<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998
REGISTRATION NO. 333-40617
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
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. [ ]
------------------------
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.
- --------------------------------------------------------------------------------
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<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 , 1998
PROSPECTUS
500,000 SHARES
HLM DESIGN, INC.
COMMON STOCK
------------------------
All of the 500,000 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 $11.00 and $13.00 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 7 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 $500,000.
(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 75,000 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.
MARION BASS COMPANIES
------------------------
The date of this Prospectus is , 1998.
<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 AN 11-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 HLM Design of Northamerica, Inc. (formerly named Hansen Lind
Meyer Inc.), an Iowa corporation ("HLMI"), HLM Design of the Southeast, P.C.
(formerly named HLM of North Carolina, P.C.) ("HLMNC") and HLM Design of the
Northwest, Architecture, Engineering and Planning, P.C. (formerly named 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. HLM DESIGN IS NOT
ENGAGED IN THE PRACTICE OF ARCHITECTURE, ENGINEERING OR PLANNING.
Joseph M. Harris and Vernon B. 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 (as described below). See "Certain
Transactions -- Relationships with Managed Firms."
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.
As a management company, HLM Design's relationship with the Managed Firms
is contractual; it has no ownership interest in the Managed Firms. As a result,
stockholders in HLM Design will have no direct or indirect ownership interest in
the Managed Firms.
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. Currently, HLM Design is not engaged in negotiations with any AEP
Firms.
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.
3
<PAGE>
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.
(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.
All of the Company's architecture, engineering and planning services are
provided through the Managed Firms, and not by HLM Design.
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.
CERTAIN RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. Prospective
purchasers should consider that: (i) 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; (ii) conflicts
of interest could arise between HLM Design and Joseph Harris and Vernon Brannon,
the President and Chief Financial Officer, respectively, of HLM Design, in
connection with the operation and enforcement of the provisions of Stockholders'
Agreements and the Management and Services Agreements; (iii) HLM Design's
revenues are currently derived from Management and Services Agreements with
three firms, only one of which had active operations at October 31, 1997 and all
of which are related to each other, and to HLM Design, by common and principal
stockholders, Messrs. Harris and Brannon; (iv) HLM Design's operating and growth
strategies require substantial capital resources resulting in the incurrence of
long-term and short-term indebtedness and may result in the public or
4
<PAGE>
private issuance from time to time of additional debt or equity securities,
including the issuance of such securities in connection with the execution of
new Management and Services Agreements; (v) 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 of involuntary
bankruptcy and 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; (vi) because of the unique structure of the relationship
between HLM Design and its Managed Firms, many aspects of these relationships
have not been the subject of prior regulatory interpretations and 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 operations; (vii) the
Company's success depends to a significant degree upon the continued
contributions of Messrs. Harris and Brannon; and (viii) there is no existing
market for the Common Stock and no assurance that one will develop following the
Offering can be given.
PROSPECTIVE INVESTORS SHOULD ALSO BE AWARE THAT AS OF THE DATE HEREOF, HLM
DESIGN HAS ONLY ENTERED INTO MANAGEMENT AND SERVICES AGREEMENTS WITH AFFILIATED
ENTITIES AND NO ASSURANCES MAY BE GIVEN THAT HLM DESIGN WILL BE SUCCESSFUL IN
ENTERING INTO SUCH AGREEMENTS WITH OTHER AEP FIRMS.
See "Risk Factors" beginning on page 7 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.................... 500,000 shares (1)
Common Stock to be outstanding after the Offering..... 1,106,364 shares (1)(2)(3)
Total............................................ 1,106,364 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 75,000 shares that may be sold by HLM
Design upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
(2) Excludes (i) 138,000 shares of Common Stock reserved for future issuance
under HLM Design's Stock Option Plan (as defined herein), including an
option to purchase 100,000 shares of Common Stock that will be granted
immediately before the completion of the Offering, (ii) 50,000 shares of
Common Stock reserved for future issuance under HLM Design's ESPP (as
defined herein) and (iii) 148,610 shares of Common Stock reserved for future
issuance upon exercise of the Warrants (as defined herein).
(3) Gives effect to the Stock Split.
