106,000)
Payments on Employee Stock Ownership Plan debt.............. 490,603
------- ------- ---------- ---------------
BALANCE, APRIL 30, 1995....................................... 573 11 705,525 (876,322)
Net income.................................................. 536,109
Issuance of 44 shares of common stock....................... 2,489
Retirement of 1,743 shares of common stock.................. (10) (7) (103,720)
Payments on Employee Stock Ownership Plan debt.............. 493,548
Class A common stock exchanged for Class B
common stock............................................. (3) 3
------- ------- ---------- ---------------
BALANCE, APRIL 26, 1996....................................... 560 7 1,140,403 (382,774)
Net income.................................................. 117,114
Retirement of 927 shares of common stock.................... (9) (54,534)
Payments on Employee Stock Ownership Plan debt.............. 382,774
Class A common stock exchanged for Class B
common stock............................................. (13) 13
------- ------- ---------- ---------------
BALANCE, APRIL 25, 1997....................................... $ 547 $11 $1,202,983 $
------- ------- ---------- ---------------
------- ------- ---------- ---------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, APRIL 30, 1994....................................... $ 433,631
Net Loss.................................................... (595,821)
Issuance of 2,119 shares of common stock.................... 135,637
Retirement of 7,782 shares of common stock.................. (528,263)
Class A common stock exchanged for Class B
common stock.............................................
Proceeds on Employee Stock Ownership Plan debt.............. (106,000)
Payments on Employee Stock Ownership Plan debt.............. 490,603
-------------
BALANCE, APRIL 30, 1995....................................... (170,213)
Net income.................................................. 536,109
Issuance of 44 shares of common stock....................... 2,489
Retirement of 1,743 shares of common stock.................. (103,737)
Payments on Employee Stock Ownership Plan debt.............. 493,548
Class A common stock exchanged for Class B
common stock.............................................
-------------
BALANCE, APRIL 26, 1996....................................... 758,196
Net income.................................................. 117,114
Retirement of 927 shares of common stock.................... (54,543)
Payments on Employee Stock Ownership Plan debt.............. 382,774
Class A common stock exchanged for Class B
common stock.............................................
-------------
BALANCE, APRIL 25, 1997....................................... $ 1,203,541
-------------
-------------
</TABLE>
See notes to financial statements.
F-17
<PAGE>
HLMI
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1995, APRIL 26, 1996 AND APRIL 25, 1997
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $ (595,821) $ 536,109 $ 117,114
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation................................................................. 515,636 680,779 671,877
Amortization................................................................. 5,952 99,145 107,670
Deferred rent................................................................ (384,644) (1,093,278) (356,803)
Loss (gain) on sale of property.............................................. (428,475) (8,464) 58,424
Deferred income taxes........................................................ (357,000) 550,019 224,260
Other, net................................................................... 3,229 (49,345) (15,000)
Changes in certain working capital items:
(Increase) decrease in trade and other receivables......................... 990,949 (1,181,640) 1,343,508
Increase in costs and estimated earnings compared to billings on
uncompleted contracts, net................................................ (1,540,637) (1,857,829) (883,880)
(Increase) decrease in refundable income taxes............................. 144,707 87,777 72,056
(Increase) decrease in prepaid expenses.................................... 160,417 (176,989) (99,131)
Increase in other assets................................................... (159,272)
Increase (decrease) in accounts payable.................................... 401,561 2,642,228 (352,617)
Increase (decrease) in accrued expenses.................................... 410,559 (455,379) (218,959)
----------- ----------- ----------
Net cash (used in) provided by operating activities..................... (673,567) (226,867) 509,247
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business............................................................ (206,500)
Proceeds from sale of equipment................................................. 600,000 12,084 2,635
Purchases of property and equipment............................................. (882,719) (708,479) (662,179)
Note receivable from officer.................................................... (30,000)
----------- ----------- ----------
Net cash used in investing activities................................... (489,219) (726,395) (659,544)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit................................................ 1,600,000 700,000 410,000
Proceeds from long-term borrowings.............................................. 500,000 145,000
Payments on long-term borrowings................................................ (90,189) (238,134) (410,952)
Proceeds from issuance of common stock.......................................... 135,616 2,489
Retirement of common stock...................................................... (528,185) (5,650) (2,560)
----------- ----------- ----------
Net cash provided by financing activities............................... 1,117,242 958,705 141,488
----------- ----------- ----------
(DECREASE) INCREASE IN CASH....................................................... (45,544) 5,443 (8,809)
CASH BALANCE:
Beginning of year............................................................... 51,231 5,687 11,130
----------- ----------- ----------
End of year..................................................................... $ 5,687 $ 11,130 $ 2,321
----------- ----------- ----------
----------- ----------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the year for:
Interest..................................................................... $ 138,783 $ 392,292 $ 370,167
Interest on Employee Stock Ownership Plan debt............................... $ 82,459 $ 55,199 $ 24,243
Income tax refunds........................................................... $ (150,867) $ (280,466) $ (86,091)
Noncash investing and financing transactions:
Retirement of common stock through issuance of note payable.................. $ $ 98,087 $ 51,983
Reduction of ESOP debt....................................................... $ 384,603 $ 493,548 $ 382,774
Purchase of business financed through issuance of note payable............... $ 311,500
</TABLE>
See notes to financial statements.
F-18
<PAGE>
HLMI
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 25, 1997 AND APRIL 26, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -- Hansen Lind Meyer Inc. ("HLMI") provides
architectural and engineering consulting and design services nationally from
offices in Iowa City, Chicago, Denver, Orlando, Philadelphia, Atlanta, Bethesda,
Sacramento and Portland. Approximately 75%, 70% and 73% of HLMI's 1997, 1996 and
1995 revenues, respectively, are related to health care projects and
approximately 25%, 30% and 27% are from criminal justice and other projects. The
Company operates in one business segment.
FISCAL YEAR-END POLICY -- HLMI uses a 52-53 week fiscal year for accounting
purposes which defines the fiscal year-end date as the last Friday in April.
Thus, the current fiscal year-end is April 25, 1997. There were 52 weeks in this
fiscal year.
OPERATING CYCLE -- Assets and liabilities related to long-term contracts
are included in current assets and current liabilities in the accompanying
balance sheets, as they will be liquidated in the normal course of contract
completion, although this may require more than one year.
REVENUE RECOGNITION -- Revenue is recognized, at estimated collectible
amounts, in the period the services are performed. More specifically, HLMI
recognizes revenues either on the percentage-of-completion method measured by
the percentage of cost incurred to date to estimated total cost for each
contract, or based upon a fixed hourly rate. Consultant expenses, project
expenses, direct labor and indirect expenses are charged to expense as incurred.
Provisions for estimated losses on uncompleted projects are made in the period
in which such losses are first subject to reasonable estimation. Unanticipated
changes in project performance, project conditions and estimated profitability
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined.
The asset "costs and estimated earnings in excess of billings on
uncompleted projects" represents revenues recognized in excess of amounts
billed. The liability "billings in excess of costs and estimated earnings on
uncompleted projects" represents billings in excess of revenues recognized.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant estimate impacting the accompanying financial statements
relates to revenue recognition.
PROPERTY AND EQUIPMENT -- Leasehold improvements and equipment are stated
at cost. Depreciation is computed using the double-declining balance or
straight-line method over the estimated useful lives of the assets or the lease
term, including anticipated renewals. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment and software......................... 5 years
Furniture............................................... 7 years
Leasehold improvements.................................. Lease term, not to exceed the useful life of the asset
</TABLE>
GOODWILL -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired from MPB Architects and is being
amortized over a four-year period.
DEFERRED INCOME TAXES -- Deferred income tax assets and liabilities are
calculated based upon differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future. Such deferred income tax asset or liability computations are based
on enacted tax laws and rates applicable to periods in which the differences are
expected to affect taxable income.
FINANCIAL INSTRUMENTS -- The carrying amount of cash, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of the
short maturities of these instruments. HLMI's bank borrowings approximate fair
value because their interest rates are based on variable reference rates.
F-19
<PAGE>
HLMI
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
RECLASSIFICATION -- Certain amounts in the 1996 financial statements have
been reclassified to conform with the 1997 financial statement presentation.
NEW ACCOUNTING STANDARD -- Effective April 27, 1996, HLMI adopted Statement
of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
during the year. It requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Management has reviewed all long-lived assets and
intangible assets as of April 25, 1997 and April 26, 1996 and believes that the
carrying amounts reported in the balance sheet will be recovered over the
remaining useful lives of those assets.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for HLMI's fiscal year ending April 24, 1998, and
HLMI does not intend to adopt this Statement prior to the effective date.
2. BUSINESS ACQUISITIONS
On April 1, 1995, HLMI acquired MPB Architects, Inc., an architectural firm
located in Philadelphia, Pennsylvania, for a total purchase price of $518,000.
The acquisition has been accounted for as a purchase and the results of
operations of MPB Architects, Inc., have been included in the accompanying
financial statements from the date of acquisition. The total purchase price has
been allocated to the assets acquired at their estimated fair market value at
acquisition date as follows:
<TABLE>
<S> <C>
Property and equipment........................................................ $ 79,000
Goodwill...................................................................... 439,000
--------
Total......................................................................... $518,000
--------
--------
</TABLE>
The following unaudited pro forma financial data is presented as if MPB
Architects, Inc. was acquired on May 1, 1994.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1995
-------------------------
<S> <C>
Revenues......................................................... $31,743,366
-------------------------
Net Loss......................................................... $ (782,024)
-------------------------
-------------------------
</TABLE>
The pro forma information presented above is not necessarily indicative of
the operating results that would have occurred had MPB Architects, Inc. been
acquired on May 1, 1994. These results are also not necessarily indicative of
the results of future operations.
3. CONTRACTS IN PROGRESS
Information relative to contracts in progress at April 30, 1995, April 26,
1996 and April 25, 1997 is as follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
Costs incurred on uncompleted projects....................................... $ 77,486,548 $ 67,612,169 $53,448,215
Estimated earnings thereon................................................... 46,358,806 42,252,119 33,500,189
------------ ------------ -----------
Total........................................................................ 123,845,354 109,864,288 86,948,404
Less billings to date........................................................ 123,066,717 107,227,822 83,428,058
------------ ------------ -----------
Net underbillings............................................................ $ 778,637 $ 2,636,466 $ 3,520,346
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
F-20
<PAGE>
HLMI
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. CONTRACTS IN PROGRESS -- Continued
Net underbillings are included in the accompanying balance sheet as
follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted projects............................................................ $ 2,571,447 $3,512,711 $ 5,181,432
Billings in excess of costs and estimated earnings on
uncompleted projects............................................................ (1,792,810) (876,245) (1,661,086)
----------- ---------- -----------
Net underbillings................................................................. $ 778,637 $2,636,466 $ 3,520,346
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
4. FINANCING ARRANGEMENTS
Effective October 14, 1996, HLMI entered into a new financing arrangement
with Firstar Bank Iowa, N.A. ("Firstar"). In connection with this new financing
arrangement, two previous lines of credit, with a combined balance outstanding
at April 26, 1996 of $2,450,000, were consolidated into one revolving line of
credit providing for availability up to the lesser of $2,450,000 or 80% of
eligible accounts receivable through March 1, 1997. The line of credit will be
payable in full on May 1, 1998. Interest is payable monthly at Firstar's prime
rate plus 3% (11.5% at April 25, 1997).
Three term loans payable to Firstar with a combined amount outstanding at
April 26, 1996 of $423,903 were consolidated into one new term loan. Interest is
charged at the bank's prime rate plus 2%, and monthly principal and interest
payments of $45,000 are payable through February 1, 1997. The original loans
were made to enable the Company's ESOP (see Note 8) to acquire common stock from
certain stockholders.
This financing facility is collateralized by substantially all of HLMI's
assets.
In September 1996, HLMI entered into a financing facility with First
Charter National Bank which provides a line of credit of up to $500,000.
Interest is charged at the bank's prime rate plus 1.5% and principal payments
are to be made at HLMI's discretion. The loan has an annual maturity date which
is subject to review.
See Note 12 for financing events occurring subsequent to April 25, 1997.
A summary of notes payable at April 26, 1996 and April 25, 1997 is as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Line of credit -- Firstar......................................................................... $2,450,000 $2,360,000
Line of credit -- First Charter................................................................... 500,000
---------- ----------
Total............................................................................................. $2,450,000 $2,860,000
---------- ----------
---------- ----------
</TABLE>
F-21
<PAGE>
HLMI
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. FINANCING ARRANGEMENTS -- Continued
A summary of long-term debt at April 25, 1997 and April 26, 1996 is as
follows:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Term loan payable to Firstar, due in monthly payments of $45,000, including interest at 2% over the
Bank's prime rate................................................................................. $ 423,903 $
Note payable to Firstar, due in monthly payments of $16,405, including interest at 2.5% over the
Bank's prime rate................................................................................. 428,399 271,134
Notes payable to two key employees of the Company at 15%, with a final payment due December 31, 1997
in full........................................................................................... 145,000
Notes payable to a former stockholder, due in annual payments of $49,522, plus interest at the prime
interest rate of Chase Manhattan Bank as of the date each installment is due (8.25% at April 25,
1997 and April 26, 1996); collateralized by 3,088 shares of the Company's unissued common stock,
with a final payment due April 2000............................................................... 198,090 148,567
Notes payable to former stockholders, due in installments plus interest at prime plus 1% at various
dates to October 1999............................................................................. 74,270 66,673
Notes payable, MPB Architects, due in annual payments of $127,500, including interest at a rate of
10.5%, with a final payment due April 1, 1998..................................................... 218,307 114,850
---------- --------
Total long-term debt................................................................................ 1,342,969 746,224
Less current maturities (based on refinanced terms)................................................. 778,392 642,432
---------- --------
Long-term portion................................................................................... $ 564,577 $103,792
---------- --------
---------- --------
</TABLE>
Scheduled maturities of long-term debt based on refinanced terms are as
follows:
<TABLE>
<S> <C>
Fiscal Year:
1999........................................................................... $642,432
2000........................................................................... 49,522
Thereafter..................................................................... 54,270
--------
Total............................................................................ $746,224
--------
--------
</TABLE>
Borrowings from Firstar are subject to certain restrictive covenants. At
April 25, 1997, HLMI was in violation of the negative working capital and the
current ratio requirements. As set forth in Note 12, all outstanding debt due to
Firstar has been repaid subsequent to April 25, 1997.
On May 30, 1997, HLMI entered into financing arrangement in the form of a
sale-leaseback agreement. Under this arrangement, HLMI sold all of its property,
excluding leasehold improvements, for $2.8 million. This property is being
leased back over 60 months. The proceeds of this transaction were used to repay
the line of credit and the note payable due to Firstar.
Under certain of the lending arrangements the Company is restricted from
paying cash dividends.
5. LEASE COMMITMENTS
At April 26, 1996, rent payments due under certain leases were less than
the amount of rent expense computed on a straight-line basis. The deferred rent
liability at April 26, 1996 was $356,803. There was no deferred rent liability
as of April 25, 1997.
In 1996, and 1997, HLMI terminated facility leases which were being
accounted for as operating leases, resulting in a gain of $841,809 and $344,059,
respectively. There were no facility lease terminations in 1995 which resulted
in a gain. The recorded gains represent the cumulative excess of lease expense
over the lease payments made as of the termination dates.
The Iowa City, Orlando, McLean and Charlotte facilities require the payment
of certain operating expenses in addition to the base rents.
F-22
<PAGE>
HLMI
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. LEASE COMMITMENTS -- Continued
Rent expense of $2,946,542 $1,112,562 and $1,606,678 as of April 30, 1995,
April 26, 1996 and April 25, 1997 is included in indirect expenses.
The total minimum rental commitment under non-cancellable operating leases,
at April 25, 1997, which has been reduced by minimum rentals to be received
under subleases, are as follows:
<TABLE>
<S> <C>
Fiscal Year:
1998..................................................................... $ 2,172,403
1999..................................................................... 1,899,397
2000..................................................................... 1,881,442
2001..................................................................... 1,798,392
2002..................................................................... 1,721,236
Thereafter............................................................... 6,664,881
-----------
Total...................................................................... $16,137,751
-----------
-----------
</TABLE>
6. CAPITAL STOCK
HLMI's authorized capital consists of 3,000,000 shares of $.01 par value
common stock, consisting of two classes, 2,000,000 shares of Class A voting and
1,000,000 shares of Class B nonvoting. Class A stock may only be owned by
employees of the Company. Class A stock will be immediately converted to Class B
stock following the termination of a shareholder's employment with the Company.
See Note 12 for subsequent events regarding HLMI's ESOP.
7. RESTRICTIONS OF TRANSFER OF COMMON STOCK
The bylaws of HLMI contain certain restrictions on transfer of common
stock. Upon the death, disability or retirement of a stockholder, HLMI is
obligated to purchase the common stock if the estate of the stockholder or the
stockholder offers to sell. The stockholder's estate or the stockholder has the
right to offer the shares to the Employee Stock Ownership Plan which has the
right of first refusal with regard to this stock. The sale price shall be based
upon the most recent appraised value of HLMI stock. If a stockholder voluntarily
terminates employment, the employee shall sell, and the ESOP may acquire the
shares, or HLMI shall purchase all of the stockholder's stock based on the most
recent appraisal. If a stockholder is involuntarily terminated, the stockholder
may offer his stock to the ESOP or HLMI, and the ESOP may, or HLMI shall
purchase all of the shares based on the most recent appraisal. A stockholder who
is terminated from employment for cause shall sell, and the ESOP may, or HLMI
shall purchase all of the stockholder's shares at a price equal to 80% of the
most recent appraisal. The purchase price of any purchase will be paid by first
applying life insurance proceeds, if any, with the balance being paid in a
single payment or installments depending upon the circumstances of the sale and
upon the amount of the purchase price. If the aggregate of principal payments
for the purchase of stock shall exceed $120,000 within any six-month period,
HLMI may adjust downward all current payments proportionately to limit the
payments to the $120,000 amount. Transfers of shares of HLMI's stock to or from
the Employee Stock Ownership Plan Trust are exempt from the provisions of the
bylaws on restrictions of transfer.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal............................................................................... $ (2,695) $(100,240) $ (3,903)
State................................................................................. (385) (14,320) (558)
Deferred................................................................................ (357,000) 550,019 224,260
--------- --------- --------
Provision for income taxes.............................................................. $(360,080) $ 435,459 $219,799
--------- --------- --------
--------- --------- --------
</TABLE>
F-23
<PAGE>
HLMI
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. INCOME TAXES -- Continued
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Statutory federal rate.............................................................................. (35.0)% 35.0% 35.0%
State Income Taxes.................................................................................. (2.0) 3.3 3.3
Penalties........................................................................................... .2 .4 17.4
Meals and Entertainment............................................................................. 4.3 4.4 9.3
Other............................................................................................... (5.1) 1.8 .3
------ ----- -----
Effective Tax rates............................................................................... (37.6)% 44.9% 65.3%
------ ----- -----
------ ----- -----
</TABLE>
The tax effect of temporary differences giving rise to deferred income tax
assets and liabilities as of April 25, 1997 and April 26, 1996 is as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred income tax liabilities -- difference between the accrual basis and cash basis of
accounting related to certain assets and liabilities.......................................... $(1,059,316) $(1,255,765)
----------- -----------
Deferred income tax assets:
Contribution carryforwards.................................................................... 52,892 64,361
Property and equipment........................................................................ 63,368 96,177
Deferred rent liability....................................................................... 136,477 --
Net operating loss carryforward............................................................... 239,768 304,156
----------- -----------
Total deferred income tax assets................................................................ 492,505 464,694
----------- -----------
Deferred income tax liabilities, net............................................................ $ (566,811) $ (791,071)
----------- -----------
----------- -----------
</TABLE>
As of April 26, 1996 and April 25, 1997, HLMI had approximately $627,000
and $795,000 of net operating loss carryforwards, respectively, for federal tax
purposes and no loss carryforwards for financial reporting purposes. These tax
net operating losses will respectively expire in fiscal years 2012 and 2011.
9. EMPLOYEE STOCK OWNERSHIP PLAN
In September 1987, HLMI established an Employee Stock Ownership Plan to
provide retirement benefits to its employees. In October 1987, the Plan obtained
a $4,800,000 bank loan, the proceeds of which were used to purchase 32,000
shares of common stock from certain stockholders. During the year ended April
30, 1991, the Plan acquired 11,597 shares of common stock from a shareholder at
a cost of $1,054,389, a portion of which was financed by borrowings from a bank
in the amount of $687,389. During the year ended April 30, 1995, the Plan
acquired 2,000 shares of common stock from a shareholder at a cost of $106,000,
which was financed by borrowings from a bank. HLMI is committed to make cash
payments to the Plan in an amount sufficient for the Plan to meet the debt
service requirements of these three notes. Accordingly, the debt was recorded in
the accompanying financial statements with a corresponding deduction from
stockholders' equity. The debt and the deduction from stockholders' equity are
reduced as principal payments are made on the loans. The terms of the notes
payable are disclosed in Note 4. These notes were repaid in full during the year
ended April 25, 1997.
Subject to certain provisions of the Plan, in the event a terminated plan
participant desires to sell his or her shares of HLMI's stock, or for certain
employees who elect to diversify their account balances, HLMI may be required to
purchase the shares from the participant at their fair market value. During the
year ended April 26, 1996, HLMI had stock purchases of 557 shares from plan
participants. As of April 26, 1996, 43,343 shares were allocated to participant
accounts and the fair value per share was $56.50 based on an April 30, 1995
valuation.
During the year ended April 25, 1997, HLMI did not purchase any shares from
plan participants and as of April 25, 1997, 46,858 shares were allocated to
participant accounts.
F-24
<PAGE>
HLMI
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. CONTINGENCIES
HLMI is involved in various disputes and legal actions related to contract
operations. In the opinion of HLMI management, the ultimate resolution of these
actions will not have a material effect on HLMI's financial position or future
results of operations.
11. RELATED PARTY TRANSACTIONS
During the years ended April 26, 1996 and April 25, 1997, HLMI incurred
$254,137 and $257,017, respectively, in financing advisory fees related to debt
financings, for services provided by a director.
12. OTHER MATTERS
On May 29, 1997, HLMI executed a Management and Services Agreement with HLM
Design Inc ("HLM, Design"). The majority shareholders of Design are officers of
HLMI and own 100% of the common stock of HLMI. Under the Management and Services
Agreement, Design will manage all functions of HLMI except for architectural
services regulated by the various states in which HLMI operates. As compensation
for such management services, Design will be entitled to substantially all the
net cash flow generated by HLMI. In addition, HLM, Design and the shareholders
of HLMI have entered into agreements that provide HLM Design with the right of
first refusal, by selection of qualified individuals, for any purchase or sale
of shares of HLMI's stock.
Effective May 23, 1997, HLMI sold 50,000 newly issued shares to BBH Corp.,
a Delaware corporation, purchased 50,000 shares in HLMI for $3.2 million. On May
23, 1997, BBH Corp. merged into HLMI and each BBH Corp. share outstanding at the
time of merger was converted into one share of HLMI's stock. All of HLMI's
shares held by BBH Corp. were canceled and retired.
Effective as of May 31, 1997, HLMI repurchased all 46,858 shares from the
ESOP for $64 per share as part of a merger agreement with BBH Corp. As a result
of this transaction, the ESOP will effectively cease once the proceeds of the
sale have been distributed by the Trustee to the ESOP's participants following
IRS approval of the ESOP's termination.
F-25
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HLM DESIGN OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 6
Use of Proceeds...................................... 9
Dividend Policy...................................... 9
Capitalization....................................... 9
Dilution............................................. 10
Selected Financial Data.............................. 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 14
Business............................................. 19
Management........................................... 23
Certain Transactions................................. 30
Principal Stockholders............................... 31
Description of Capital Stock......................... 32
Shares Eligible for Future Sale...................... 35
Underwriting......................................... 36
Legal Matters........................................ 37
Experts.............................................. 37
Additional Information............................... 38
Index to Financial Statements........................ F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SHARES
HLM DESIGN, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
, 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All the
amounts shown are estimates, except for the registration fee with the Securities
and Exchange Commission, the NASD filing fee and the AMEX fees.
<TABLE>
<S> <C>
SEC Registration fee...................................................................... $
NASD filing fee...........................................................................
AMEX fees.................................................................................
Transfer agent and registrar fees.........................................................
Accounting fees and expenses..............................................................
Legal fees and expenses...................................................................
"Blue Sky" fees and expenses (including legal fees).......................................
Costs of printing and engraving...........................................................
Miscellaneous.............................................................................
--------
Total................................................................................ $
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws effectively provide that the Registrant shall, to
the full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), indemnify all
persons whom it may indemnify pursuant thereto. In addition, the Registrant's
Certificate of Incorporation eliminates personal liability of its directors to
the full extent permitted by Section 102(b)(7) of the General Corporation Law of
the State of Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers 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, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to matters
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 interest 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 officers or directors are reasonably entitled to indemnification for
such expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provisions shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.
The Company intends to obtain, prior to the effective date of the
Registration Statement, insurance against liabilities under the Securities Act
of 1933 for the benefit of its officers and directors.
Section of the Underwriting Agreement (filed as Exhibit 1.1 to this
Registration Statement) provides that the Underwriters severally and not jointly
will indemnify and hold harmless the Registrant and each director, officer or
controlling person of the Registrant from and against any liability caused by
any statement or omission in the Registration Statement or Prospectus based upon
information furnished to the Registrant by the Underwriters for use therein.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except as hereinafter set forth, there have been no sales of unregistered
securities by the Registrant within the past three years.
As of March 20, 1997, as part of the original organization of HLM Design,
the Registrant issued 20,500 shares of Common Stock to Joseph Harris, 20,500
shares of Common Stock to Vernon Brannon and 7,500 shares of Common Stock to
William Blalock in exchange for $1,000 from each person.
On May 16, 1997, May 19, 1997, May 28, 1997, July 8, 1997, July 14, 1997
and August 22, 1997 the Registrant issued an aggregate of 2,140 shares of Common
Stock to senior level employees of the Company in exchange for $14.81 per share.
As of May 30, 1997 and September 10, 1997 the Registrant issued warrants to
purchase 16,887 shares of Common Stock for an aggregate of $23,500 in connection
with financing arrangements. On November 10, 1997, Clay R. Caroland exercised
his Warrant and purchased 862 shares of Common Stock at an excercise price of
$.01 per share. In each of the foregoing transactions, the securities were not
registered under the Securities Act, in reliance upon the exemption from
registration provided by Section 4(2) of said Act in view of the sophistication
of the foregoing purchasers, their access to material information, the
disclosures actually made to them by the Registrant and the absence of any
general solicitation or advertising.
On or before the consummation of the Offering, the Registrant will issue to
of its officers and employees, pursuant to the Registrant's Stock Option
Plan, options to purchase shares of Common Stock in the aggregate. Such
securities will not be registered under the Securities Act because such grants
will be without consideration to the Registrant and, consequently, will not
constitute offers or sales within Section 5 of the Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1* Form of Common Stock Certificate
4.2* Form of Common Stock Purchase Warrant
4.3* Registration Rights Agreement dated as of May 30, 1997 by and among HLM Design, Inc., Pacific Capital, L.P.
and Equitas, L.P.
5.1 Form of opinion letter of Parker, Poe, Adams & Bernstein L.L.P. regarding the legality of the securities
registered.
10.1 Management and Services Agreement dated as of May 29, 1997 by and between Hansen Lind Meyer Inc. and HLM
Design.
10.2 Management and Services Agreement dated as of May 29, 1997 by and between HLM of North Carolina, P.C. and HLM
Design.
10.3 Management and Services Agreement dated as of May 29, 1997 by and between HLM of Oregon, Architecture and
Planning, P.C. and HLM Design.
10.4 Stockholders' Agreement dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon and Hansen
Lind Meyer Inc.
10.5 Stockholders' Agreement dated as of May 29, 1997, by and among Joseph M. Harris, Vernon B. Brannon, Phillip J.
Antis and HLM of North Carolina, P.C.
10.6 Stockholders' Agreememt dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon, Viktor A.
Lituczy and HLM of Oregon, Architecture and Planning, P.C.
10.7 Stockholders' Voting Agreement dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon and
William J. Blalock.
10.8* Note Purchase Agreement dated as of May 30, 1997 by and among HLM Design, Inc., Hansen Lind Meyer Inc., BBH
Corp., Pacific Capital, L.P., and Equitas, L.P.
10.9* Promissory Note A-1 dated as of May 30, 1997 by HLM Design, Inc. in favor of Pacific Capital, L.P.
10.10* Promissory Note A-2 dated as of May 30, 1997 by HLM Design, Inc. in favor of Equitas, L.P.
10.11* Collateral Assignment of Contract Rights dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific
Capital, L.P. and Equitas, L.P.
10.12* Security Agreement dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific Capital, L.P. and
Equitas, L.P.
10.13* Affiliate Promissory Note dated May 30, 1997 by BBH Corp. in favor of HLM Design, Inc.
10.14* Collateral Assignment of Promissory Note dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific
Capital, L.P. and Equitas, L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------------
<C> <S>
10.15* Unconditional Guaranty dated as of May 30, 1997 by and between Hansen Lind Meyer Inc. and BBH Corp. in favor
of Pacific Capital, L.P. and Equitas, L.P.
10.16* Guaranty dated as of May 30, 1997 by Joe Harris in favor of Pacific Capital, L.P. and Equitas, L.P.
10.17* Guaranty dated as of May 30, 1997 by Vernon Brannon in favor of Pacific Capital, L.P. and Equitas, L.P.
10.18* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc. and
Joseph M. Harris.
10.19* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc. and
Vernon B. Brannon.
10.20* Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen Lind
Meyer Inc.
10.21* Security Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen
Lind Meyer Inc.
10.22* Guaranty (Limited in Amount) dated as of May 30, 1997 by and among Vernon B. Brannon, William J. Blalock and
Joseph M. Harris.
10.23* Form of HLM Design, Inc. Stock Option Plan.
10.24* Form of HLM Design, Inc. Employee Stock Purchase Plan.
10.25* Form of Employment Agreement between HLM Design, Inc. and Joseph M. Harris.
10.26* Form of Employment Agreement between HLM Design, Inc. and Vernon B. Brannon.
10.27* Financial Advisory Agreement dated as of February 17, 1995 by and between Blalock and Company and HLMI.
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Form of Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration
Statement)
24.1 Power of Attorney (contained on the signature page to the Registration Statement)
</TABLE>
- ---------------
* To be furnished by Amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing or closings specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
may be required by the Underwriters in order to permit prompt delivery to each
purchaser.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised 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. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
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 Charlotte, North Carolina on November
20, 1997.
HLM DESIGN, INC.
By: /s/_______JOSEPH M. HARRIS_________
JOSEPH M. HARRIS
PRESIDENT
POWER OF ATTORNEY
We, the undersigned directors and officers of HLM Design, Inc., do hereby
constitute and appoint each of Joseph M. Harris and Vernon B. Brannon, each with
full power of substitution, our true and lawful attorney-in-fact and agent to do
any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things either of them may deem necessary or
advisable to enable HLM Design, Inc. to comply with the Securities Act of 1933,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for any or all of
us in our names, in the capacities stated below, any and all amendments
(including post-effective amendments) hereto; and we do hereby ratify and
confirm all that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
/s/JOSEPH M. HARRIS President, Chief Executive Officer November 20, 1997
JOSEPH M. HARRIS (principal executive officer) and
Chairman
/s/VERNON B. BRANNON Senior Vice President, Treasurer, Chief November 20, 1997
VERNON B. BRANNON Financial Officer (principal financial
and accounting officer) and Director
/s/CLAY R. CAROLAND III Director November 20, 1997
CLAY R. CAROLAND III
/s/SHANNON LEROY Director November 20, 1997
SHANNON LEROY
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1* Form of Common Stock Certificate
4.2* Form of Common Stock Purchase Warrant
4.3* Registration Rights Agreement dated as of May 30, 1997 by and among HLM Design, Inc., Pacific Capital, L.P.
and Equitas, L.P.
5.1 Form of opinion letter of Parker, Poe, Adams & Bernstein L.L.P. regarding the legality of the securities
registered.
10.1 Management and Services Agreement dated as of May 29, 1997 by and between Hansen Lind Meyer Inc. and HLM
Design.
10.2 Management and Services Agreement dated as of May 29, 1997 by and between HLM of North Carolina, P.C. and HLM
Design.
10.3 Management and Services Agreement dated as of May 29, 1997 by and between HLM of Oregon, Architecture and
Planning, P.C. and HLM Design.
10.4 Stockholders' Agreement dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon and Hansen
Lind Meyer Inc.
10.5 Stockholders' Agreement dated as of May 29, 1997, by and among Joseph M. Harris, Vernon B. Brannon, Phillip J.
Antis and HLM of North Carolina, P.C.
10.6 Stockholders' Agreememt dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon, Viktor A.
Lituczy and HLM of Oregon, Architecture and Planning, P.C.
10.7 Stockholders' Voting Agreement dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon and
William J. Blalock.
10.8* Note Purchase Agreement dated as of May 30, 1997 by and among HLM Design, Inc., Hansen Lind Meyer Inc., BBH
Corp., Pacific Capital, L.P., and Equitas, L.P.
10.9* Promissory Note A-1 dated as of May 30, 1997 by HLM Design, Inc. in favor of Pacific Capital, L.P.
10.10* Promissory Note A-2 dated as of May 30, 1997 by HLM Design, Inc. in favor of Equitas, L.P.
10.11* Collateral Assignment of Contract Rights dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific
Capital, L.P. and Equitas, L.P.
10.12* Security Agreement dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific Capital, L.P. and
Equitas, L.P.
10.13* Affiliate Promissory Note dated May 30, 1997 by BBH Corp. in favor of HLM Design, Inc.
10.14* Collateral Assignment of Promissory Note dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific
Capital, L.P. and Equitas, L.P.
10.15* Unconditional Guaranty dated as of May 30, 1997 by and between Hansen Lind Meyer Inc. and BBH Corp. in favor
of Pacific Capital, L.P. and Equitas, L.P.
10.16* Guaranty dated as of May 30, 1997 by Joe Harris in favor of Pacific Capital, L.P. and Equitas, L.P.
10.17* Guaranty dated as of May 30, 1997 by Vernon Brannon in favor of Pacific Capital, L.P. and Equitas, L.P.
10.18* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc. and
Joseph M. Harris.
10.19* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc. and
Vernon B. Brannon.
10.20* Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen Lind
Meyer Inc.
10.21* Security Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen
Lind Meyer Inc.
10.22* Guaranty (Limited in Amount) dated as of May 30, 1997 by and among Vernon B. Brannon, William J. Blalock and
Joseph M. Harris.
10.23* Form of HLM Design, Inc. Stock Option Plan.
10.24* Form of HLM Design, Inc. Employee Stock Purchase Plan.
10.25* Form of Employment Agreement between HLM Design, Inc. and Joseph M. Harris.
10.26* Form of Employment Agreement between HLM Design, Inc. and Vernon B. Brannon.
10.27* Financial Advisory Agreement dated as of February 17, 1995 by and between Blalock and Company and HLMI.
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Form of Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration
Statement)
24.1 Power of Attorney (contained on the signature page to this Registration Statement)
</TABLE>
- ---------------
* To be furnished by Amendment.
<PAGE>
Exhibit 3.2
BYLAWS
OF
HLM DESIGN, INC.
ARTICLE 1 - REGISTERED AND OTHER OFFICES
SECTION 1.01. REGISTERED OFFICE.
The address of the initial registered office in the State of Delaware
and the name of the initial registered agent of HLM Design, Inc. (the
"Corporation") at such address are set forth in the Amended and Restated
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"). The Corporation may, from time to time, designate a different
address as its registered office or a different person as its registered agent,
or both; provided, however, that such designation shall become effective upon
the filing of a statement of such change with the Department of State of the
State of Delaware as is required by law.
SECTION 1.02. OTHER OFFICES.
The Corporation may have other offices, either within or without the
State of Delaware, at such place or places as the Board of Directors (the
"Board") may from time to time determine or the business of the Corporation may
require.
ARTICLE 2 - MEETINGS OF STOCKHOLDERS
SECTION 2.01. ANNUAL MEETINGS.
Annual meetings of stockholders for the election of directors and for
the transaction of any other business properly brought before the stockholders
in accordance with Section 2.08 hereof shall be held at such place, either
within or without the State of Delaware, and at such time and date as the Board,
by resolution, shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect directors to succeed
those directors whose term expires at such annual meeting and may transact such
other business as is properly brought before the stockholders in accordance with
Section 2.08 hereof.
SECTION 2.02. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose, unless otherwise
prescribed by statute or by the Certificate of Incorporation, may be called only
by the President at the request in writing of a majority of the directors. Such
request shall state the purpose of the proposed
<PAGE>
meeting. At each special meeting, the stockholders may transact only the
business that is properly brought before the stockholders in accordance with
Section 2.08 hereof. If a special meeting is adjourned to another time or place,
the stockholders may only transact business at the adjourned meeting that may
have properly been transacted at the original meeting.
SECTION 2.03. NOTICE OF MEETINGS.
Written notice, stating the place, date and time of any annual or
special meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting in accordance with Delaware law, by or at the direction of
the Board or the person or persons calling the meeting, not less than ten (10)
nor more than sixty (60) days before the date of the meeting. If mailed, then
such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, addressed to the stockholder at his address as it appears
on the stock transfer books of the Corporation.
SECTION 2.04. STOCKHOLDER LIST.
The officer or agent who has charge of the stock ledger of the
Corporation shall, at least ten (10) days before each meeting of stockholders,
prepare a complete alphabetical list of the stockholders entitled to vote at the
ensuing meeting, with the address and the number and class and series, if any,
of shares held by each. Said list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall be available for inspection at
the meeting.
SECTION 2.05. QUORUM.
Except as otherwise required by the General Corporation Law of the
State of Delaware (the "Act"), by the Certificate of Incorporation or by these
Bylaws, a majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders. When a specified
item of business is required to be voted on by a class or series of stock, a
majority of the shares of such class or series, represented in person or by
proxy, shall constitute a quorum for the transaction of such item of business by
that class or series. After a quorum has been established at a stockholders'
meeting, the subsequent withdrawal of stockholders, so as to reduce the number
of shares entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
SECTION 2.06. VOTING.
If a quorum is present, the affirmative vote of a majority of the votes
cast by shares entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater number or voting by class is required
by the Act, the Certificate of Incorporation or these Bylaws. Where a separate
vote by class is required, the affirmative vote of a majority of the
2
<PAGE>
votes cast by shares of such class shall be the act of such class unless the
vote of a greater number is required by the Act, the Certificate of
Incorporation or these Bylaws. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders, except as may otherwise be provided by the Act or by the
Certificate of Incorporation. The affirmative vote of a plurality of the votes
cast by shares entitled to vote on the election of directors shall be sufficient
to elect directors. Cumulative voting of shares is prohibited. A stockholder may
vote either in person or by proxy executed in writing by the stockholder or his
duly authorized attorney-in-fact.
SECTION 2.07. ACTION WITHOUT A MEETING.
Any action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation, may be taken without a
meeting, without prior notice and without a vote, if a written consent setting
forth the action so taken shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted; provided, however, that no written consent shall
be effective unless such consent (i) bears the date of signature by each
stockholder signing such consent and (ii) is delivered to the Corporation within
sixty (60) days of the date on which the earliest consent was delivered to the
Corporation. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.08. ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND
OTHER BUSINESS.
(a) Director Nominations. Subject to any rights of holders of Preferred
Stock, only persons who are selected and recommended by the Board of Directors
or a committee of the Board of Directors established to make nominations, or who
are nominated by stockholders in accordance with the procedures set forth in
this Section 2.08, shall be eligible for election at any annual or special
stockholders meeting. Nominations of individuals for election to the Board of
Directors of the Corporation at any annual meeting or any special meeting of
stockholders at which directors are to be elected may be made by a stockholder
of the Corporation entitled to vote for the election of directors at that
meeting as hereinafter set forth. Nominations by stockholders shall be delivered
to the Corporation in accordance with subsection 2.08(c) hereof and shall be
made by written notice (a "Nomination Notice"), which shall set forth, (i) as to
each individual nominated, (A) the name, date of birth, business address and
residence address of such individual and (B) such other information regarding
each individual nominated that is to be disclosed in solicitations of proxies
for an election of directors, or is otherwise required, in each case pursuant to
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder, and, (ii) as to the stockholder submitting the Nomination Notice and
any person acting in concert with such stockholder, (w) the name and business
address of such stockholder and each such person, (x) the name and business
address of such stockholder and each such person as they appear on the
Corporation's books along with a representation that such stockholder is a
stockholder of record of shares of the Corporation's capital stock entitled to
vote at the meeting to which the notice pertains and intends to appear in person
or by proxy at the meeting to nominate the person(s) in the notice, (y) a
description of all arrangements,
3
<PAGE>
understandings or relationships between the stockholder and each nominee and any
other person or persons (naming such person(s)) pursuant to which the
nomination(s) are to be made by the stockholder and (z) the class and number of
shares of the Corporation which are beneficially owned by such stockholder and
each such person. A written consent to being named in the proxy statement as a
nominee and to serving as a director of the Corporation if elected, signed by
each nominee, shall be filed with any Nomination Notice. If the presiding
officer at any meeting of the stockholders determines that any nomination was
not made in accordance with the procedures prescribed by these Bylaws, then he
shall so declare to the stockholders at the meeting, and the defective
nomination shall be disregarded.
(b) Stockholder Business. At any meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors or (c) properly brought
before an annual meeting by a stockholder of record (who was also a stockholder
of record at the time of giving of the notice) in accordance with the procedures
set forth in this Section 2.08. A stockholder's written notice (a "Business
Notice") shall set forth, as to each matter the stockholder proposes to bring
before the meeting: (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and business address of record of the stockholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and (iv) any material interest
of the stockholder in such business. If the presiding officer at any meeting of
stockholders determines that business was not properly brought before the
meeting, then he shall so declare to the stockholders at the meeting, and any
such business not properly brought before the meeting shall not be transacted.