5
<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 six months ended October 31, 1997 are
derived from the unaudited combined financial statements of HLM Design and for
the five months ended October 31, 1997 for, 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 (1)
-----------------------------------------------------------------------
SIX
FOR THE YEAR ENDED MONTHS ONE MONTH
----------------------------------------- ENDED ENDED
APRIL 30, APRIL 26, APRIL 25, OCTOBER 25, MAY 30,
1995 1996 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................................... (142,744) (383,552) (396,007) (192,794 ) (36,951 )
Non-Operating income........................... 428,475 850,273 285,635
----------- ----------- ----------- ----------- -----------
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).................... $(1,029,547) $(1,620,488) $(1,902,363) $(1,717,490) $(2,238,531)
Total assets................................... 10,519,859 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.............................. 10,690,072 11,819,796 11,670,962 11,639,830 16,354,738
Warrants outstanding...........................
Stockholders' equity (deficiency) (3).......... (170,213) 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 (deficiency) (3).......... 407,848
</TABLE>
- ---------------
(1) The Predecessor Company is HLMI.
(2) Includes information for HLM Design and for the Managed Firms for the five
months from May 31, 1997 to October 31, 1997 on a combined basis. HLM
Design's operations for the month ended May 30, 1997 reflected herein
include no revenues or expenses.
(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.
6
<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.
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. 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 would arise between HLM
Design and stockholders of such firms.
BENEFITS OF OFFERING TO INSIDERS
Joseph M. Harris and Vernon B. Brannon, stockholders, directors and
executive officers of HLM Design, will benefit personally from the Offering in
several ways. Both Mr. Harris and Mr. Brannon will be released from personal
guaranties in connection with the Pacific/Equitas Loan (as defined below) upon
the consummation of the Offering and the repayment of the Pacific/Equitas Loan
from the proceeds of the Offering. The Offering will result in increased
liquidity for Messrs. Harris and Brannon, as well as all other current
stockholders of HLM Design, with respect to the shares of Common Stock each such
person currently holds in HLM Design. For a description of restrictions on such
person's ability to freely transfer Common Stock outstanding on the date hereof
and not sold in the Offering, see "Shares Eligible for Future Sale."
Additionally, in connection with the consummation of the Offering, Messrs.
Harris and Brannon will enter into Employment Agreements with HLM Design whereby
each will receive compensation and other benefits as well as options to purchase
50,000 shares of HLM Design Common Stock. See "Management -- Employment
Agreements."
MANAGEMENT AND SERVICES AGREEMENTS WITH ONLY THREE FIRMS
HLM Design's revenues are derived solely from its contractual relationships
with the Managed Firms. Currently, HLM Design has Management and Services
Agreements with three firms, only one (HLMI) of which had active operations at
October 31, 1997. All three of these firms are related to each other and to HLM
Design, by common principal stockholders, Joseph M. Harris and Vernon B.
Brannon. 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.
7
<PAGE>
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 could require structural and organizational modifications of HLM
Design's form of relationships with its Managed Firms. Consequently, if the
Company is unable or unwilling to undertake such modifications, it may be
limited in its ability to expand into certain jurisdictions. 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.
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
carries key employee insurance on each of Joseph M. Harris and Vernon B. Brannon
and has employment and/or noncompetition agreements with Messrs. Harris and
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.
8
<PAGE>
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 is not engaged in the practice of
architecture, engineering or planning and, as a result, 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 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 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,
9
<PAGE>
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 $9.11 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 606,364 shares of Common Stock owned beneficially by existing
stockholders of HLM Design, the 138,000 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 148,610 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."
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 $4.9 million ($5.7 million if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $12.00 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 $3.0 million of the net proceeds to
repay certain indebtedness consisting of (i) the $2.0 million due under the
Pacific/Equitas Loan (payable June 1, 2002 at an interest rate of 13.5%), (ii) a
$0.8 million term loan from Berthel Fisher & Company Leasing, Inc. ("Berthel
Leasing"), an affiliate of one of the Underwriters (payable May 1, 1998, with an
interest rate of 12% due in monthly installments), and (iii) notes payable in an
aggregate principal amount of $0.2 million to employee stockholders (payable at
various dates until August 2002 including interest of 6.0%). The $3.0 million of
indebtedness currently has an effective weighted interest cost at an annual rate
equal to 25%. In connection with the merger agreement between HLMI and BBH Corp.
described elsewhere in this Prospectus and the payment of the merger
consideration to holders of HLMI's common stock, the Company (i) incurred
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
took on the notes payable to employee stockholders, while the Berthel Leasing
proceeds were used for working capital. 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.