(c) Delivery of Notices. To be timely, any Nomination Notice or
Business Notice must be delivered to, or mailed and received at, the principal
executive office of the Corporation, (i) in the case of an annual meeting that
is called for a date that is within thirty (30) days before or after the
anniversary date of the immediately preceding annual meeting of stockholders,
not less than sixty (60) days nor more than ninety (90) days prior to such
anniversary date, and (ii) in the case of an annual meeting that is called for a
date that is not within thirty (30) days before or after the anniversary date of
the immediately preceding annual meeting, or in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth day following the day on which notice of the date
of the meeting was mailed or public disclosure of the date of the meeting was
made, whichever occurs first.
ARTICLE 3 - DIRECTORS
SECTION 3.01. POWERS.
The business of the Corporation shall be managed by or under the
direction of the Board, which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these Bylaws specifically reserved to the
stockholders.
4
<PAGE>
SECTION 3.02. NUMBER AND TERM.
The Board shall consist of not less than five (5) nor more than seven
(7) directors as a majority of the Board shall from time to time specify. No
reduction in the number of directors shall have the effect of shortening the
term of any incumbent director and when so fixed such number shall continue to
be the authorized number of directors until changed in accordance herewith. The
Board shall be divided into three classes, as nearly equal in number as
possible. Each of the Class I, Class II and Class III directors shall initially
be elected to serve until the 1998, 1999 and 2000 annual meetings of
stockholders, respectively, and, thereafter, the successors in each class of
directors shall be elected to serve until the third (3rd) annual meeting of
stockholders following his election and qualification. Each director shall serve
until his successor shall have been elected and qualified or until his earlier
resignation, removal or death.
SECTION 3.03. RESIGNATIONS.
Any director or member of a committee may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and, if no time be specified, at the time of its receipt by
the Chairman of the Board, the President or the Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless otherwise
specified therein.
SECTION 3.04. VACANCIES.
Subject to any rights of holders of Preferred Stock, any vacancy
occurring in the Board of Directors, including any vacancy created by reason of
an increase in the number of directors, removal, resignation or death, may only
be filled by the affirmative vote of a majority of the remaining directors then
in office though less than a quorum of the Board of Directors, or by a sole
remaining director, as the case may be, and the director(s) so chosen shall hold
office until the next election of the class for which such director(s) has(have)
been chosen, and until his(their) successors are duly elected and qualified, or
until his(their) earlier resignation or removal. In the event of any increase or
decrease in the number of directors, the additional or eliminated directors
shall be classified or chosen so that all classes of directors shall remain or
become as nearly equal in number as possible.
SECTION 3.05. REMOVAL.
Notwithstanding any other provision of these Bylaws to the contrary, a
director may not be removed during his term except for cause.
SECTION 3.06. MEETINGS; PLACE AND TIME.
The Board may hold meetings, both regular and special, either within or
without the State of Delaware, as it may from time to time determine.
5
<PAGE>
SECTION 3.07. REGULAR ANNUAL MEETING.
A regular annual meeting of the Board shall be held immediately
following the annual meeting of stockholders at the same place or at such time
and place as shall be fixed by the vote of the stockholders at the annual
meeting and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a majority of
such Board shall be present.
SECTION 3.08. OTHER REGULAR MEETINGS.
Regular meetings of the Board may be held without notice at such time
and at such place as shall from time to time be determined by the Board.
SECTION 3.09. SPECIAL MEETINGS; NOTICE.
Special meetings of the Board may be called by the President or by the
written request of a majority of directors. Written notice of the time and place
of special meetings shall be given to each director by either personal delivery,
telegram, cablegram or telefax at least two (2) days before the meeting, or by
notice mailed to each director at least five (5) days before the meeting. Notice
of a meeting need not be given to any director who submits a waiver of notice,
whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
SECTION 3.10. QUORUM.
At all meetings of the Board, a majority of the directors then serving
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board, except as may be otherwise specifically provided
by statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3.11. ACTION WITHOUT MEETING.
Unless otherwise restricted by the Certificate of Incorporation, any
action required or permitted to be taken at any meeting of the Board, or of any
committee thereof, may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.12. TELEPHONE MEETINGS.
Unless otherwise restricted by the Certificate of Incorporation,
members of the Board, or of any committee thereof, may participate in a meeting
of the Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons
6
<PAGE>
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
SECTION 3.13. COMMITTEES OF DIRECTORS.
The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. Each such committee may be terminated by the
Board at such time as the Board may determine.
SECTION 3.14. COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board shall have the authority to fix the compensation of
directors. By resolution of the Board, the directors may be paid their expenses,
if any, of attendance at each meeting of the Board (and any committee thereof),
a fixed sum for attendance at each meeting of the Board (and any committee
thereof), and a stated salary as director; provided, however, that any officer
who is also a director shall not be entitled to receive a director's salary or
fees for Board or Committee meeting attendance but shall be entitled to
reimbursement for expenses. Nothing herein contained shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 3.15. DIRECTOR CONFLICTS OF INTEREST.
No contract or other transaction between the Corporation and one or
more of its directors or between the Corporation and any other corporation,
firm, association or entity in which one or more of the directors of this
Corporation are directors or officers or are financially interested, shall be
void or voidable solely because of such relationship or interest or solely
because such director or directors are present at or participate in the meeting
of the Board or a committee thereof which authorizes, approves or ratifies such
contract or transaction or solely because his or their votes are counted for
such purpose, if:
A. The material facts as to his or their relationship or interest and
as to the contract or transaction are disclosed or are known to the Board or
committee, and the Board or committee in good faith authorizes, approves or
ratifies the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
B. The material facts as to his or their relationship or interest and
as to the contract or transaction are disclosed or known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of such stockholders, or
C. The contract or transaction is fair as to the corporation at the
time it is authorized, approved or ratified by the Board, a committee or the
stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
7
<PAGE>
ARTICLE 4 - OFFICERS
SECTION 4.01. OFFICERS.
The officers of the Corporation shall consist of a President, a
Treasurer and a Secretary, shall be elected by the Board and shall hold office
until their successors are elected and qualified, unless such officers resign,
die or are removed prior thereto. In addition, the Board may elect a Chairman, a
Vice Chairman, a Chief Executive Officer, a Chief Operating Officer, a Chief
Financial Officer, a Controller, one or more Vice Presidents or Executive Vice
Presidents, and such Assistant Secretaries and Assistant Treasurers or other
officers as it may deem proper. None of the officers of the Corporation need be
stockholders. The officers shall be elected at the first meeting of the Board
after each annual meeting. More than two offices may be held by the same person,
except the offices of President and Secretary, unless the Certificate of
Incorporation or these Bylaws otherwise provide. The Board shall designate the
President as the Chief Executive Officer of the Corporation.
SECTION 4.02. CHAIRMAN; CHIEF EXECUTIVE OFFICER.
The Chairman of the Board, if one is elected, shall preside at all
meetings of the stockholders and of the Board. The Chairman shall also have and
perform such other duties as from time to time may be assigned to him by the
Board. The Chief Executive Officer shall also have and perform such other duties
as from time to time may be assigned to him by the Board.
SECTION 4.03. PRESIDENT.
The President shall have and perform all duties incident to the office
of President and such other duties as from time to time may be assigned to him
by the Board. If designated as the Chief Executive Officer by the Board, the
President shall, subject to the direction of the Board, supervise and control
the business and management of the Corporation. If there is no Chairman, or in
his absence, the President shall preside at all meetings of the stockholders.
SECTION 4.04. CHIEF OPERATING OFFICER.
The Chief Operating Officer, if one is elected, shall have and perform
such duties as from time to time may be assigned to him by the Chief Executive
Officer.
SECTION 4.05. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer, if one is elected, shall have and perform
such duties as from time to time may be assigned to him by the Chief Executive
Officer.
SECTION 4.06. VICE PRESIDENTS OR EXECUTIVE VICE PRESIDENTS.
If Vice Presidents or Executive Vice Presidents be elected, they shall
have such powers and shall perform such duties as shall be assigned to them by
the President.
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SECTION 4.07. TREASURER.
The Treasurer shall be responsible for the administration of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the President,
taking proper vouchers for such disbursements. He shall render to the President
and the Board at the regular meetings of the Board, or whenever they may request
it, an account of all his transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board, he shall give the
Corporation a bond for the faithful performance of his duties in such amount and
with such surety as the Board shall prescribe.
SECTION 4.08. SECRETARY.
The Secretary shall give, or cause to be given, notice of all meetings
of stockholders and directors, and all other notices required by law or by these
Bylaws, and in case of his absence or refusal or neglect so to do, any such
notice may be given by any person thereunto directed by the the President or the
Board. He shall record all the proceedings of the meetings of the Corporation
and of the Board in a book to be kept for that purpose. He shall keep in safe
custody the seal of the Corporation, and, when authorized by the Board, shall
affix the same to any instrument requiring it, and when so affixed, it shall be
attested by his signature or by the signature of any Assistant Secretary.
SECTION 4.09. CONTROLLER, ASSISTANT TREASURERS AND ASSISTANT
SECRETARIES.
Controller, Assistant Treasurers and Assistant Secretaries, if any be
elected, shall have such powers and shall perform such duties as shall be
assigned to them, respectively, by the the President.
SECTION 4.10. REMOVAL; RESIGNATIONS; VACANCIES.
Any officer elected or appointed by the Board may be removed at any
time, either for or without cause, by the affirmative vote of a majority of the
Board. Section 3.03 shall apply similarly to resignations of officers. Any
vacancy occurring in any office of the Corporation may be filled by the Board.
SECTION 4.11. COMPENSATION.
The compensation of officers of the Corporation shall be established by
the Board or any compensation committee thereof. The fact that an officer is
also a director shall not preclude such person from receiving compensation as an
officer, nor shall it affect the validity of any resolution by the Board fixing
such compensation. The President shall have authority to establish the salaries
of all other employees of the Corporation.
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SECTION 4.12. MECHANICAL ENDORSEMENT.
The President, any Executive Vice President, any Vice President, or the
Secretary may authorize any endorsement on behalf of the Corporation to be made
by such mechanical means or stamps as any of such officers may deem appropriate.
ARTICLE 5 - MISCELLANEOUS
SECTION 5.01. STOCK CERTIFICATES.
(a) Issuance. The Corporation may issue the shares of stock authorized
by its Certificate of Incorporation and none other. Shares may be issued only
pursuant to a resolution adopted by the Board. Every holder of shares in the
Corporation shall be entitled to have a certificate representing all shares to
which he is entitled. No certificate shall be issued for any share until such
share is fully paid.
(b) Signatures. Certificates representing shares in the Corporation
shall be signed by or in the name of the Corporation by the President, Executive
Vice President or Vice President, and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with
the seal of the Corporation or a facsimile thereof. Any or all of the signatures
on a certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
(c) Form. Each certificate representing shares shall state upon the
face thereof: the name of the Corporation; that the Corporation is organized
under the laws of Delaware; the name of the person or persons to whom it is
issued; the number and class of shares, and the designation of the series, if
any, which such certificate represents; and the par value of each share
represented by such certificate, or a statement that the shares are without par
value. Each certificate shall otherwise comply, in all respects, with the
requirements of law.
(d) Transfer of Stock. The Corporation shall register a stock
certificate presented to it for transfer if the certificate is properly endorsed
by the holder of record or by his duly authorized attorney; provided, however,
that the Corporation or its transfer agent may require the signature of such
person to be guaranteed by a commercial bank or trust company or by a member of
the New York or American Stock Exchange.
(e) Lost, Stolen or Destroyed Certificates. The Board may authorize the
Corporation to issue a new stock certificate in the place of any certificate
previously issued if the holder of record of the certificate (i) makes proof in
affidavit form that it has been lost, destroyed or wrongfully taken; (ii)
requests the issue of a new certificate before the Corporation has notice that
the certificate has been acquired by a purchaser for value in good faith and
without notice of any adverse claim; (iii) gives bond in such form, if any, as
the Corporation may direct, to indemnify the Corporation, the transfer agent and
registrar against any claim that may be made
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on account of the alleged loss, destruction or theft of a certificate; and (iv)
satisfies any other reasonable requirements imposed by the Corporation.
(f) Transfer Agents; Registrars; Rules Respecting Certificate. The
Board may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars. The Board may make such further
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of stock certificates of the Corporation.
SECTION 5.02. STOCKHOLDERS RECORD DATE.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
and, with respect to record dates to be established in connection with
stockholders meetings, which shall not be more than sixty (60) nor less than ten
(10) days before the date of such meeting, or, with respect to record dates to
be established in connection with other actions, which shall not be more than
sixty (60) days prior to such other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board may fix a
new record date for the adjourned meeting.
SECTION 5.03. REGISTERED STOCKHOLDERS.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
SECTION 5.04. DIVIDENDS.
Subject to the provisions of the Certificate of Incorporation, the
Board may, out of funds legally available therefor at any regular or special
meeting, declare dividends upon the capital stock of the Corporation as and when
they deem expedient. Dividends may be paid in cash, in property or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation. Before declaring any dividends, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
from time to time in its discretion deems proper for working capital or as a
reserve fund to meet contingencies or for such other purpose as the Board shall
deem conducive to the interests of the Corporation, and the Board may modify or
abolish any such reserve.
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SECTION 5.05. SEAL.
The corporate seal shall be circular in form and shall contain the name
of the Corporation and the words "CORPORATE SEAL, DELAWARE." Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
SECTION 5.06. FISCAL YEAR.
The fiscal year of the Corporation shall be determined by the Board.
SECTION 5.07. CHECKS.
All checks, drafts, or other orders for the payment of money and notes
or other evidences of indebtedness issued in the name of the Corporation shall
be signed by such officer or officers, agent or agents of the Corporation, and
in such manner as shall be determined from time to time by resolution of the
Board. The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation in such depositories as may be authorized
by the President.
SECTION 5.08. NOTICE AND WAIVER OF NOTICE.
Whenever any notice is required by these Bylaws to be given, personal
notice is not meant unless expressly stated, and any notice so required shall be
deemed to be sufficient if given by depositing the same in the United States
mail, airmail postage prepaid, addressed to the person entitled thereto at his
address as it appears on the records of the Corporation, and such notice shall
be deemed to have been given on the day of such mailing. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation or these Bylaws, a waiver thereof in writing signed by the person
or person entitled to said notice, whether before or after the time stated
therein, shall be deemed proper notice.
SECTION 5.09. BOOKS AND RECORDS.
The Corporation shall keep correct and complete books and records of
accounts and shall keep minutes of the proceedings of its stockholders, the
Board and committees thereof.
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ARTICLE 6 - INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS
SECTION 6.01. INDEMNIFICATION.
Any person who has been made or is made a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) (hereinafter a "proceeding"), by reason
of the fact that he is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director, officer, fiduciary
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Act, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection therewith;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) that was
initiated by such person only if such proceeding (or part thereof) was
authorized or ratified by the Board. The right to indemnification conferred in
this Section 6.01 shall be a contract right.
For purposes of this Section 6.01, reference to the "Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, fiduciaries and agents so that
any person who is or was a director, officer, fiduciary or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, shall stand in the same position under the
provisions of this Section 6.01, with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 6.02. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND
OFFICERS.
Any indemnification of a director or officer of the Corporation under
Section 6.01 above or advance of expenses under Section 6.03 below shall be made
promptly, and in any event within thirty (30) days, upon the written request of
the director or officer subject to the following provisions. If a determination
by the Board that the director or officer is entitled to indemnification
pursuant to this Article 6 is required, and the Corporation fails to respond
within sixty (60) days to a written request for indemnity, the Corporation shall
be deemed to have approved the request. If the Corporation denies a written
request for indemnification or advancing of expenses, in whole or in part, or if
payment in full pursuant to such request is not made within thirty (30) days,
the right to indemnification or advances as granted by this Article 6 shall be
enforceable by the director or officer in any court of competent jurisdiction.
Such
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person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the Corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Act for the Corporation to indemnify the claimant for the amount claimed,
but the burden of such defense shall be on the Corporation. Neither the failure
of the Corporation (including the Board, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Act, nor
an actual determination by the Corporation (including the Board, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
SECTION 6.03. PAYMENT OF EXPENSES IN ADVANCE.
Expenses (including reasonable attorneys' fees) incurred by any person
described in Section 6.01 in defending an action, suit or proceeding referred to
in Section 6.01 above may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in Section
6.01.
SECTION 6.04. INDEMNIFICATION NOT EXCLUSIVE.
The indemnification and right to payment of expenses in advance of
final disposition provided for under this Article 6 shall not be deemed
exclusive of (i) any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, any agreement, any
insurance purchased by the Corporation, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office or (ii) the power of the
Corporation to indemnify any person who is or was an employee or agent of the
Corporation or of another corporation, joint venture, trust or enterprise that
he is serving or has served at the request of the Corporation, to the same
extent and in the same situations and subject to the same determinations with
respect to directors and officers.
SECTION 6.05. OTHER.
Any repeal or modification of this Article 6 by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect the
indemnification of any officer or director of the Corporation existing at the
time of such repeal or modification.
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SECTION 6.06. INDEMNIFICATION AGREEMENTS.
The Corporation may enter into indemnification agreements with its
officers and directors.
SECTION 6.07. INSURANCE.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such and which insurance
coverage may extend indemnification protection that is broader and more
comprehensive than the indemnification benefits granted under this Article.
SECTION 6.08. CONTINUED COVERAGE.
Unless otherwise provided herein, the indemnification and advancement
of expenses extended to a person that has qualified for indemnification and
advancement of expenses under the provisions of this Article shall not be
terminated when the person has ceased to be a director, officer, employee or
agent for all causes of action against the indemnified party based on acts and
events occurring prior to the termination of the relationship with the
Corporation and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE 7- AMENDMENTS
In furtherance and not in limitation of the powers conferred by
statute, the Board is expressly authorized to adopt, amend or repeal these
Bylaws by a majority vote at any regular or special meeting of the Board or by
written consent, subject to the power of the stockholders of the Corporation to
amend or repeal any Bylaw whether adopted by the Board or the stockholders.
ARTICLE 8- CONFLICT OF TERMS
Except as otherwise explicitly provided in these Bylaws, if any
provision contained in these Bylaws is in conflict with, inconsistent with, or
imposes greater obligations or burdens than any provision in the Certificate of
Incorporation, the provision contained in the Certificate of Incorporation shall
govern and control to the extent of such conflict, inconsistency or obligation
or burden.
* * * * * * * * * *
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EXHIBIT 5.1
, 1997
Board of Directors
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina
Dear Sirs:
We are acting as counsel to HLM Design, Inc., a Delaware corporation
(the "Company"), in connection with the preparation, execution, filing and
processing, with the Securities and Exchange Commission (the "Commission"),
pursuant to the Securities Act of 1933, as amended (the "Act"), of a
Registration Statement (No. 333- ) on Form S-1 (as amended through the date
hereof, the "Registration Statement") and the issuance and sale of the Shares
referred to below. This opinion is furnished to you for filing with the
Commission pursuant to Item 601(b)(5) of Regulation S-K promulgated under the
Act.
The Registration Statement covers the issuance and sale of up to shares
(the "Shares") of Common Stock, par value $.01 per share (the "Common Stock"),
consisting of shares to be offered by the Company, and up to shares that the
several underwriters to be party to the Underwriting Agreement referred to below
(the "Underwriters") will have an option to purchase from the Company solely to
cover over-allotments. The Shares are proposed to be sold pursuant to an
Underwriting Agreement among the Company, Berthel Fisher & Co. Financial
Services, Inc. and Westport Resources, Inc., as representatives of the
Underwriters, a form of which Underwriting Agreement is filed as Exhibit 1.1 to
the Registration Statement (the "Underwriting Agreement").
In our representation of the Company, we have examined the Registration
Statement, the Underwriting Agreement, the Company's Amended and Restated
Certificate of Incorporation and Bylaws, each as amended to date, all applicable
actions of the Company's Board of Directors recorded in the Company's minute
book, the form of certificate evidencing the Shares and such other documents as
we have considered necessary for purposes of rendering the opinions expressed
below.
<PAGE>
Board of Directors
HLM Design, Inc.
, 1997
Page 2
Based upon the foregoing, we are of the following opinion:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
2. The completion, execution, attestation, issuance and delivery
against payment by the Company of the Shares pursuant to the
terms of the Underwriting Agreement have been duly authorized
by all necessary corporate action on behalf of the Company.
3. When (a) the Underwriting Agreement in definitive form shall
have been duly completed by including therein the purchase
price of the Shares and related terms, (b) the Underwriting
Agreement as so completed shall have been duly executed and
delivered by or on behalf of the Underwriters and by or on
behalf of the Company, and (c) the Shares shall have been duly
completed, executed, attested, issued, delivered and paid for
in accordance with the terms of the Underwriting Agreement,
then the Shares will be validly issued, fully paid and
nonassessable.
The opinions expressed herein are limited to the laws of the State of
North Carolina, the General Corporation Law of the State of Delaware and the
Act.
We hereby consent to the use of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the use of our name under the heading "Legal
Matters" in related prospectuses. In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
<PAGE>
EXHIBIT 10.1
MANAGEMENT AND SERVICES AGREEMENT
This Management and Services Agreement (the "Agreement") is entered
into effective as of May 29, 1997, by and between HANSEN LIND MEYER INC., an
Iowa corporation (hereinafter referred to as "HLM"), and HLM DESIGN, INC., a
Delaware corporation (hereinafter referred to as "Design").
RECITALS
WHEREAS, HLM provides architectural and engineering services through
the services of duly licensed architects and engineers engaged by HLM as
employees or independent contractors;
WHEREAS, Design is in the business of providing comprehensive
management services to architectural and engineering firms, including the
provision of office space and equipment, the recruitment, hiring and employment
of architectural and engineering personnel and support personnel, and the
provision of billing and collection services;
WHEREAS, Design has special expertise and experience in the operation,
management and marketing of the non-architectural and non-engineering aspects of
architectural and engineering firms of the type intended to be operated by HLM;
and
<PAGE>
WHEREAS, HLM desires that Design provide the above-described services
to HLM, and Design desires to provide such services to HLM, pursuant to the
provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. Term of Agreement; Termination. Commencing on the effective date
set forth above, and subject to the termination provisions set forth below, this
Agreement shall continue in effect until the fortieth (40th) annual anniversary
of the effective date hereof. Thereafter, this Agreement shall automatically
renew for successive one (1) year terms, unless either party shall provide the
other with written notice of termination at least thirty (30) days prior to the
expiration of the then current term hereof. Notwithstanding the foregoing,
either party hereto may terminate this Agreement at any time upon written notice
to the other in the event of any of the following:
a. The filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the other, or
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upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the other,
except for the filing of a petition in involuntary bankruptcy against
the other which is dismissed within thirty (30) days thereafter; or
b. In the event the other shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement
and such default shall continue for a period of thirty (30) days after
written notice thereof has been given to the defaulting party by the
non-defaulting party.
2. Obligations of Design.
a. General. HLM hereby appoints Design as its sole and
exclusive manager and administrator of all of HLM's day-to-day business
functions. HLM acknowledges and agrees that the purpose and intent of
this Agreement is to relieve HLM to the maximum extent possible of the
administrative, accounting, personnel and business aspects of HLM's
operations, with Design assuming responsibility and being given any and
all necessary authority to perform these functions. In connection with
the foregoing, HLM hereby agrees that Design shall have the authority,
duties and obligations set forth in Sections
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2.b. through 2.d. below, and HLM agrees to take no actions in
contravention thereof without the express prior written consent of
Design.
b. Financial Planning. Design shall prepare such budgets,
plans and policies as are necessary and appropriate in connection with
the operations of HLM, reflecting the anticipated sources and uses of
capital for HLM, and HLM's anticipated revenues and expenses. All
operations of HLM shall be conducted in accordance with such budgets,
plans and policies, which shall establish, by way of example and not
limitation, the following:
(1) the amounts, purpose and priority of all capital
expenditures;
(2) the amounts and sources of all additional
capital, including without way of limitation the issuance of
any and all additional capital stock and the incurring of any
and all indebtedness;
(3) the amounts, manner of payment and timing of all
dividends; and
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(4) the amount, form and manner of payment of all
employee compensation and benefits, including without way of
limitation all compensation and benefits pertaining to
personnel employed or engaged by HLM, or pertaining to
personnel employed or engaged by Design on HLM's behalf.
c. Facilities, Equipment and Supplies. During the term of
this Agreement, and all renewals and extensions hereof, Design shall
analyze, select and negotiate for the lease and/or purchase by HLM or
Design, as the case may be, of (1) suitable office facilities
("Offices") in which HLM can provide architectural and engineering
services, (2) such architectural and engineering equipment, office
equipment, furniture, fixtures, furnishings and leasehold improvements
(collectively, "Equipment") as necessary for the performance by HLM of
its architectural and engineering services, and (3) business supplies
of every kind, name or nature, which may reasonably be required by HLM
for its operations. Design shall have the authority to negotiate for
the purchase or lease of any or all such items on HLM's behalf, either
in HLM's or Design's name, as shall be deemed appropriate by Design in
its sole discretion, and all such items shall in all events be subject
to, and leased or purchased in accordance
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with, the budgets, plans and policies referenced in Section 2.b. above.
d. Development, Management and Administrative Services. During
the term of this Agreement, and all renewals and extensions hereof,
Design shall furnish to HLM, or assist HLM in obtaining, as deemed
appropriate by Design in its sole discretion, all of the
non-architectural and non-engineering development, management and
administrative services as may be needed by HLM in connection with
HLM's operations. Additionally, Design shall provide HLM with such
advice and supervision regarding all aspects of HLM's architectural and
engineering services as HLM may request from time to time, subject in
all events to the limitations set forth in Section 4 hereof. Such
non-architectural and non-engineering development, management and
administrative services shall include, by way of example and not
limitation, the following:
(1) Bookkeeping and Accounts. Design shall establish
and maintain all bookkeeping and accounting services necessary and
appropriate to support the Offices, including, without limitation,
maintenance, custody and supervision of all business records, papers,
documents, ledgers, journals and reports, and the
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<PAGE>
preparation, distribution and recordation of all bills and statements
for professional services rendered by HLM (collectively, "Books and
Records"). Notwithstanding the foregoing, HLM shall be responsible for
maintaining full and accurate accounting records of all services
rendered and such additional information as may be required in order
for HLM to satisfy any and all applicable reporting requirements.
(2) General Administrative Services. Design shall
provide HLM with overall supervision and management, including the
maintenance and repair, of the Offices, and of all Equipment located in
or at the Offices.
(3) Contract Negotiation and Administration. Design
shall negotiate and administer all non- architectural and
non-engineering aspects of all agreements pertaining to the provision
of architectural and engineering services by HLM to third parties
("Architectural and Engineering Agreements"). By way of example and not
limitation, Design shall have the authority to negotiate and administer
the provisions of the Architectural and Engineering Agreements
pertaining to such matters as pricing and scheduling, and shall also
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provide HLM with such advice and supervision regarding all other
aspects of the Architectural and Engineering Agreements as HLM may
request from time to time, subject in all events to the limitations set
forth in Section 4 hereof. Additionally, Design shall negotiate and
administer all aspects of HLM's agreements which do not pertain
directly to the provision of architectural or engineering services by
HLM to third parties ("General Business Contracts").
(4) Personnel. Subject to the provisions of Section 4
hereof, Design shall provide such personnel to HLM as Design shall
determine in its sole discretion to be necessary to enable HLM to
perform all services contemplated under the Architectural and
Engineering Agreements and the General Business Contracts. Design shall
provide such personnel by either (1) engaging such personnel directly
on HLM's behalf (for example, as employees or independent contractors
of HLM), or (2) engaging such personnel directly (for example, as
employees or independent contractors of Design) and then leasing or
subcontracting such personnel to HLM. Design shall have the sole
discretion to determine the manner in which such personnel are provided
to HLM. In no event
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shall Design provide or be required to provide architect or engineer
employees or independent contractors (whether licensed or unlicensed)
to HLM in any manner not in compliance with all applicable codes, rules
and regulations adopted by any authority regulating the licensing of
architects or engineers for the applicable jurisdiction. Design shall
advise HLM with respect to the hiring and termination of all HLM
personnel, and shall determine compensation for all HLM and all Design
personnel, including determination of salaries, fringe benefits,
bonuses, health and disability insurance, workers' compensation
insurance, and any other benefits that each such employee shall
receive. HLM shall compensate all HLM personnel (including those leased
or subcontracted to HLM by Design) and make any and all applicable
withholding filings and payments in connection therewith. Additionally,
Design shall manage and supervise any licensed personnel employed or
engaged by HLM, or employed or engaged by Design on behalf of HLM,
regarding those aspects of their employment that do not involve
performance under the scope of their licensure; provided, however, that
HLM shall manage and supervise all activities of such licensed
personnel performed under the scope of their licensure.
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(5) Security and Maintenance. Design shall advise HLM
with respect to all services and personnel necessary to
provide HLM with proper security, maintenance, and cleanliness
of the Offices and the Equipment.
(6) Architectural and Engineering Recruiting and
Training. Design shall, in its sole discretion, either perform
on HLM's behalf, or assist HLM in performing, all recruiting,
screening and evaluating of prospective architect and engineer
employees and contractors for HLM, and Design shall assist HLM
in training HLM's architects and engineers in the delivery of
architectural and engineering services at the Offices in a
manner consistent with HLM's and Design's established
standards, practices, procedures and policies.
(7) Insurance. Design shall, in its sole discretion,
either provide directly or advise and direct HLM with respect
to selecting and negotiating for the provision of professional
liability, commercial general liability and property insurance
to protect against loss in the nature of fire, other
catastrophe, theft, business
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interruption, general liability, and non-architectural and
non-engineering negligence.
(8) Billing and Collections. In order to relieve HLM
of the administrative burden of handling the billing and
collection of sums due under Architectural and Engineering
Agreements, Design shall be responsible, on behalf of and for
HLM, for billing and collecting the charges made with respect
to Architectural and Engineering Agreements and any or all
other services provided at the Offices; provided that
responsibility for specific accounts may be retained by HLM at
the mutual agreement of HLM and Design. In such event HLM
agrees that it will keep and provide to Design all invoices,
documents, evidence and records necessary for the purpose of
supporting the fees charged for all architectural and
engineering services from time to time. It is expressly
understood that the extent to which Design will endeavor to
collect such charges, the methods of collecting, the settling
of disputes with respect to charges, and the writing off of
charges that may be or appear to be uncollectible shall at all
times be within the sole discretion of Design (but subject to
all applicable governmental regulations and the terms and
conditions
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of applicable agreements), and that Design does not guarantee
the extent to which any charges billed will be collected. At
HLM's request, Design will reassign to HLM for collection by
HLM, any accounts which Design has determined to be
uncollectible.
(9) Bank Accounts and Disbursements. During the term
of this Agreement, Design shall have access to any and all
bank accounts of HLM, and in connection therewith HLM hereby
appoints Design for the term hereof as its lawful
attorney-in-fact to deposit in such accounts fees generated
from HLM's architectural and engineering practice which are
collected by Design, and to make withdrawals from such
accounts for the payment of expenses arising from or relating
to HLM's operations, for Design's compensation hereunder, and
for all other costs, expenses and disbursements which are
required or authorized by this Agreement. Such withdrawals and
payments may be made by Design at any time and from time to
time as Design deems appropriate in its sole discretion. For
administrative convenience, HLM shall not make any
withdrawal(s) from such accounts without the prior written
consent of Design. HLM agrees to execute from time to time any
and all additional documents
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required by the banks at which HLM's accounts are maintained to
effectuate the power of attorney granted above.
(10) Approval of Stock Transfers. Design shall have
the sole authority and discretion to approve or deny on behalf
of HLM any and all proposals by stockholders of HLM to
encumber, sell, pledge, give or otherwise transfer HLM capital
stock.
(11) Marketing Support. Design shall provide HLM
with such marketing support as Design in its sole discretion
deems appropriate to develop, enhance and continue HLM's
practice. Such support may include, by way of example and not
limitation, making available such brochures, literature and
sales aids as Design develops, providing HLM with access to
pertinent economic and market data acquired or developed by
Design, and developing and implementing a comprehensive
marketing plan designed to foster client relations and enhance
HLM's name recognition as a high quality provider of
professional architectural and engineering services.
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3. Compliance with Architectural and Engineering Agreements. Design
agrees to perform its duties hereunder so as to comply with HLM's obligations
under the Architectural and Engineering Agreements.
4. Conduct of Architectural and Engineering Practice. HLM agrees to
assign a duly licensed architect and, to the extent engineering services are
provided, a duly licensed engineer to assure that its Offices are adequately
staffed with such architectural and engineering personnel as may be necessary to
efficiently perform architectural and engineering services at such Offices.
Notwithstanding any provision in this Agreement to the contrary, Design shall
have no authority, directly or indirectly, to perform, and shall not perform,
any function of HLM's operations pertaining to services ("Professional
Services") which are required to be performed by duly licensed architects and/or
engineers pursuant to any and all applicable codes, or rules or regulations
adopted by any authority regulating the licensing of architects (the
"Architecture Board") or engineers (the "Engineering Board"). Design may,
however, advise HLM as to the relationship between HLM's performance of
Professional Services and the overall administrative and business functions of
HLM's operations. To the extent Design assists HLM in performing Professional
Services, all personnel employed or engaged by HLM or by Design on HLM's behalf
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shall be subject to the professional direction and supervision of HLM, and in
the performance of such Professional Services, such personnel shall not be
subject to any direction or control by, or liability to, Design, except as may
be specifically authorized by HLM in accordance with applicable codes, rules or
regulations.
To the extent any provision of this Agreement is determined to violate
any provision of the applicable codes, or any rule or regulation of the
Architecture Board or of the Engineering Board, then such provision of this
Agreement shall be deemed modified to the minimum extent necessary to cure such
violation.
5. Non-Exclusive Nature of Design's Duties. The parties acknowledge
that Design is in the business of providing services of the nature provided to
HLM hereunder to architectural and engineering firms located throughout the
United States, and that Design may currently be a party to or may at any time
hereafter enter into contracts with other architectural and engineering firms in
that regard. Additionally, Design may also directly or indirectly provide
architectural and engineering services from time to time. No such activities by
Design shall be deemed a breach of or a conflict with the duties of Design
hereunder.
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6. Design's Compensation. As compensation for the provision of its
services hereunder, Design shall be paid, no less frequently than on a quarterly
basis, an estimate of the balance, if any, of HLM's cash flow (as determined in
accordance with generally accepted accounting principles applied on a consistent
basis) following the payment by HLM or by Design on HLM's behalf of all of HLM's
expenses, and the deduction from such cash flow of an amount equal to one
percent (1.00%) of HLM's net profits (as determined in accordance with generally
accepted accounting principles applied on a consistent basis) for such time
period as has elapsed subsequent to the last payment to Design (such deducted
amount to be retained by HLM as compensation for services provided to HLM by HLM
or by HLM's personnel, and to be distributed or retained by HLM as HLM deems
appropriate in its sole discretion).
7. Ownership of Books and Records. The books and records generated and
maintained by each of the parties hereto shall be and remain the property of
each such party. HLM agrees to make all of its books and records (subject to
applicable ethical and legal confidentiality requirements) available for
inspection, examination or copying by duly authorized representatives of Design
from time to time throughout the term hereof, and upon written request by Design
to HLM following the termination hereof, all to enable Design to better perform
its duties hereunder.
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8. Liability and Indemnification. Neither Design nor its stockholders,
directors, officers, employees or agents shall have any liability for action
taken or omitted by such person(s) in the performance of its duties hereunder if
such action or omission is taken in good faith and without negligence. Each
party to this Agreement respectively assumes responsibility for liability,
actual or alleged, arising from its respective activities performed pursuant to
this Agreement. HLM agrees, during the term of this Agreement and thereafter, to
the extent necessary to effectuate the purpose hereof, to indemnify and hold
harmless Design against any claims or liabilities arising under this Agreement
which arise out of or in connection with the Architectural and Engineering
Agreements, the General Business Contracts or the actions of HLM's architect and
engineer employees or contractors (including, without way of limitation, those
employees and contractors employed or engaged by Design on HLM's behalf or
otherwise).
9. Confidentiality. HLM acknowledges that due to the nature of this
Agreement, HLM will have access to information of a proprietary nature owned by
Design including, but not limited to, any and all computer programs (whether or
not completed or in use) and any and all operating manuals or similar materials
which constitute the non-architectural and non-engineering systems,
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policies and procedures, and methods of doing business, developed by Design for
the operation of facilities managed by Design. Consequently, HLM acknowledges
and agrees that Design has a proprietary interest in all such information and
that all such information constitutes confidential and proprietary information
and the trade secret property of Design. HLM hereby waives any and all right,
title and interest in and to such confidential information and trade secrets and
agrees to return all copies of such confidential information and trade secrets
to Design, at HLM's expense, upon the termination of the Agreement.
HLM further acknowledges and agrees that Design is entitled to prevent
its competitors from obtaining and utilizing its confidential information and
trade secrets. Therefore, HLM agrees to hold Design's confidential information
and trade secrets in strictest confidence and not to disclose them to or allow
them to be disclosed to or used by, directly or indirectly, any person or entity
other than those persons or entities who are employed by or affiliated with
Design or HLM, either during the term of this Agreement, or at any time after
the expiration or sooner termination of this Agreement, without the prior
written consent of Design. HLM agrees to require each independent contractor and
employee of HLM, and any such persons or entities to whom such information is
disclosed for the purpose of performance of Design's
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or HLM's obligations under this Agreement, to execute a "Confidentiality
Agreement" in a form acceptable to Design, upon the request of Design.
HLM acknowledges and agrees that a breach of this Section 9 will result
in irreparable harm to Design which cannot be reasonably or adequately
compensated in damages, and therefore Design shall be entitled to injunctive and
equitable relief to prevent a breach and to secure enforcement thereof, in
addition to any other relief or award to which Design may be entitled.
10. Cooperation. HLM and Design agree that they shall at all times
maintain an effective liaison and close cooperation with each other to
facilitate the provision of high quality and cost effective architectural and
engineering services. Each of the parties agrees to cooperate fully with each
other in connection with the performance of their respective obligations under
this Agreement, and both parties agree to employ their best efforts to resolve
any dispute that may arise under or in connection with this Agreement. HLM shall
provide to Design full and complete access to HLM's premises, and to HLM's Books
and Records (as defined in Section 2.d.(1) hereof), in order that Design may
perform its functions hereunder. Notwithstanding any other provisions contained
herein, Design shall not be liable to HLM, and shall not
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be deemed to be in default hereunder, for the failure to perform or provide any
of the supplies, services, personnel, or other obligations to be performed or
provided by Design pursuant to this Agreement if such failure is a result of a
labor dispute, act of God, or any other event which is beyond the reasonable
control of Design.
11. Arbitration. If a dispute or matter in controversy arises between
the parties hereto which they are unable to resolve to their mutual satisfaction
within ten (10) days of written notice from one to the other of the existence of
such dispute, then either party may notify the other party in writing (the
"Notice") that the dispute be submitted to binding arbitration as provided
herein. Such arbitration shall take place in Charlotte, North Carolina, in
accordance with the Rules of Commercial Arbitration of the American Arbitration
Association, or its successor. The provisions of ss.ss. 1-567.1 et seq. of the
General Statutes of North Carolina, or any successor or amended statute or law
containing similar provisions, shall apply in any such arbitration. Any
arbitration pursuant to this Agreement shall be conducted by one (1) arbitrator.
The judgment upon the award rendered in any such arbitration shall be final and
binding upon the parties and may be entered in any court having jurisdiction
over any party.
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12. Waiver of Violation. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach thereof.
13. Miscellaneous.
a. Notices. All notices, offers and acceptances or rejections
thereof required to be given hereunder, shall be given by certified
mail to the parties hereto at the addresses listed below, or at such
other address as may be stated from time to time, and shall be deemed
delivered upon deposit in the United States mail, postage prepaid:
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To HLM: Hansen Lind Meyer Inc.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
To Design: HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
With a Copy to: Shirley J. Linn, Esq.
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 S. College Street
Charlotte, NC 28244-2020
b. Severability. The provisions of this Agreement shall be
separable and a determination that any provision of this Agreement, or
subpart thereof, is either unenforceable or void shall not affect the
validity of any other provision of this Agreement, or subpart thereof.
Wherever possible all provisions shall be interpreted so as not to be
unenforceable and any court of competent jurisdiction is authorized and
directed by the parties hereto to enforce any otherwise unenforceable
provision in part, to modify it, to enforce it only to a degree and not
fully, or otherwise to enforce that provision only in a manner and to
an extent, that renders the provision valid or enforceable. The intent
of the parties is that this Agreement be enforceable and enforced to
the maximum extent possible after excising (or deeming excised) all
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invalid or unenforceable provisions, whether or not the remaining
provisions are grammatically correct.
c. Amendments or Modifications. This Agreement constitutes the
entire understanding between the parties hereto with respect to the
subject matter hereof, and no changes, amendments or alterations shall
be effective unless agreed to in writing by both parties hereto,
provided that no such amendment shall conflict with applicable laws or
regulations.
d. Relationship of the Parties. The relationship of the
parties hereto shall at all times be that of independent contractors.
Except as expressly provided herein, nothing contained in this
Agreement shall be construed to constitute either party as an agent,
legal representative, partner, joint venturer or employee of the other,
and neither party hereto shall have the power to bind the other with
respect to any obligation to any third party.
e. Assignability. Design may assign this Agreement, and/or
transfer, assign or delegate any or all of its rights, obligations and
responsibilities under this Agreement, without the consent of HLM, to
one or more of Design's Affiliated
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Entities and/or one or more of Pacific Capital, L.P., a Delaware
limited partnership, and/or Equitas, L.P., a Delaware limited
partnership. For purposes of this Agreement, "Affiliated Entities" are
defined to include any and all entities which: (1) are owned by Design,
(2) are under common control with Design, (3) are licensees of Design,
or (4) are otherwise affiliated with Design. Except as expressly
provided above, this Agreement is not transferrable or assignable by
either party.
f. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
HLM DESIGN, INC.
By: /s/ Joseph M. Harris
_________________________________
President
HANSEN LIND MEYER INC.
By: /s/ Vernon B. Brannon
_________________________________
Senior Vice President
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EXHIBIT 10.2
MANAGEMENT AND SERVICES AGREEMENT
This Management and Services Agreement (the "Agreement") is entered
into effective as of May 29, 1997, by and between HLM OF NORTH CAROLINA, P.C., a
North Carolina corporation (hereinafter referred to as "HLM"), and HLM DESIGN,
INC., a Delaware corporation (hereinafter referred to as "Design").
RECITALS
WHEREAS, HLM provides architectural and engineering services through
the services of duly licensed architects and engineers engaged by HLM as
employees or independent contractors;
WHEREAS, Design is in the business of providing comprehensive
management services to architectural and engineering firms, including the
provision of office space and equipment, the recruitment, hiring and employment
of architectural and engineering personnel and support personnel, and the
provision of billing and collection services;
WHEREAS, Design has special expertise and experience in the operation,
management and marketing of the non-architectural and non-engineering aspects of
architectural and engineering firms of the type intended to be operated by HLM;
and
<PAGE>
WHEREAS, HLM desires that Design provide the above-described services
to HLM, and Design desires to provide such services to HLM, pursuant to the
provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. TERM OF AGREEMENT; TERMINATION. Commencing on the effective date set
forth above, and subject to the termination provisions set forth below, this
Agreement shall continue in effect until the fortieth (40th) annual anniversary
of the effective date hereof. Thereafter, this Agreement shall automatically
renew for successive one (1) year terms, unless either party shall provide the
other with written notice of termination at least thirty (30) days prior to the
expiration of the then current term hereof. Notwithstanding the foregoing,
either party hereto may terminate this Agreement at any time upon written notice
to the other in the event of any of the following:
a. The filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the other, or upon other
action taken or suffered, voluntarily or involuntarily, under any
federal or state law for the benefit
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of debtors by the other, except for the filing of a petition in
involuntary bankruptcy against the other which is dismissed within
thirty (30) days thereafter; or
b. In the event the other shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement
and such default shall continue for a period of thirty (30) days after
written notice thereof has been given to the defaulting party by the
non-defaulting party.
2. OBLIGATIONS OF DESIGN.
a. GENERAL. HLM hereby appoints Design as its sole and
exclusive manager and administrator of all of HLM's day-to-day business
functions. HLM acknowledges and agrees that the purpose and intent of
this Agreement is to relieve HLM to the maximum extent possible of the
administrative, accounting, personnel and business aspects of HLM's
operations, with Design assuming responsibility and being given any and
all necessary authority to perform these functions. In connection with
the foregoing, HLM hereby agrees that Design shall have the authority,
duties and obligations set forth in Sections 2.b. through 2.d. below,
and HLM agrees to take no actions in contravention thereof without the
express prior written consent of Design.
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b. FINANCIAL PLANNING. Design shall prepare such budgets,
plans and policies as are necessary and appropriate in connection with
the operations of HLM, reflecting the anticipated sources and uses of
capital for HLM, and HLM's anticipated revenues and expenses. All
operations of HLM shall be conducted in accordance with such budgets,
plans and policies, which shall establish, by way of example and not
limitation, the following:
(1) the amounts, purpose and priority of all capital
expenditures;
(2) the amounts and sources of all additional
capital, including without way of limitation the issuance of any and
all additional capital stock and the incurring of any and all
indebtedness;
(3) the amounts, manner of payment and timing of all
dividends; and
(4) the amount, form and manner of payment of all
employee compensation and benefits, including without way of limitation
all compensation and benefits pertaining to personnel employed or
engaged by HLM, or pertaining to personnel employed or engaged by
Design on HLM's behalf.
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c. FACILITIES, EQUIPMENT AND SUPPLIES. During the term of this
Agreement, and all renewals and extensions hereof, Design shall
analyze, select and negotiate for the lease and/or purchase by HLM or
Design, as the case may be, of (1) suitable office facilities
("Offices") in which HLM can provide architectural and engineering
services, (2) such architectural and engineering equipment, office
equipment, furniture, fixtures, furnishings and leasehold improvements
(collectively, "Equipment") as necessary for the performance by HLM of
its architectural and engineering services, and (3) business supplies
of every kind, name or nature, which may reasonably be required by HLM
for its operations. Design shall have the authority to negotiate for
the purchase or lease of any or all such items on HLM's behalf, either
in HLM's or Design's name, as shall be deemed appropriate by Design in
its sole discretion, and all such items shall in all events be subject
to, and leased or purchased in accordance with, the budgets, plans and
policies referenced in Section 2.b. above.
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d. DEVELOPMENT, MANAGEMENT AND ADMINISTRATIVE SERVICES. During
the term of this Agreement, and all renewals and extensions hereof,
Design shall furnish to HLM, or assist HLM in obtaining, as deemed
appropriate by Design in its sole discretion, all of the
non-architectural and non-engineering development, management and
administrative services as may be needed by HLM in connection with
HLM's operations. Additionally, Design shall provide HLM with such
advice and supervision regarding all aspects of HLM's architectural and
engineering services as HLM may request from time to time, subject in
all events to the limitations set forth in Section 4 hereof. Such
non-architectural and non-engineering development, management and
administrative services shall include, by way of example and not
limitation, the following:
(1) BOOKKEEPING AND ACCOUNTS. Design shall establish
and maintain all bookkeeping and accounting services necessary
and appropriate to support the Offices, including, without
limitation, maintenance, custody and supervision of all
business records, papers, documents, ledgers, journals and
reports, and the preparation, distribution and recordation of
all bills and statements for professional services rendered by
HLM (collectively, "Books and Records"). Notwithstanding the
foregoing, HLM shall be responsible for maintaining full and
accurate accounting records of all services rendered and such
additional information as may be required in order for HLM to
satisfy any and all applicable reporting requirements.
(2) GENERAL ADMINISTRATIVE SERVICES. Design shall
provide HLM with overall supervision and management,
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including the maintenance and repair, of the Offices, and
of all Equipment located in or at the Offices.
(3) CONTRACT NEGOTIATION AND ADMINISTRATION. Design
shall negotiate and administer all non- architectural and
non-engineering aspects of all agreements pertaining to the
provision of architectural and engineering services by HLM to
third parties ("Architectural and Engineering Agreements"). By
way of example and not limitation, Design shall have the
authority to negotiate and administer the provisions of the
Architectural and Engineering Agreements pertaining to such
matters as pricing and scheduling, and shall also provide HLM
with such advice and supervision regarding all other aspects
of the Architectural and Engineering Agreements as HLM may
request from time to time, subject in all events to the
limitations set forth in Section 4 hereof. Additionally,
Design shall negotiate and administer all aspects of HLM's
agreements which do not pertain directly to the provision of
architectural or engineering services by HLM to third parties
("General Business Contracts").
(4) PERSONNEL. Subject to the provisions of Section 4
hereof, Design shall provide such personnel to HLM as Design
shall determine in its sole discretion to
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be necessary to enable HLM to perform all services
contemplated under the Architectural and Engineering
Agreements and the General Business Contracts. Design shall
provide such personnel by either (1) engaging such personnel
directly on HLM's behalf (for example, as employees or
independent contractors of HLM), or (2) engaging such
personnel directly (for example, as employees or independent
contractors of Design) and then leasing or subcontracting such
personnel to HLM. Design shall have the sole discretion to
determine the manner in which such personnel are provided to
HLM. In no event shall Design provide or be required to
provide architect or engineer employees or independent
contractors (whether licensed or unlicensed) to HLM in any
manner not in compliance with all applicable codes, rules and
regulations adopted by any authority regulating the licensing
of architects or engineers for the applicable jurisdiction.
Design shall advise HLM with respect to the hiring and
termination of all HLM personnel, and shall determine
compensation for all HLM and all Design personnel, including
determination of salaries, fringe benefits, bonuses, health
and disability insurance, workers' compensation insurance, and
any other benefits that each such employee shall receive. HLM
shall compensate all HLM personnel (including those leased or
subcontracted to HLM by Design) and make any and all
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applicable withholding filings and payments in connection
therewith. Additionally, Design shall manage and supervise any
licensed personnel employed or engaged by HLM, or employed or
engaged by Design on behalf of HLM, regarding those aspects of
their employment that do not involve performance under the
scope of their licensure; provided, however, that HLM shall
manage and supervise all activities of such licensed personnel
performed under the scope of their licensure.
(5) SECURITY AND MAINTENANCE. Design shall advise HLM
with respect to all services and personnel necessary to
provide HLM with proper security, maintenance, and cleanliness
of the Offices and the Equipment.
(6) ARCHITECTURAL AND ENGINEERING RECRUITING AND
TRAINING. Design shall, in its sole discretion, either perform
on HLM's behalf, or assist HLM in performing, all recruiting,
screening and evaluating of prospective architect and engineer
employees and contractors for HLM, and Design shall assist HLM
in training HLM's architects and engineers in the delivery of
architectural and engineering services at the Offices in a
manner consistent with HLM's and Design's established
standards, practices, procedures and policies.
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(7) INSURANCE. Design shall, in its sole discretion,
either provide directly or advise and direct HLM with respect
to selecting and negotiating for the provision of professional
liability, commercial general liability and property insurance
to protect against loss in the nature of fire, other
catastrophe, theft, business interruption, general liability,
and non-architectural and non-engineering negligence.
(8) BILLING AND COLLECTIONS. In order to relieve HLM
of the administrative burden of handling the billing and
collection of sums due under Architectural and Engineering
Agreements, Design shall be responsible, on behalf of and for
HLM, for billing and collecting the charges made with respect
to Architectural and Engineering Agreements and any or all
other services provided at the Offices; provided that
responsibility for specific accounts may be retained by HLM at
the mutual agreement of HLM and Design. In such event HLM
agrees that it will keep and provide to Design all invoices,
documents, evidence and records necessary for the purpose of
supporting the fees charged for all architectural and
engineering services from time to time. It is expressly
understood that the extent to which Design will endeavor to
collect such charges, the methods of collecting, the settling
of disputes with respect to charges, and the
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writing off of charges that may be or appear to be
uncollectible shall at all times be within the sole discretion
of Design (but subject to all applicable governmental
regulations and the terms and conditions of applicable
agreements), and that Design does not guarantee the extent to
which any charges billed will be collected. At HLM's request,
Design will reassign to HLM for collection by HLM, any
accounts which Design has determined to be uncollectible.
(9) BANK ACCOUNTS AND DISBURSEMENTS. During the term
of this Agreement, Design shall have access to any and all
bank accounts of HLM, and in connection therewith HLM hereby
appoints Design for the term hereof as its lawful
attorney-in-fact to deposit in such accounts fees generated
from HLM's architectural and engineering practice which are
collected by Design, and to make withdrawals from such
accounts for the payment of expenses arising from or relating
to HLM's operations, for Design's compensation hereunder, and
for all other costs, expenses and disbursements which are
required or authorized by this Agreement. Such withdrawals and
payments may be made by Design at any time and from time to
time as Design deems appropriate in its sole discretion. For
administrative convenience, HLM shall not make any
withdrawal(s) from such accounts without the
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prior written consent of Design. HLM agrees to execute from
time to time any and all additional documents required by the
banks at which HLM's accounts are maintained to effectuate the
power of attorney granted above.
(10) APPROVAL OF STOCK TRANSFERS. Design shall have
the sole authority and discretion to approve or deny on behalf
of HLM any and all proposals by stockholders of HLM to
encumber, sell, pledge, give or otherwise transfer HLM capital
stock.
(11) MARKETING SUPPORT. Design shall provide HLM with
such marketing support as Design in its sole discretion deems
appropriate to develop, enhance and continue HLM's practice.
Such support may include, by way of example and not
limitation, making available such brochures, literature and
sales aids as Design develops, providing HLM with access to
pertinent economic and market data acquired or developed by
Design, and developing and implementing a comprehensive
marketing plan designed to foster client relations and enhance
HLM's name recognition as a high quality provider of
professional architectural and engineering services.
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3. COMPLIANCE WITH ARCHITECTURAL AND ENGINEERING AGREEMENTS. Design
agrees to perform its duties hereunder so as to comply with HLM's obligations
under the Architectural and Engineering Agreements.
4. CONDUCT OF ARCHITECTURAL AND ENGINEERING PRACTICE. HLM agrees to
assign a duly licensed architect and, to the extent engineering services are
provided, a duly licensed engineer to assure that its Offices are adequately
staffed with such architectural and engineering personnel as may be necessary to
efficiently perform architectural and engineering services at such Offices.
Notwithstanding any provision in this Agreement to the contrary, Design shall
have no authority, directly or indirectly, to perform, and shall not perform,
any function of HLM's operations pertaining to services ("Professional
Services") which are required to be performed by duly licensed architects and/or
engineers pursuant to any and all applicable codes, or rules or regulations
adopted by any authority regulating the licensing of architects (the
"Architecture Board") or engineers (the "Engineering Board"). Design may,
however, advise HLM as to the relationship between HLM's performance of
Professional Services and the overall administrative and business functions of
HLM's operations. To the extent Design assists HLM in performing Professional
Services, all personnel employed or engaged by HLM or by Design on HLM's behalf
shall be subject to the professional direction and supervision of HLM, and in
the performance of such Professional Services, such personnel
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shall not be subject to any direction or control by, or liability to, Design,
except as may be specifically authorized by HLM in accordance with applicable
codes, rules or regulations.
To the extent any provision of this Agreement is determined to violate
any provision of the applicable codes, or any rule or regulation of the
Architecture Board or of the Engineering Board, then such provision of this
Agreement shall be deemed modified to the minimum extent necessary to cure such
violation.
5. NON-EXCLUSIVE NATURE OF DESIGN'S DUTIES. The parties acknowledge
that Design is in the business of providing services of the nature provided to
HLM hereunder to architectural and engineering firms located throughout the
United States, and that Design may currently be a party to or may at any time
hereafter enter into contracts with other architectural and engineering firms in
that regard. Additionally, Design may also directly or indirectly provide
architectural and engineering services from time to time. No such activities by
Design shall be deemed a breach of or a conflict with the duties of Design
hereunder.
6. DESIGN'S COMPENSATION. As compensation for the provision of its
services hereunder, Design shall be paid, no less frequently than on a quarterly
basis, an estimate of the balance, if any, of HLM's cash flow (as determined in
accordance with generally accepted accounting principles applied on a consistent
basis) following the
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payment by HLM or by Design on HLM's behalf of all of HLM's expenses, and the
deduction from such cash flow of an amount equal to one percent (1.00%) of HLM's
net profits (as determined in accordance with generally accepted accounting
principles applied on a consistent basis) for such time period as has elapsed
subsequent to the last payment to Design (such deducted amount to be retained by
HLM as compensation for services provided to HLM by HLM or by HLM's personnel,
and to be distributed or retained by HLM as HLM deems appropriate in its sole
discretion).
7. OWNERSHIP OF BOOKS AND RECORDS. The books and records generated and
maintained by each of the parties hereto shall be and remain the property of
each such party. HLM agrees to make all of its books and records (subject to
applicable ethical and legal confidentiality requirements) available for
inspection, examination or copying by duly authorized representatives of Design
from time to time throughout the term hereof, and upon written request by Design
to HLM following the termination hereof, all to enable Design to better perform
its duties hereunder.
8. LIABILITY AND INDEMNIFICATION. Neither Design nor its stockholders,
directors, officers, employees or agents shall have any liability for action
taken or omitted by such person(s) in the performance of its duties hereunder if
such action or omission is taken in good faith and without negligence. Each
party to this Agreement respectively assumes responsibility for liability,
actual
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or alleged, arising from its respective activities performed pursuant to this
Agreement. HLM agrees, during the term of this Agreement and thereafter, to the
extent necessary to effectuate the purpose hereof, to indemnify and hold
harmless Design against any claims or liabilities arising under this Agreement
which arise out of or in connection with the Architectural and Engineering
Agreements, the General Business Contracts or the actions of HLM's architect and
engineer employees or contractors (including, without way of limitation, those
employees and contractors employed or engaged by Design on HLM's behalf or
otherwise).
9. ONFIDENTIALITY. HLM acknowledges that due to the nature of this
Agreement, HLM will have access to information of a proprietary nature owned by
Design including, but not limited to, any and all computer programs (whether or
not completed or in use) and any and all operating manuals or similar materials
which constitute the non-architectural and non-engineering systems, policies and
procedures, and methods of doing business, developed by Design for the operation
of facilities managed by Design. Consequently, HLM acknowledges and agrees that
Design has a proprietary interest in all such information and that all such
information constitutes confidential and proprietary information and the trade
secret property of Design. HLM hereby waives any and all right, title and
interest in and to such confidential information and trade secrets and agrees to
return all copies of
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such confidential information and trade secrets to Design, at HLM's expense,
upon the termination of the Agreement.
HLM further acknowledges and agrees that Design is entitled to prevent
its competitors from obtaining and utilizing its confidential information and
trade secrets. Therefore, HLM agrees to hold Design's confidential information
and trade secrets in strictest confidence and not to disclose them to or allow
them to be disclosed to or used by, directly or indirectly, any person or entity
other than those persons or entities who are employed by or affiliated with
Design or HLM, either during the term of this Agreement, or at any time after
the expiration or sooner termination of this Agreement, without the prior
written consent of Design. HLM agrees to require each independent contractor and
employee of HLM, and any such persons or entities to whom such information is
disclosed for the purpose of performance of Design's or HLM's obligations under
this Agreement, to execute a "Confidentiality Agreement" in a form acceptable to
Design, upon the request of Design.
HLM acknowledges and agrees that a breach of this Section 9 will result
in irreparable harm to Design which cannot be reasonably or adequately
compensated in damages, and therefore Design shall be entitled to injunctive and
equitable relief to prevent a breach and to secure enforcement thereof, in
addition to any other relief or award to which Design may be entitled.
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10. COOPERATION. HLM and Design agree that they shall at all times
maintain an effective liaison and close cooperation with each other to
facilitate the provision of high quality and cost effective architectural and
engineering services. Each of the parties agrees to cooperate fully with each
other in connection with the performance of their respective obligations under
this Agreement, and both parties agree to employ their best efforts to resolve
any dispute that may arise under or in connection with this Agreement. HLM shall
provide to Design full and complete access to HLM's premises, and to HLM's Books
and Records (as defined in Section 2.d.(1) hereof), in order that Design may
perform its functions hereunder. Notwithstanding any other provisions contained
herein, Design shall not be liable to HLM, and shall not be deemed to be in
default hereunder, for the failure to perform or provide any of the supplies,
services, personnel, or other obligations to be performed or provided by Design
pursuant to this Agreement if such failure is a result of a labor dispute, act
of God, or any other event which is beyond the reasonable control of Design.
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11. ARBITRATION. If a dispute or matter in controversy arises between
the parties hereto which they are unable to resolve to their mutual satisfaction
within ten (10) days of written notice from one to the other of the existence of
such dispute, then either party may notify the other party in writing (the
"Notice") that the dispute be submitted to binding arbitration as provided
herein. Such arbitration shall take place in Charlotte, North Carolina, in
accordance with the Rules of Commercial Arbitration of the American Arbitration
Association, or its successor. The provisions of ss.ss. 1-567.1 ET SEQ. of the
General Statutes of North Carolina, or any successor or amended statute or law
containing similar provisions, shall apply in any such arbitration. Any
arbitration pursuant to this Agreement shall be conducted by one (1) arbitrator.
The judgment upon the award rendered in any such arbitration shall be final and
binding upon the parties and may be entered in any court having jurisdiction
over any party.
12. WAIVER OF VIOLATION. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach thereof.
13. MISCELLANEOUS.
a. NOTICES. All notices, offers and acceptances or rejections
thereof required to be given hereunder, shall be given by certified
mail to the parties hereto at the addresses listed below, or at such
other address as may be stated from time to time, and shall be deemed
delivered upon deposit in the United States mail, postage prepaid:
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To HLM: HLM of North Carolina, P.C.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
To Design: HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
With a Copy to: Shirley J. Linn, Esq.
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 S. College Street
Charlotte, NC 28244-2020
b. SEVERABILITY. The provisions of this Agreement shall be
separable and a determination that any provision of this Agreement, or
subpart thereof, is either unenforceable or void shall not affect the
validity of any other provision of this Agreement, or subpart thereof.
Wherever possible all provisions shall be interpreted so as not to be
unenforceable and any court of competent jurisdiction is authorized and
directed by the parties hereto to enforce any otherwise unenforceable
provision in part, to modify it, to enforce it only to a degree and not
fully, or otherwise to enforce that provision only in a manner and to
an extent, that renders the provision valid or enforceable. The intent
of the parties is that this Agreement be enforceable and enforced to
the maximum extent possible after excising (or deeming excised) all
invalid or unenforceable provisions, whether or not the remaining
provisions are grammatically correct.
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c. AMENDMENTS OR MODIFICATIONS. This Agreement constitutes the
entire understanding between the parties hereto with respect to the
subject matter hereof, and no changes, amendments or alterations shall
be effective unless agreed to in writing by both parties hereto,
provided that no such amendment shall conflict with applicable laws or
regulations.
d. RELATIONSHIP OF THE PARTIES. The relationship of the
parties hereto shall at all times be that of independent contractors.
Except as expressly provided herein, nothing contained in this
Agreement shall be construed to constitute either party as an agent,
legal representative, partner, joint venturer or employee of the other,
and neither party hereto shall have the power to bind the other with
respect to any obligation to any third party.
e. ASSIGNABILITY. Design may assign this Agreement, and/or
transfer, assign or delegate any or all of its rights, obligations and
responsibilities under this Agreement, without the consent of HLM, to
one or more of Design's Affiliated Entities and/or one or more of
Pacific Capital, L.P., a Delaware limited partnership, and/or Equitas,
L.P., a Delaware limited partnership. For purposes of this Agreement,
"Affiliated Entities" are defined to include any and all entities
which: (1) are owned by Design, (2) are under common
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control with Design, (3) are licensees of Design, or (4) are otherwise
affiliated with Design. Except as expressly provided above, this
Agreement is not transferrable or assignable by either party.
f. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
HLM DESIGN, INC.
By: /s/ Joseph M. Harris
_________________________________
President
HLM OF NORTH CAROLINA, P.C.
By: /s/ Philip J. Antis
_________________________________
President
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Exhibit 10.3
MANAGEMENT AND SERVICES AGREEMENT
This Management and Services Agreement (the "Agreement") is entered
into effective as of May 29, 1997, by and between HLM OF OREGON, ARCHITECTURE
AND PLANNING, P.C., an Oregon corporation (hereinafter referred to as "HLM"),
and HLM DESIGN, INC., a Delaware corporation (hereinafter referred to as
"Design").
RECITALS
WHEREAS, HLM provides architectural and engineering services through
the services of duly licensed architects and engineers engaged by HLM as
employees or independent contractors;
WHEREAS, Design is in the business of providing comprehensive
management services to architectural and engineering firms, including the
provision of office space and equipment, the recruitment, hiring and employment
of architectural and engineering personnel and support personnel, and the
provision of billing and collection services;
WHEREAS, Design has special expertise and experience in the operation,
management and marketing of the non-architectural and non-engineering aspects of
architectural and engineering firms of the type intended to be operated by HLM;
and
<PAGE>
WHEREAS, HLM desires that Design provide the above-described services
to HLM, and Design desires to provide such services to HLM, pursuant to the
provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. Term of Agreement; Termination. Commencing on the effective date set
forth above, and subject to the termination provisions set forth below, this
Agreement shall continue in effect until the fortieth (40th) annual anniversary
of the effective date hereof. Thereafter, this Agreement shall automatically
renew for successive one (1) year terms, unless either party shall provide the
other with written notice of termination at least thirty (30) days prior to the
expiration of the then current term hereof. Notwithstanding the foregoing,
either party hereto may terminate this Agreement at any time upon written notice
to the other in the event of any of the following:
a. The filing of a petition in voluntary bankruptcy or
an assignment for the benefit of creditors by the other, or
upon other action taken or suffered, voluntarily or
involuntarily, under any federal or state law for the benefit
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of debtors by the other, except for the filing of a petition in
involuntary bankruptcy against the other which is dismissed within
thirty (30) days thereafter; or
b. In the event the other shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement
and such default shall continue for a period of thirty (30) days after
written notice thereof has been given to the defaulting party by the
non-defaulting party.
2. Obligations of Design.
a. General. HLM hereby appoints Design as its sole and
exclusive manager and administrator of all of HLM's day-to-day business
functions. HLM acknowledges and agrees that the purpose and intent of
this Agreement is to relieve HLM to the maximum extent possible of the
administrative, accounting, personnel and business aspects of HLM's
operations, with Design assuming responsibility and being given any and
all necessary authority to perform these functions. In connection with
the foregoing, HLM hereby agrees that Design shall have the authority,
duties and obligations set forth in Sections 2.b. through 2.d. below,
and HLM agrees to take no actions in contravention thereof without the
express prior written consent of Design.
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b. Financial Planning. Design shall prepare such budgets,
plans and policies as are necessary and appropriate in connection with
the operations of HLM, reflecting the anticipated sources and uses of
capital for HLM, and HLM's anticipated revenues and expenses. All
operations of HLM shall be conducted in accordance with such budgets,
plans and policies, which shall establish, by way of example and not
limitation, the following:
(1) the amounts, purpose and priority of all
capital expenditures;
(2) the amounts and sources of all additional
capital, including without way of limitation the issuance
of any and all additional capital stock and the incurring
of any and all indebtedness;
(3) the amounts, manner of payment and timing of
all dividends; and
(4) the amount, form and manner of payment of all
employee compensation and benefits, including without way of
limitation all compensation and benefits pertaining to
personnel employed or engaged by HLM, or pertaining to
personnel employed or engaged by Design on HLM's behalf.
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c. Facilities, Equipment and Supplies. During the term of this
Agreement, and all renewals and extensions hereof, Design shall
analyze, select and negotiate for the lease and/or purchase by HLM or
Design, as the case may be, of (1) suitable office facilities
("Offices") in which HLM can provide architectural and engineering
services, (2) such architectural and engineering equipment, office
equipment, furniture, fixtures, furnishings and leasehold improvements
(collectively, "Equipment") as necessary for the performance by HLM of
its architectural and engineering services, and (3) business supplies
of every kind, name or nature, which may reasonably be required by HLM
for its operations. Design shall have the authority to negotiate for
the purchase or lease of any or all such items on HLM's behalf, either
in HLM's or Design's name, as shall be deemed appropriate by Design in
its sole discretion, and all such items shall in all events be subject
to, and leased or purchased in accordance with, the budgets, plans and
policies referenced in Section 2.b. above.
d. Development, Management and Administrative Services. During
the term of this Agreement, and all renewals and extensions hereof,
Design shall furnish to HLM, or assist HLM in obtaining, as deemed
appropriate by Design in its sole discretion, all of the
non-architectural and non-engineering development, management and
administrative services as may be needed by HLM in connection with
HLM's operations.
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Additionally, Design shall provide HLM with such advice and supervision
regarding all aspects of HLM's architectural and engineering services
as HLM may request from time to time, subject in all events to the
limitations set forth in Section 4 hereof. Such non-architectural and
non-engineering development, management and administrative services
shall include, by way of example and not limitation, the following:
(1) Bookkeeping and Accounts. Design shall establish
and maintain all bookkeeping and accounting services necessary
and appropriate to support the Offices, including, without
limitation, maintenance, custody and supervision of all
business records, papers, documents, ledgers, journals and
reports, and the preparation, distribution and recordation of
all bills and statements for professional services rendered by
HLM (collectively, "Books and Records"). Notwithstanding the
foregoing, HLM shall be responsible for maintaining full and
accurate accounting records of all services rendered and such
additional information as may be required in order for HLM to
satisfy any and all applicable reporting requirements.
(2) General Administrative Services. Design shall
provide HLM with overall supervision and management,
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including the maintenance and repair, of the Offices, and
of all Equipment located in or at the Offices.
(3) Contract Negotiation and Administration. Design
shall negotiate and administer all non- architectural and
non-engineering aspects of all agreements pertaining to the
provision of architectural and engineering services by HLM to
third parties ("Architectural and Engineering Agreements"). By
way of example and not limitation, Design shall have the
authority to negotiate and administer the provisions of the
Architectural and Engineering Agreements pertaining to such
matters as pricing and scheduling, and shall also provide HLM
with such advice and supervision regarding all other aspects
of the Architectural and Engineering Agreements as HLM may
request from time to time, subject in all events to the
limitations set forth in Section 4 hereof. Additionally,
Design shall negotiate and administer all aspects of HLM's
agreements which do not pertain directly to the provision of
architectural or engineering services by HLM to third parties
("General Business Contracts").
(4) Personnel. Subject to the provisions of
Section 4 hereof, Design shall provide such personnel to
HLM as Design shall determine in its sole discretion to
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be necessary to enable HLM to perform all services
contemplated under the Architectural and Engineering
Agreements and the General Business Contracts. Design shall
provide such personnel by either (1) engaging such personnel
directly on HLM's behalf (for example, as employees or
independent contractors of HLM), or (2) engaging such
personnel directly (for example, as employees or independent
contractors of Design) and then leasing or subcontracting such
personnel to HLM. Design shall have the sole discretion to
determine the manner in which such personnel are provided to
HLM. In no event shall Design provide or be required to
provide architect or engineer employees or independent
contractors (whether licensed or unlicensed) to HLM in any
manner not in compliance with all applicable codes, rules and
regulations adopted by any authority regulating the licensing
of architects or engineers for the applicable jurisdiction.
Design shall advise HLM with respect to the hiring and
termination of all HLM personnel, and shall determine
compensation for all HLM and all Design personnel, including
determination of salaries, fringe benefits, bonuses, health
and disability insurance, workers' compensation insurance, and
any other benefits that each such employee shall receive. HLM
shall compensate all HLM personnel (including those leased or
subcontracted to HLM by Design) and make any and all
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applicable withholding filings and payments in connection
therewith. Additionally, Design shall manage and supervise any
licensed personnel employed or engaged by HLM, or employed or
engaged by Design on behalf of HLM, regarding those aspects of
their employment that do not involve performance under the
scope of their licensure; provided, however, that HLM shall
manage and supervise all activities of such licensed personnel
performed under the scope of their licensure.
(5) Security and Maintenance. Design shall advise HLM
with respect to all services and personnel necessary to
provide HLM with proper security, maintenance, and cleanliness
of the Offices and the Equipment.
(6) Architectural and Engineering Recruiting and
Training. Design shall, in its sole discretion, either perform
on HLM's behalf, or assist HLM in performing, all recruiting,
screening and evaluating of prospective architect and engineer
employees and contractors for HLM, and Design shall assist HLM
in training HLM's architects and engineers in the delivery of
architectural and engineering services at the Offices in a
manner consistent with HLM's and Design's established
standards, practices, procedures and policies.
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(7) Insurance. Design shall, in its sole discretion,
either provide directly or advise and direct HLM with respect
to selecting and negotiating for the provision of professional
liability, commercial general liability and property insurance
to protect against loss in the nature of fire, other
catastrophe, theft, business interruption, general liability,
and non-architectural and non-engineering negligence.
(8) Billing and Collections. In order to relieve HLM
of the administrative burden of handling the billing and
collection of sums due under Architectural and Engineering
Agreements, Design shall be responsible, on behalf of and for
HLM, for billing and collecting the charges made with respect
to Architectural and Engineering Agreements and any or all
other services provided at the Offices; provided that
responsibility for specific accounts may be retained by HLM at
the mutual agreement of HLM and Design. In such event HLM
agrees that it will keep and provide to Design all invoices,
documents, evidence and records necessary for the purpose of
supporting the fees charged for all architectural and
engineering services from time to time. It is expressly
understood that the extent to which Design will endeavor to
collect such charges, the methods of collecting, the settling
of disputes with respect to charges, and the
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writing off of charges that may be or appear to be
uncollectible shall at all times be within the sole discretion
of Design (but subject to all applicable governmental
regulations and the terms and conditions of applicable
agreements), and that Design does not guarantee the extent to
which any charges billed will be collected. At HLM's request,
Design will reassign to HLM for collection by HLM, any
accounts which Design has determined to be uncollectible.
(9) Bank Accounts and Disbursements. During the term
of this Agreement, Design shall have access to any and all
bank accounts of HLM, and in connection therewith HLM hereby
appoints Design for the term hereof as its lawful
attorney-in-fact to deposit in such accounts fees generated
from HLM's architectural and engineering practice which are
collected by Design, and to make withdrawals from such
accounts for the payment of expenses arising from or relating
to HLM's operations, for Design's compensation hereunder, and
for all other costs, expenses and disbursements which are
required or authorized by this Agreement. Such withdrawals and
payments may be made by Design at any time and from time to
time as Design deems appropriate in its sole discretion. For
administrative convenience, HLM shall not make any
withdrawal(s) from such accounts without the
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prior written consent of Design. HLM agrees to execute from
time to time any and all additional documents required by the
banks at which HLM's accounts are maintained to effectuate the
power of attorney granted above.
(10) Approval of Stock Transfers. Design shall have
the sole authority and discretion to approve or deny on behalf
of HLM any and all proposals by stockholders of HLM to
encumber, sell, pledge, give or otherwise transfer HLM capital
stock.
(11) Marketing Support. Design shall provide HLM with
such marketing support as Design in its sole discretion deems
appropriate to develop, enhance and continue HLM's practice.
Such support may include, by way of example and not
limitation, making available such brochures, literature and
sales aids as Design develops, providing HLM with access to
pertinent economic and market data acquired or developed by
Design, and developing and implementing a comprehensive
marketing plan designed to foster client relations and enhance
HLM's name recognition as a high quality provider of
professional architectural and engineering services.
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3. Compliance with Architectural and Engineering Agreements.
Design agrees to perform its duties hereunder so as to comply with
HLM's obligations under the Architectural and Engineering
Agreements.
4. Conduct of Architectural and Engineering Practice. HLM
agrees to assign a duly licensed architect and, to the extent
engineering services are provided, a duly licensed engineer to
assure that its Offices are adequately staffed with such
architectural and engineering personnel as may be necessary to
efficiently perform architectural and engineering services at such
Offices. Notwithstanding any provision in this Agreement to the
contrary, Design shall have no authority, directly or indirectly,
to perform, and shall not perform, any function of HLM's operations
pertaining to services ("Professional Services") which are required
to be performed by duly licensed architects and/or engineers
pursuant to any and all applicable codes, or rules or regulations
adopted by any authority regulating the licensing of architects
(the "Architecture Board") or engineers (the "Engineering Board").
Design may, however, advise HLM as to the relationship between HLM's
performance of Professional Services and the overall administrative
and business functions of HLM's operations. To the extent Design
assists HLM in performing Professional Services, all personnel
employed or engaged by HLM or by Design on HLM's behalf shall be
subject to the professional direction and supervision of HLM, and
in the performance of such Professional Services, such personnel
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shall not be subject to any direction or control by, or liability to, Design,
except as may be specifically authorized by HLM in accordance with applicable
codes, rules or regulations.
To the extent any provision of this Agreement is determined to violate
any provision of the applicable codes, or any rule or regulation of the
Architecture Board or of the Engineering Board, then such provision of this
Agreement shall be deemed modified to the minimum extent necessary to cure such
violation.
5. Non-Exclusive Nature of Design's Duties. The parties acknowledge
that Design is in the business of providing services of the nature provided to
HLM hereunder to architectural and engineering firms located throughout the
United States, and that Design may currently be a party to or may at any time
hereafter enter into contracts with other architectural and engineering firms in
that regard. Additionally, Design may also directly or indirectly provide
architectural and engineering services from time to time. No such activities by
Design shall be deemed a breach of or a conflict with the duties of Design
hereunder.
6. Design's Compensation. As compensation for the provision of its
services hereunder, Design shall be paid, no less frequently than on a quarterly
basis, an estimate of the balance, if any, of HLM's cash flow (as determined in
accordance with generally accepted accounting principles applied on a consistent
basis) following the
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payment by HLM or by Design on HLM's behalf of all of HLM's expenses, and the
deduction from such cash flow of an amount equal to one percent (1.00%) of HLM's
net profits (as determined in accordance with generally accepted accounting
principles applied on a consistent basis) for such time period as has elapsed
subsequent to the last payment to Design (such deducted amount to be retained by
HLM as compensation for services provided to HLM by HLM or by HLM's personnel,
and to be distributed or retained by HLM as HLM deems appropriate in its sole
discretion).
7. Ownership of Books and Records. The books and records generated and
maintained by each of the parties hereto shall be and remain the property of
each such party. HLM agrees to make all of its books and records (subject to
applicable ethical and legal confidentiality requirements) available for
inspection, examination or copying by duly authorized representatives of Design
from time to time throughout the term hereof, and upon written request by Design
to HLM following the termination hereof, all to enable Design to better perform
its duties hereunder.
8. Liability and Indemnification. Neither Design nor its
stockholders, directors, officers, employees or agents shall have
any liability for action taken or omitted by such person(s) in the
performance of its duties hereunder if such action or omission is
taken in good faith and without negligence. Each party to this
Agreement respectively assumes responsibility for liability, actual
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or alleged, arising from its respective activities performed pursuant to this
Agreement. HLM agrees, during the term of this Agreement and thereafter, to the
extent necessary to effectuate the purpose hereof, to indemnify and hold
harmless Design against any claims or liabilities arising under this Agreement
which arise out of or in connection with the Architectural and Engineering
Agreements, the General Business Contracts or the actions of HLM's architect and
engineer employees or contractors (including, without way of limitation, those
employees and contractors employed or engaged by Design on HLM's behalf or
otherwise).
9. Confidentiality. HLM acknowledges that due to the nature of this
Agreement, HLM will have access to information of a proprietary nature owned by
Design including, but not limited to, any and all computer programs (whether or
not completed or in use) and any and all operating manuals or similar materials
which constitute the non-architectural and non-engineering systems, policies and
procedures, and methods of doing business, developed by Design for the operation
of facilities managed by Design. Consequently, HLM acknowledges and agrees that
Design has a proprietary interest in all such information and that all such
information constitutes confidential and proprietary information and the trade
secret property of Design. HLM hereby waives any and all right, title and
interest in and to such confidential information and trade secrets and agrees to
return all copies of
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such confidential information and trade secrets to Design, at HLM's expense,
upon the termination of the Agreement.
HLM further acknowledges and agrees that Design is entitled to prevent
its competitors from obtaining and utilizing its confidential information and
trade secrets. Therefore, HLM agrees to hold Design's confidential information
and trade secrets in strictest confidence and not to disclose them to or allow
them to be disclosed to or used by, directly or indirectly, any person or entity
other than those persons or entities who are employed by or affiliated with
Design or HLM, either during the term of this Agreement, or at any time after
the expiration or sooner termination of this Agreement, without the prior
written consent of Design. HLM agrees to require each independent contractor and
employee of HLM, and any such persons or entities to whom such information is
disclosed for the purpose of performance of Design's or HLM's obligations under
this Agreement, to execute a "Confidentiality Agreement" in a form acceptable to
Design, upon the request of Design.
HLM acknowledges and agrees that a breach of this Section 9 will result
in irreparable harm to Design which cannot be reasonably or adequately
compensated in damages, and therefore Design shall be entitled to injunctive and
equitable relief to prevent a breach and to secure enforcement thereof, in
addition to any other relief or award to which Design may be entitled.
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<PAGE>
10. Cooperation. HLM and Design agree that they shall at all times
maintain an effective liaison and close cooperation with each other to
facilitate the provision of high quality and cost effective architectural and
engineering services. Each of the parties agrees to cooperate fully with each
other in connection with the performance of their respective obligations under
this Agreement, and both parties agree to employ their best efforts to resolve
any dispute that may arise under or in connection with this Agreement. HLM shall
provide to Design full and complete access to HLM's premises, and to HLM's Books
and Records (as defined in Section 2.d.(1) hereof), in order that Design may
perform its functions hereunder. Notwithstanding any other provisions contained
herein, Design shall not be liable to HLM, and shall not be deemed to be in
default hereunder, for the failure to perform or provide any of the supplies,
services, personnel, or other obligations to be performed or provided by Design
pursuant to this Agreement if such failure is a result of a labor dispute, act
of God, or any other event which is beyond the reasonable control of Design.
-18-
<PAGE>
11. Arbitration. If a dispute or matter in controversy arises between
the parties hereto which they are unable to resolve to their mutual satisfaction
within ten (10) days of written notice from one to the other of the existence of
such dispute, then either party may notify the other party in writing (the
"Notice") that the dispute be submitted to binding arbitration as provided
herein Such arbitration shall take place in Charlotte, North Carolina, in
accordance with the Rules of Commercial Arbitration of the American Arbitration
Association, or its successor. The provisions of ss.ss. 1-567.1 et seq. of the
General Statutes of North Carolina, or any successor or amended statute or law
containing similar provisions, shall apply in any such arbitration. Any
arbitration pursuant to this Agreement shall be conducted by one (1) arbitrator.
The judgment upon the award rendered in any such arbitration shall be final and
binding upon the parties and may be entered in any court having jurisdiction
over any party.
12. Waiver of Violation. The waiver by either party of a
breach or violation of any provision of this Agreement shall not
operate as or be construed as a waiver of any subsequent breach
thereof.
13. Miscellaneous.
a. Notices. All notices, offers and acceptances or
rejections thereof required to be given hereunder, shall be
given by certified mail to the parties hereto at the addresses
listed below, or at such other address as may be stated from
time to time, and shall be deemed delivered upon deposit in
the United States mail, postage prepaid:
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<PAGE>
To HLM: HLM of Oregon, Architecture
and Planning, P.C.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
To Design: HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
With a Copy to: Shirley J. Linn, Esq.
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 S. College Street
Charlotte, NC 28244-2020
b. Severability. The provisions of this Agreement shall be
separable and a determination that any provision of this Agreement, or
subpart thereof, is either unenforceable or void shall not affect the
validity of any other provision of this Agreement, or subpart thereof.
Wherever possible all provisions shall be interpreted so as not to be
unenforceable and any court of competent jurisdiction is authorized and
directed by the parties hereto to enforce any otherwise unenforceable
provision in part, to modify it, to enforce it only to a degree and not
fully, or otherwise to enforce that provision only in a manner and to
an extent, that renders the provision valid or enforceable. The intent
of the parties is that this Agreement be enforceable and enforced to
the maximum extent possible after excising (or deeming excised) all
invalid or unenforceable provisions, whether or not the remaining
provisions are grammatically correct.
-20-
<PAGE>
c. Amendments or Modifications. This Agreement constitutes the
entire understanding between the parties hereto with respect to the
subject matter hereof, and no changes, amendments or alterations shall
be effective unless agreed to in writing by both parties hereto,
provided that no such amendment shall conflict with applicable laws or
regulations.
d. Relationship of the Parties. The relationship of the
parties hereto shall at all times be that of independent contractors.
Except as expressly provided herein, nothing contained in this
Agreement shall be construed to constitute either party as an agent,
legal representative, partner, joint venturer or employee of the other,
and neither party hereto shall have the power to bind the other with
respect to any obligation to any third party.
e. Assignability. Design may assign this Agreement, and/or
transfer, assign or delegate any or all of its rights, obligations and
responsibilities under this Agreement, without the consent of HLM, to
one or more of Design's Affiliated Entities and/or one or more of
Pacific Capital, L.P., a Delaware limited partnership, and/or Equitas,
L.P., a Delaware limited partnership. For purposes of this Agreement,
"Affiliated Entities" are defined to include any and all entities
which: (1) are owned by Design, (2) are under common control with
Design, (3) are licensees of Design, or (4) are
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<PAGE>
otherwise affiliated with Design. Except as expressly provided above,
this Agreement is not transferrable or assignable by either party.
f. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
HLM DESIGN, INC.
By: /s/ Vernon B. Brannon
_________________________________
Senior Vice President
HLM OF OREGON, ARCHITECTURE
AND PLANNING, P.C.
By: /s/ Joseph M. Harris
_________________________________
President
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<PAGE>
EXHIBIT 10.4
STATE OF NORTH CAROLINA
STOCKHOLDERS' AGREEMENT
COUNTY OF MECKLENBURG
THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is executed effective as
of the 29th day of May, 1997, between and among JOSEPH M. HARRIS, a resident of
the State of North Carolina ("Harris"), VERNON B. BRANNON, a resident of the
State of North Carolina ("Brannon"), (Harris and Brannon hereinafter sometimes
referred to jointly as the "Stockholders" and singularly as "Stockholder"), and
HANSEN LIND MEYER INC., an Iowa corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, Harris owns one-half (1/2) of the issued and outstanding
common stock of the Corporation (the "Harris Shares"); and
WHEREAS, Brannon owns one-half (1/2) of the issued and outstanding
common stock of the Corporation (the "Brannon Shares"); and
WHEREAS, the Harris Shares and the Brannon Shares collectively
constitute all of the currently issued and outstanding common stock of the
Corporation (the Harris Shares and the Brannon Shares being sometimes referred
to individually and collectively hereinafter as the "Stock"); and
<PAGE>
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation to provide for the purchase by the
Corporation of a Stockholder's Stock upon his death; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation to restrict the transferability of the
Stock as provided in this Agreement; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation that the Corporation have the ability
to call the Stock of the Stockholders as provided in this Agreement; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation that the Stockholders act with unity
with respect to all matters of the Corporation which are submitted to the
Stockholders for approval, both in their capacity as stockholders and as
Directors of the Corporation.
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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<PAGE>
1. STOCK TRANSFER RESTRICTIONS. The Stockholders agree that no shares
of the Stock shall be transferred except pursuant to and in compliance with the
provisions of this Agreement. Transfers made in contravention hereof shall be
void and shall not be recognized by the Corporation. No Stockholder may pledge
or encumber all or any portion of the Stock without the prior written approval
of the Corporation.
2. OBLIGATORY PURCHASE UPON DEATH. Upon the death of a Stockholder, the
Corporation shall purchase, and the personal representative of the decedent's
estate shall sell to the Corporation, all of the Stock owned by the deceased
Stockholder at the time of his death, at such price as is determined in
accordance with the provisions of Paragraph 5 and upon the terms and conditions
of Paragraph 6 hereof. In the alternative, the deceased Stockholder's personal
representative may propose a sale of the decedent's Stock to one (1) or more
third parties, subject to the Corporation's approval thereof as provided in
Paragraph 3 hereof.
3. THIRD PARTY TRANSFERS.
(a) NOTICE OF INTENT TO TRANSFER. No Stockholder may sell,
pledge, give, or otherwise transfer (collectively, "Transfer") any or all of his
Stock to any third party, whether voluntarily or involuntarily, without first
obtaining the
-3-
<PAGE>
Corporation's written approval of such transfer. In the event a Stockholder
desires to Transfer any or all of his Stock to a third party, he shall first
provide the Corporation with written notice of such proposed Transfer, delivered
in the manner provided herein (the "Transfer Notice"), naming the proposed third
party transferee and all transfer terms, including, without way of limitation,
any proposed purchase price and terms.
(b) APPROVAL OR DENIAL OF PROPOSED TRANSFER. The Corporation
shall have the absolute discretion to approve or deny all or any part of any
proposed Transfer (a "Stock Transfer"). The Corporation's approval or denial of
a proposed Transfer shall be communicated in writing to the Stockholder
proposing such Transfer within thirty (30) days following the Corporation's
receipt of the Transfer Notice.
(c) PURCHASE BY CORPORATION. In the event the Corporation
denies or fails to approve as provided above a proposed Transfer to a third
party of all or any portion of a Stockholder's Stock, then the Corporation shall
purchase such Stock at such price as is determined in accordance with the
provisions of Paragraph 5 and upon the terms and conditions of Paragraph 6
hereof.
4. CORPORATION'S RIGHT TO CALL. The Corporation shall have the right at
any time to purchase ("Call") all, but not less than
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<PAGE>
all, of the Stock then owned by either or both of the Stockholders, at such
purchase price as is determined in accordance with the provisions of Paragraph 5
and upon the terms and conditions of Paragraph 6 hereof. The Corporation shall
exercise its right to Call (a "Stock Call") a Stockholder's Stock by way of
written notice to such Stockholder (the "Call Notice"), delivered in the manner
provided herein.
5. PURCHASE PRICE. The purchase price per share with respect to any and
all purchases by the Corporation of a Stockholder's Stock hereunder shall be the
Stockholder's adjusted cost basis per share of such Stock, as determined by the
Corporation in its sole discretion (the "Purchase Price").
6. PAYMENT OF PURCHASE PRICE.
(a) CLOSING. The closing (the "Closing") for the purchase of
the Stock of a Stockholder disposing of the same under this Agreement shall
occur within sixty (60) days after (i) the qualification of such Stockholder's
personal representative, in the event of a purchase following a Stockholder's
death (but in no event later than one (1) year following the date of death),
(ii) the delivery date of a Stockholder's Transfer Notice, in the event of a
purchase following the Corporation's denial of or failure to approve a proposed
Transfer by such Stockholder, or
-5-
<PAGE>
(iii) the delivery date of a Call Notice, in the event of a Call by the
Corporation.
(b) DELIVERY OF PROMISSORY NOTE. At the option of the
Corporation, the Purchase Price shall be paid in good funds at the Closing or by
the delivery of the Corporation's promissory note in the amount of the Purchase
Price for such Stock, payable to the order of the selling Stockholder or his
estate, as the case may be (the "Purchase Note"). The Purchase Note shall be due
and payable in sixty (60) consecutive, equal, monthly installments, together
with interest at the minimum annual rate allowable under the provisions of the
Internal Revenue Code then in effect to prevent imputed interest, original issue
discount or unstated interest. The first such installment of the Purchase Note
shall be due thirty (30) days from the date of Closing and the remaining
installments shall be due on the same date of each month thereafter until
principal and interest shall be fully paid. The Purchase Note shall be
prepayable at any time and from time to time in whole or in part, without
penalty or unaccrued interest, at the option of the Corporation.
(c) TRANSFER OF TITLE. Upon receipt of the Purchase Note, the
selling Stockholder or his personal representative, as the case may be, shall
deliver to the Corporation the certificate(s) for the purchased Stock and such
other instruments as are necessary and proper to transfer full and complete
title
-6-
<PAGE>
thereto and said selling Stockholder or his estate shall thereafter have no
further interest in the Corporation.
7. ASSIGNMENT OF RIGHTS TO HLM DESIGN, INC. The parties hereto
acknowledge that it is in the parties' best interests that certain of the
Corporation's administrative and managerial functions be performed by an outside
managerial entity with established expertise in the Corporation's fields of
endeavor, and that toward such end the Corporation has entered into a Management
and Services Agreement with HLM Design, Inc., a Delaware corporation ("HLM
Design") for the provision of such services. The parties further acknowledge and
agree that in order to assure consistency and continuity in the management of
the Corporation's business and affairs, that with respect to all matters
pertaining to the initiation of Stock Calls or the approval or denial of
proposed Stock Transfers, the Corporation shall in all cases act in accordance
with the written recommendations of HLM Design.
8. ENDORSEMENT ON CERTIFICATES. Upon the execution of this Agreement,
the certificates of Stock subject hereto shall be surrendered to the Corporation
and endorsed as follows:
"This certificate is transferable only upon
compliance with the provisions of a
Stockholders' Agreement dated as of the 29th
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<PAGE>
day of May, 1997, between and among the
Corporation and certain of its stockholders,
a copy of which is on file in the office of
the Secretary of the Corporation."
After endorsement, the certificates shall be returned to the
Stockholders, who shall, subject to the terms of this Agreement, be entitled to
exercise all rights of ownership of such Stock.
9. UNITY IN VOTING; DEADLOCK. The Stockholders each agree that with
respect to all matters which are submitted to stockholder vote (and, to the
extent that both of the Stockholders serve in the capacity of Directors, then
also with respect to all matters which are submitted to Director vote), neither
Stockholder shall cast any vote with respect to any such matter unless all votes
to be cast by the Stockholders collectively are cast in unity. Prior to casting
any such vote, the Stockholders shall disclose to one another their voting
intentions. In the event the Stockholders are not in agreement with respect to
any particular matter to be voted upon, then they shall immediately move for an
adjournment of any meeting at which such matter is to be voted upon. During such
adjournment, the Stockholders shall attempt in good faith to reconcile their
respective positions with one another. In the event the Stockholders are unable
to reach a reconciliation within thirty (30) days following such adjournment,
then the Stockholders agree
-8-
<PAGE>
that such matter shall be submitted within ten (10) days thereafter to HLM
Design, Inc., a Delaware corporation ("HLM Design"), for resolution. The
Stockholders agree to cooperate with HLM Design by providing any and all
information, documentation, statements of their respective positions and other
materials requested by HLM Design in the course of HLM Design's determination.
The determination of HLM Design with respect to such matter shall be final and
binding upon the Stockholders, and the Stockholders agree to vote their Stock
(or cast their votes as Directors, as the case may be) in accordance therewith
immediately upon receiving such determination.
10. TERMINATION. This Agreement shall terminate upon the occurrence of
any of the following events:
(a) Cessation of the Corporation's business;
(b) Bankruptcy, receivership or dissolution of the
Corporation; or
(c) The voluntary agreement of all parties who are then bound
by the terms hereof.
Upon the termination of this Agreement, each Stockholder shall
surrender to the Corporation the certificates for his Stock and the Corporation
shall issue to such
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<PAGE>
Stockholder, in lieu thereof, new certificates for an equal number of shares
without the endorsement set forth in Paragraph 8 hereof.
11. NOTICES. All notices, offers and acceptances or rejections thereof
required to be given hereunder, shall be given by certified mail to the parties
hereto at the addresses listed below, or at such other address as may be stated
from time to time, and shall be deemed delivered upon deposit in the United
States mail, postage prepaid:
To the
Corporation: Hansen Lind Meyer Inc.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
With a Copy to: Shirley J. Linn, Esq.
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 S. College Street
Charlotte, NC 28244-2020
To Harris: Joseph M. Harris
21120 Blakely Shores Drive
Davidson, NC 28031
To Brannon: Vernon B. Brannon
5301 Mirabell Road
Charlotte, NC 28226
12. BINDING EFFECT. This Agreement shall be binding not only upon the
parties hereto, but also upon their heirs, executors, personal representatives,
successors and/or permitted assigns; and the parties hereby agree for themselves
and their heirs, executors, personal representatives, successors and/or
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<PAGE>
permitted assigns, to execute any instruments and to perform any acts which may
be necessary or proper to carry out the purposes of this Agreement. This
Agreement may be amended or modified only by a unanimous vote of all parties
then bound hereunder.
13. APPLICABLE LAW. This Agreement shall be governed by
the laws of the State of North Carolina and constitutes the
entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and sealed, effective as of the day and year first above written.
/s/ Joseph M. Harris (SEAL)
-------------------------------
JOSEPH M. HARRIS
/s/ Vernon B. Brannon (SEAL)
--------------------------------
VERNON B. BRANNON
HANSEN LIND MEYER INC.
By: /s/ Joseph M. Harris
----------------------------------
President
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<PAGE>
EXHIBIT 10.5
STATE OF NORTH CAROLINA
STOCKHOLDERS' AGREEMENT
COUNTY OF MECKLENBURG
THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is executed effective as
of the 29th day of May, 1997, between and among VERNON B. BRANNON, a resident of
the State of North Carolina ("Brannon"), JOSEPH M. HARRIS, a resident of the
State of North Carolina ("Harris"), PHILLIP J. ANTIS, a resident of the State of
Virginia ("Antis"), (Brannon, Harris and Antis hereinafter sometimes referred to
jointly as the "Stockholders" and singularly as "Stockholder"), and HLM OF NORTH
CAROLINA, P.C., a North Carolina professional corporation with its principal
office in Mecklenburg County, North Carolina (the "Corporation").
W I T N E S S E T H:
WHEREAS, Brannon is a certified public accountant duly licensed by the
State of North Carolina, and owns one-third (1/3) of the issued and outstanding
common stock of the Corporation (the "Brannon Shares"); and
WHEREAS, Harris is an architect duly licensed by the North Carolina
Board of Architects, and owns one-third (1/3) of the issued and outstanding
common stock of the Corporation (the "Harris Shares"); and
<PAGE>
WHEREAS, Antis is an engineer duly licensed by the North Carolina State
Board of Registration for Professional Engineers and Land Surveyors, and owns
one-third (1/3) of the issued and outstanding common stock of the Corporation
(the "Antis Shares"); and
WHEREAS, the Brannon Shares, the Harris Shares and the Antis Shares
collectively constitute all of the currently issued and outstanding common stock
of the Corporation (the Brannon Shares, the Harris Shares and the Antis Shares
being sometimes referred to individually and collectively hereinafter as the
"Stock"); and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation to provide for the purchase by the
Corporation of a Stockholder's Stock upon his death; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation to restrict the transferability of the
Stock as provided in this Agreement; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation that the
-2-
<PAGE>
Corporation have the ability to call the Stock of the Stockholders as provided
in this Agreement; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation that the Stockholders act with unity
with respect to all matters of the Corporation which are submitted to the
Stockholders for approval, both in their capacity as stockholders and as
Directors of the Corporation.
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Stock Transfer Restrictions. The Stockholders agree that no shares
of the Stock shall be transferred except pursuant to and in compliance with the
provisions of this Agreement. Transfers made in contravention hereof shall be
void and shall not be recognized by the Corporation. No Stockholder may pledge
or encumber all or any portion of the Stock without the prior written approval
of the Corporation.
-3-
<PAGE>
2. Obligatory Purchase Upon Death. Upon the death of a Stockholder, the
Corporation shall purchase, and the personal representative of the decedent's
estate shall sell to the Corporation, all of the Stock owned by the deceased
Stockholder at the time of his death, at such price as is determined in
accordance with the provisions of Paragraph 5 and upon the terms and conditions
of Paragraph 6 hereof. In the alternative, the deceased Stockholder's personal
representative may propose a sale of the decedent's Stock to one (1) or more
third parties, subject to the Corporation's approval thereof as provided in
Paragraph 3 hereof.
3. Third Party Transfers.
(a) Notice of Intent to Transfer. No Stockholder may sell,
pledge, give, or otherwise transfer (collectively, "Transfer") any or
all of his Stock to any third party, whether voluntarily or
involuntarily, without first obtaining the Corporation's written
approval of such transfer. In the event a Stockholder desires to
Transfer any or all of his Stock to a third party, he shall first
provide the Corporation with written notice of such proposed Transfer,
delivered in the manner provided herein (the "Transfer Notice"), naming
the proposed third party
-4-
<PAGE>
transferee and all transfer terms, including, without way of
limitation, any proposed purchase price and terms.
(b) Approval or Denial of Proposed Transfer. The Corporation
shall have the absolute discretion to approve or deny all or any part
of any proposed Transfer (a "Stock Transfer"). The Corporation's
approval or denial of a proposed Transfer shall be communicated in
writing to the Stockholder proposing such Transfer within thirty (30)
days following the Corporation's receipt of the Transfer Notice.
(c) Purchase by Corporation. In the event the Corporation
denies or fails to approve as provided above a proposed Transfer to a
third party of all or any portion of a Stockholder's Stock, then the
Corporation shall purchase such Stock at such price as is determined in
accordance with the provisions of Paragraph 5 and upon the terms and
conditions of Paragraph 6 hereof.
4. Corporation's Right to Call. The Corporation shall have the right at
any time to purchase ("Call") all, but not less than all, of the Stock then
owned by any or all of the Stockholders, at such purchase price as is determined
in accordance with the provisions of Paragraph 5 and upon the terms and
conditions of
-5-
<PAGE>
Paragraph 6 hereof. The Corporation shall exercise its right to Call (a "Stock
Call") a Stockholder's Stock by way of written notice to such Stockholder (the
"Call Notice"), delivered in the manner provided herein.
5. Purchase Price. The purchase price per share with respect to any and
all purchases by the Corporation of a Stockholder's Stock hereunder shall be the
Stockholder's adjusted cost basis per share of such Stock, as determined by the
Corporation in its sole discretion (the "Purchase Price").
6. Payment of Purchase Price.
(a) Closing. The closing (the "Closing") for the purchase of
the Stock of a Stockholder disposing of the same under this Agreement
shall occur within sixty (60) days after (i) the qualification of such
Stockholder's personal representative, in the event of a purchase
following a Stockholder's death (but in no event later than one (1)
year following the date of death), (ii) the delivery date of a
Stockholder's Transfer Notice, in the event of a purchase following the
Corporation's denial of or failure to approve a proposed Transfer by
such Stockholder, or (iii) the delivery date of a Call Notice, in the
event of a Call by the Corporation.
-6-
<PAGE>
(b) Delivery of Promissory Note. At the option of the
Corporation, the Purchase Price shall be paid in good funds at the
Closing or by the delivery of the Corporation's promissory note in the
amount of the Purchase Price for such Stock, payable to the order of
the selling Stockholder or his estate, as the case may be (the
"Purchase Note"). The Purchase Note shall be due and payable in sixty
(60) consecutive, equal, monthly installments, together with interest
at the minimum annual rate allowable under the provisions of the
Internal Revenue Code then in effect to prevent imputed interest,
original issue discount or unstated interest. The first such
installment of the Purchase Note shall be due thirty (30) days from the
date of Closing and the remaining installments shall be due on the same
date of each month thereafter until principal and interest shall be
fully paid. The Purchase Note shall be prepayable at any time and from
time to time in whole or in part, without penalty or unaccrued
interest, at the option of the Corporation.
(c) Transfer of Title. Upon receipt of the Purchase Note, the
selling Stockholder or his personal representative, as the case may be,
shall deliver to the
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<PAGE>
Corporation the certificate(s) for the purchased Stock and such other
instruments as are necessary and proper to transfer full and complete
title thereto and said selling Stockholder or his estate shall
thereafter have no further interest in the Corporation.
7. Assignment of Rights to HLM Design, Inc. The parties acknowledge
that it is in the parties' best interests that certain of the Corporation's
administrative and managerial functions be performed by an outside managerial
entity with established expertise in the Corporation's fields of endeavor, and
that toward such end the Corporation has entered into a Management and Services
Agreement with HLM Design, Inc., a Delaware corporation ("HLM Design") for the
provision of such services. The parties further acknowledge and agree that in
order to assure consistency and continuity in the management of the
Corporation's business and affairs, that with respect to all matters pertaining
to the initiation of Stock Calls or the approval or denial of proposed Stock
Transfers, the Corporation shall in all cases act in accordance with the written
recommendations of HLM Design.
-8-
<PAGE>
8. Endorsement on Certificates. Upon the execution of this Agreement,
the certificates of Stock subject hereto shall be surrendered to the Corporation
and endorsed as follows:
"This certificate is transferable only upon compliance with
the provisions of a Stockholders' Agreement dated as of the
29th day of May, 1997, between and among the Corporation and
certain of its stockholders, a copy of which is on file in the
office of the Secretary of the Corporation."
After endorsement, the certificates shall be returned to the
Stockholders, who shall, subject to the terms of this Agreement, be entitled to
exercise all rights of ownership of such Stock.
9. Unity in Voting. The Stockholders each agree that with respect to
all matters which are submitted to stockholder vote (and, to the extent that all
or any of the three Stockholders serve in the capacity of Directors, then also
with respect to all matters which are submitted to Director vote), prior to
casting any vote with respect to any such matter, the Stockholders shall first
notify one another of their respective voting intentions. No Stockholder shall
be permitted to abstain from voting unless required by the provisions of the
Corporation's bylaws or applicable law, such as, for example, in the event of a
conflict of interest. In the event the Stockholders are not in unanimous
-9-
<PAGE>
agreement with respect to any particular matter to be voted upon, then the vote
of two-thirds (2/3) of the Stockholders shall be deemed to be the agreed upon
vote of all of the Stockholders, and the Stockholder who is not in agreement
with the other two (2) shall nevertheless cast all of his votes in unity
therewith.
10. Termination. This Agreement shall terminate upon the occurrence of
any of the following events:
(a) Cessation of the Corporation's business;
(b) Bankruptcy, receivership or dissolution of the
Corporation; or
(c) The voluntary agreement of all parties who are then bound
by the terms hereof.
Upon the termination of this Agreement, each Stockholder shall
surrender to the Corporation the certificates for his Stock and the Corporation
shall issue to such Stockholder, in lieu thereof, new certificates for an equal
number of shares without the endorsement set forth in Paragraph 8 hereof.
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<PAGE>
11. Notices. All notices, offers and acceptances or rejections thereof
required to be given hereunder, shall be given by certified mail to the parties
hereto at the addresses listed below, or at such other address as may be stated
from time to time, and shall be deemed delivered upon deposit in the United
States mail, postage prepaid:
To the
Corporation: HLM of North Carolina, P.C.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
With a Copy to: Shirley J. Linn, Esq.
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 S. College Street
Charlotte, NC 28244
To Brannon: Vernon B. Brannon
5301 Mirabell Road
Charlotte, NC 28226
To Harris: Joseph M. Harris
21120 Blakely Shores Drive
Davidson, NC 28031
To Antis: Phillip J. Antis
2074 Cobblestone Lane
Reston, VA 22091
12. Binding Effect. This Agreement shall be binding not only upon the
parties hereto, but also upon their heirs,
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<PAGE>
executors, personal representatives, successors and/or permitted assigns; and
the parties hereby agree for themselves and their heirs, executors, personal
representatives, successors and/or permitted assigns, to execute any instruments
and to perform any acts which may be necessary or proper to carry out the
purposes of this Agreement. This Agreement may be amended or modified only by a
unanimous vote of all parties then bound hereunder.
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<PAGE>
13. Applicable Law. This Agreement shall be governed by
the laws of the State of North Carolina and constitutes the
entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and sealed, effective as of the day and year first above written.
/s/ Vernon B. Brannon
____________________________(SEAL)
VERNON B. BRANNON
/s/ Joseph M. Harris (SEAL)
------------------------------
JOSEPH M. HARRIS
/s/ Phillip J. Antis (SEAL)
------------------------------
PHILLIP J. ANTIS
HLM OF NORTH CAROLINA, P.C.
By: /s/ Joseph M. Harris
---------------------------
President
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<PAGE>
Exhibit 10.6
STATE OF NORTH CAROLINA
STOCKHOLDERS' AGREEMENT
COUNTY OF MECKLENBURG
THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is executed effective as
of the 29th day of May, 1997, between and among VERNON B. BRANNON, a resident of
the State of North Carolina ("Brannon"), JOSEPH M. HARRIS, a resident of the
State of North Carolina ("Harris"), VICTOR A. LITUCZY, a resident of the State
of Oregon ("Lituczy"), (Brannon, Harris and Lituczy hereinafter sometimes
referred to jointly as the "Stockholders" and singularly as "Stockholder"), and
HLM OF OREGON, ARCHITECTURE AND PLANNING, P.C., an Oregon professional
corporation with its principal office in Portland, Oregon (the "Corporation").
W I T N E S S E T H:
WHEREAS, Brannon is a certified public accountant duly licensed by the
State of North Carolina, and owns one-third (1/3) of the issued and outstanding
common stock of the Corporation (the "Brannon Shares"); and
WHEREAS, Harris is an architect duly licensed by the North Carolina
Board of Architects, and owns one-third (1/3) of the issued and outstanding
common stock of the Corporation (the "Harris Shares"); and
WHEREAS, Lituczy is an architect duly licensed by the Oregon Board of
Architect Examiners, and owns one-third (1/3) of the
<PAGE>
issued and outstanding common stock of the Corporation (the
"Lituczy Shares"); and
WHEREAS, the Brannon Shares, the Harris Shares and the Lituczy Shares
collectively constitute all of the currently issued and outstanding common stock
of the Corporation (the Brannon Shares, the Harris Shares and the Lituczy Shares
being sometimes referred to individually and collectively hereinafter as the
"Stock"); and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation to provide for the purchase by the
Corporation of a Stockholder's Stock upon his death; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation to restrict the transferability of the
Stock as provided in this Agreement; and
WHEREAS, the Stockholders believe it to be for their best interests and
for the best interests of the Corporation that the Corporation have the ability
to call the Stock of the Stockholders as provided in this Agreement; and
WHEREAS, the Stockholders believe it to be for their best
interests and for the best interests of the Corporation that the
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<PAGE>
Stockholders act with unity with respect to all matters of the Corporation which
are submitted to the Stockholders for approval, both in their capacity as
stockholders and as Directors of the Corporation.
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Stock Transfer Restrictions. The Stockholders agree that no shares
of the Stock shall be transferred except pursuant to and in compliance with the
provisions of this Agreement. Transfers made in contravention hereof shall be
void and shall not be recognized by the Corporation. No Stockholder may pledge
or encumber all or any portion of the Stock without the prior written approval
of the Corporation.
2. Obligatory Purchase Upon Death. Upon the death of a Stockholder, the
Corporation shall purchase, and the personal representative of the decedent's
estate shall sell to the Corporation, all of the Stock owned by the deceased
Stockholder at the time of his death, at such price as is determined in
accordance with the provisions of Paragraph 5 and upon the terms and conditions
of Paragraph 6 hereof. In the alternative, the deceased Stockholder's personal
representative may propose a sale of the decedent's Stock to one (1) or more
third parties, subject
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<PAGE>
to the Corporation's approval thereof as provided in Paragraph 3
hereof.
3. Third Party Transfers.
(a) Notice of Intent to Transfer. No Stockholder may sell,
pledge, give, or otherwise transfer (collectively, "Transfer") any or
all of his Stock to any third party, whether voluntarily or
involuntarily, without first obtaining the Corporation's written
approval of such transfer. In the event a Stockholder desires to
Transfer any or all of his Stock to a third party, he shall first
provide the Corporation with written notice of such proposed Transfer,
delivered in the manner provided herein (the "Transfer Notice"), naming
the proposed third party transferee and all transfer terms, including,
without way of limitation, any proposed purchase price and terms.
(b) Approval or Denial of Proposed Transfer. The Corporation
shall have the absolute discretion to approve or deny all or any part
of any proposed Transfer (a "Stock Transfer"). The Corporation's
approval or denial of a proposed Transfer shall be communicated in
writing to the Stockholder proposing such Transfer within thirty (30)
days following the Corporation's receipt of the Transfer Notice.
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<PAGE>
(c) Purchase by Corporation. In the event the Corporation
denies or fails to approve as provided above a proposed Transfer to a
third party of all or any portion of a Stockholder's Stock, then the
Corporation shall purchase such Stock at such price as is determined in
accordance with the provisions of Paragraph 5 and upon the terms and
conditions of Paragraph 6 hereof.
4. Corporation's Right to Call. The Corporation shall have the right at
any time to purchase ("Call") all, but not less than all, of the Stock then
owned by any or all of the Stockholders, at such purchase price as is determined
in accordance with the provisions of Paragraph 5 and upon the terms and
conditions of Paragraph 6 hereof. The Corporation shall exercise its right to
Call (a "Stock Call") a Stockholder's Stock by way of written notice to such
Stockholder (the "Call Notice"), delivered in the manner provided herein.
5. Purchase Price. The purchase price per share with
respect to any and all purchases by the Corporation of a
Stockholder's Stock hereunder shall be the Stockholder's adjusted
cost basis per share of such Stock, as determined by the
Corporation in its sole discretion (the "Purchase Price").
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<PAGE>
6. Payment of Purchase Price.
(a) Closing. The closing (the "Closing") for the purchase of
the Stock of a Stockholder disposing of the same under this Agreement
shall occur within sixty (60) days after (i) the qualification of such
Stockholder's personal representative, in the event of a purchase
following a Stockholder's death (but in no event later than one (1)
year following the date of death), (ii) the delivery date of a
Stockholder's Transfer Notice, in the event of a purchase following the
Corporation's denial of or failure to approve a proposed Transfer by
such Stockholder, or (iii) the delivery date of a Call Notice, in the
event of a Call by the Corporation.
(b) Delivery of Promissory Note. At the option of the
Corporation, the Purchase Price shall be paid in good funds at the
Closing or by the delivery of the Corporation's promissory note in the
amount of the Purchase Price for such Stock, payable to the order of
the selling Stockholder or his estate, as the case may be (the
"Purchase Note"). The Purchase Note shall be due and payable in sixty
(60) consecutive, equal, monthly installments, together with interest
at the minimum annual rate allowable under the provisions of the
Internal Revenue Code then in effect to prevent imputed interest,
original issue discount or unstated interest. The first such
installment of the
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<PAGE>
Purchase Note shall be due thirty (30) days from the date of Closing
and the remaining installments shall be due on the same date of each
month thereafter until principal and interest shall be fully paid. The
Purchase Note shall be prepayable at any time and from time to time in
whole or in part, without penalty or unaccrued interest, at the option
of the Corporation.
(c) Transfer of Title. Upon receipt of the Purchase Note, the
selling Stockholder or his personal representative, as the case may be,
shall deliver to the Corporation the certificate(s) for the purchased
Stock and such other instruments as are necessary and proper to
transfer full and complete title thereto and said selling Stockholder
or his estate shall thereafter have no further interest in the
Corporation.
7. Assignment of Rights to HLM Design, Inc. The parties acknowledge
that it is in the parties' best interests that certain of the Corporation's
administrative and managerial functions be performed by an outside managerial
entity with established expertise in the Corporation's fields of endeavor, and
that toward such end the Corporation has entered into a Management and Services
Agreement with HLM Design, Inc., a Delaware corporation ("HLM Design") for the
provision of such services. The parties further acknowledge and agree that in
order to assure consistency and continuity in the management of the
Corporation's business and
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<PAGE>
affairs, that with respect to all matters pertaining to the initiation of Stock
Calls or the approval or denial of proposed Stock Transfers, the Corporation
shall in all cases act in accordance with the written recommendations of HLM
Design.
8. Endorsement on Certificates. Upon the execution of
this Agreement, the certificates of Stock subject hereto shall be
surrendered to the Corporation and endorsed as follows:
"This certificate is transferable only upon compliance with
the provisions of a Stockholders' Agreement dated as of the
29th day of May, 1997, between and among the Corporation and
certain of its stockholders, a copy of which is on file in the
office of the Secretary of the Corporation."
After endorsement, the certificates shall be returned to the
Stockholders, who shall, subject to the terms of this Agreement, be entitled to
exercise all rights of ownership of such Stock.
9. Unity in Voting. The Stockholders each agree that with respect to
all matters which are submitted to stockholder vote (and, to the extent that all
or any of the three Stockholders serve in the capacity of Directors, then also
with respect to all matters which are submitted to Director vote), prior to
casting any vote with respect to any such matter, the Stockholders shall first
notify one another of their respective voting intentions. No Stockholder shall
be permitted to abstain from voting unless required by the provisions of the
Corporation's bylaws or
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<PAGE>
applicable law, such as, for example, in the event of a conflict of interest. In
the event the Stockholders are not in unanimous agreement with respect to any
particular matter to be voted upon, then the vote of two-thirds (2/3) of the
Stockholders shall be deemed to be the agreed upon vote of all of the
Stockholders, and the Stockholder who is not in agreement with the other two (2)
shall nevertheless cast all of his votes in unity therewith.
10. Termination. This Agreement shall terminate upon the
occurrence of any of the following events:
(a) Cessation of the Corporation's business;
(b) Bankruptcy, receivership or dissolution of the
Corporation; or
(c) The voluntary agreement of all parties who are
then bound by the terms hereof.
Upon the termination of this Agreement, each Stockholder shall
surrender to the Corporation the certificates for his Stock and the Corporation
shall issue to such Stockholder, in lieu thereof, new certificates for an equal
number of shares without the endorsement set forth in Paragraph 8 hereof.
11. Notices. All notices, offers and acceptances or
rejections thereof required to be given hereunder, shall be given
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<PAGE>
by certified mail to the parties hereto at the addresses listed below, or at
such other address as may be stated from time to time, and shall be deemed
delivered upon deposit in the United States mail, postage prepaid:
To the
Corporation: HLM of Oregon, Architecture
and Planning, P.C.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
With a Copy to: Shirley J. Linn, Esq.
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 S. College Street
Charlotte, NC 28244
To Brannon: Vernon B. Brannon
5301 Mirabell Road
Charlotte, NC 28226
To Harris: Joseph M. Harris
21120 Blakely Shores Drive
Davidson, NC 28031
To Lituczy: Victor A. Lituczy
2461 Summit Drive
Lake Oswego, OR 97034
12. Binding Effect. This Agreement shall be binding not only upon the
parties hereto, but also upon their heirs, executors, personal representatives,
successors and/or permitted assigns; and the parties hereby agree for themselves
and their heirs, executors, personal representatives, successors and/or
permitted assigns, to execute any instruments and to perform any acts which may
be necessary or proper to carry out the purposes
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<PAGE>
of this Agreement. This Agreement may be amended or modified
only by a unanimous vote of all parties then bound hereunder.
13. Applicable Law. This Agreement shall be governed by
the laws of the State of North Carolina and constitutes the
entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and sealed, effective as of the day and year first above written.
____________________________(SEAL)
VERNON B. BRANNON
(SEAL)
------------------------------
JOSEPH M. HARRIS
(SEAL)
-------------------------------
VICTOR A. LITUCZY
HLM OF OREGON, ARCHITECTURE AND
PLANNING, P.C.
By:
----------------------------------
President
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<PAGE>
EXHIBIT 10.7
STOCKHOLDERS' VOTING AGREEMENT
THIS STOCKHOLDERS' VOTING AGREEMENT (the "Agreement") is made and
entered into effective as of the 29th day of May, 1997, between and among JOSEPH
M. HARRIS ("Harris"), VERNON B. BRANNON ("Brannon") and WILLIAM J. BLALOCK
("Blalock") (Harris, Brannon and Blalock hereinafter referred to singularly as
"Stockholder" and collectively as the "Stockholders").
R E C I T A L S:
The Stockholders are the owners and holders of certain shares of the
outstanding capital stock of HLM Design, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"). The Stockholders are entering
into this Agreement to avoid a potential division among the Stockholders and for
the purpose of assuring stability of management and continuity of business
policies during the term hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Stockholders agree
as follows:
<PAGE>
1. Unity of Voting. The Stockholders agree to cast all of their votes
in unity with respect to all matters of "Fundamental Significance"
(as defined in Paragraph 3 below) which are submitted to the
Stockholders for vote in their capacity as stockholders of the
Corporation and, to the extent that all three (3) Stockholders
serve in the capacity of directors of the Corporation, then also
with respect to all matters of Fundamental Significance which are
submitted to the Stockholders for vote in their capacity as
directors.
2. Manner of Determining Unity. Prior to casting any vote with
respect to any matter of Fundamental Significance, the
Stockholders shall first notify one another of their respective
voting intentions. No Stockholder shall be permitted to abstain
from voting unless required by the provisions of the Corporation's
bylaws or applicable law such as, for example, in the event of a
conflict of interest. In the event the Stockholders are not in
unanimous agreement with respect to any particular matter to be
voted upon, then the vote of two-thirds (2/3) of the Stockholders
shall be deemed to be the agreed upon vote of all of the
Stockholders, and the Stockholder who is not in agreement with the
other two (2) shall nevertheless cast all of his votes in unity
therewith.
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<PAGE>
3. Matters of Fundamental Significance. For the purposes of this
Agreement, matters of "Fundamental Significance" shall mean and include any and
all matters pertaining to one (1) or more of the following:
(a) The issuance, exercise, purchase or redemption by the Corporation of
any capital stock, stock warrant, stock option or debenture of the
Corporation;
(b) The formation, acquisition or divestiture by the Corporation of any
business entity, whether in the form of a division, subsidiary or other
affiliated or non-affiliated entity;
(c) The incurring of indebtedness, directly or indirectly (including,
without way of limitation, the guaranty of debt of any other person or
entity) by the Corporation, or the modification of any such existing
indebtedness or instrument; or
(d) The merger, share exchange, or dissolution of the Corporation, or any
sale of the Corporation's assets other than in the ordinary course of
business.
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4. Legend. So long as this Agreement remains in effect, there shall be
noted conspicuously upon each certificate representing shares of Common Stock
owned by the Stockholders the following statement:
"THE VOTING OF THIS SECURITY IS SUBJECT TO RESTRICTIONS
CONTAINED IN A STOCKHOLDERS' VOTING AGREEMENT DATED AS OF THE
29TH DAY OF MAY, 1997, AS THE SAME MAY BE AMENDED FRO TIME TO
TIME, TO WHICH THE HOLDER OF THIS SECURITY IS A PARTY, AND
THIS SECURITY SHALL NOT BE VOTED EXCEPT IN COMPLIANCE WITH
SAID AGREEMENT, A COPY OF SAID AGREEMENT IS ON FILE WITH THE
COMPANY."
5. Termination. This Agreement shall terminate upon the occurrence of
any of the following events:
(a) Cessation of the Corporation's business;
(b) Bankruptcy, receivership or dissolution of the
Corporation; or
(c) The voluntary agreement of all parties who are then bound
by the terms hereof.
Upon the termination of this Agreement, each Stockholder shall
surrender to the Corporation the certificates for all of his
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<PAGE>
capital stock and the Corporation shall issue to such Stockholder, in lieu
thereof, new certificates for an equal number of shares of capital stock without
the legend provided in Paragraph 4 above.
6. Notices. All notices required to be given hereunder shall be given
by hand delivery or certified mail to the parties hereto at the addresses listed
below, or at such other address as may be stated from time to time, and shall be
deemed delivered upon receipt, in the event of hand delivery, or upon deposit in
the United States mail, postage prepaid:
To the
Corporation: HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, NC 28202
ATTN: Vernon B. Brannon
With a Copy to: Shirley J. Linn, Esq.
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 S. College Street
Charlotte, NC 28244-2020
To Harris: Joseph M. Harris
21120 Blakely Shores Drive
Davidson, NC 28031
To Brannon: Vernon B. Brannon
5301 Mirabell Road
Charlotte, NC 28226
To Blalock: William J. Blalock
133 Laurens Street S.W.
Aiken, SC 29801
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<PAGE>
7. Binding Effect. This Agreement shall be binding not only upon the
parties hereto, but also upon their heirs, executors, agents,
powers of attorney, personal representatives, successors,
transferees and/or permitted assigns; and the parties hereby agree
for themselves and their heirs, executors, agents, powers of
attorney, personal representatives, successors, transferees and/or
permitted assigns, to execute any instruments and to perform any
acts which may be necessary or proper to carry out the purposes of
this Agreement. This Agreement may be amended or modified only by
a unanimous vote of all parties then bound hereunder.
8. Applicable Law. This Agreement shall be governed by the laws of the
State of North Carolina and constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and sealed, effective as of the day and year first above written.
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<PAGE>
/s/ Joseph M. Harris (SEAL)
--------------------------------
JOSEPH M. HARRIS
/s/ Vernon B. Brannon (SEAL)
---------------------------------
VERNON B. BRANNON
/s/ William J. Blalock (SEAL)
--------------------------------
WILLIAM J. BLALOCK
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<PAGE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
We consent to the use in this Registration Statement relating to the shares
of Common Stock of HLM Design, Inc. on Form S-1 of our report dated (i) November
11, 1997 on the financial statements of HLM Design, Inc. as of April 25, 1997
and for the period ended April 25, 1997, (ii) our report dated October 31, 1997
on the financial statements of Hansen Lind Meyer, Inc. as of April 26, 1996 and
April 25, 1997 and for each of the three years in the period ended April 25,
1997 appearing in the Prospectus, which is a part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
November 19, 1997
<PAGE>