10
<PAGE>
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 0
Common Stock of HLM Design, $.01 par value, 9,000,000 shares authorized; 557,040 shares issued
and outstanding, actual; 1,057,040 shares issued and outstanding, as adjusted (2)............ 5,570 10,570
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 2
Common Stock of HLMNC $.01 par value, 10,000 shares authorized; 300 shares issued and
outstanding.................................................................................. 3 3
Common Stock of HLMO $.01 par value, 10,000 shares authorized; 300 shares issued and
outstanding.................................................................................. 3 3
Additional Paid-in capital...................................................................... 29,717 6,024,717
Retained earnings............................................................................... 379,115 379,115
Stock Subscription Receivable -- HLM Design, HLMNC, HLMO (3).................................... (6,562) (6,562)
---------- ----------
Total stockholders' equity................................................................... 407,848 6,407,848
---------- ----------
Total capitalization....................................................................... $5,132,159 $8,969,851
---------- ----------
---------- ----------
</TABLE>
- ---------------
(1) Adjusted to give effect to the Offering and the application of the net
proceeds thereof. See "Use of Proceeds" and "Certain Transactions."
(2) 500,000 shares if the Underwriters' over-allotment option is exercised in
full. See "Underwriting" and "Principal Stockholders." Excludes (i) 138,000
shares of Common Stock reserved for future issuance under HLM Design's Stock
Option Plan (including up to 100,000 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) 50,000
shares of Common Stock reserved for issuance under HLM Design's ESPP, and
(iii) 148,610 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.
11
<PAGE>
DILUTION
The net tangible book 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 $1,844,445, or $3.31 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 500,000 shares of Common Stock
offered hereby and the receipt of an assumed $4.9 million of net proceeds from
the Offering (based on an assumed initial public offering price of $12 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 $2.89 per share.
This represents an immediate increase in the net tangible book value of $6.20
per share to existing stockholders and an immediate dilution of $9.11 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...................................................................... $12.00
Net tangible book value per share before giving effect to the Offering............................................. (3.31)
Increase in net tangible book value per share attributable to the Offering......................................... 6.20
Pro forma net tangible book value per share after giving effect to the Offering...................................... 2.89
Dilution per share to new investors(1)............................................................................... $ 9.11
</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.
12
<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 six months ended October 31, 1997 are derived
from the unaudited combined financial statements of HLM Design, and for the five
months ended October 31, 1997 for 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) (1)
-------------------------------------------------------------------------------------------------
SIX
FOR THE YEAR ENDED MONTHS ONE MONTH
------------------------------------------------------------------- ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 26, APRIL 25, OCTOBER 25, MAY 30,
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- ------------ ------------
Revenue.......................... $33,464,656 $27,841,902 $29,122,557 $28,554,424 $26,754,710 $13,503,623 $ 2,233,036
<S> <C> <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 7,534,491 898,979
Operating costs.................. 15,376,045 13,516,392 14,098,729 13,104,278 12,414,739 6,074,195 1,163,141
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 9,571
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total costs and expenses......... 34,226,788 30,012,696 30,364,189 28,049,577 26,307,425 13,935,040 2,071,691
----------- ----------- ----------- ----------- ----------- ------------ ------------
Income (Loss) from Operations.... (762,132 ) (2,170,794 ) (1,241,632) 504,847 447,285 (431,417 ) 161,345
----------- ----------- ----------- ----------- ----------- ------------ ------------
Other Income (Expense):
Net Interest..................... (18,438 ) (43,058 ) (142,744) (383,552) (396,007) (192,794 ) (36,951)
Non-Operating income............. -- -- 428,475 850,273 285,635
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total Other Income
(Expense)................... (18,438 ) (43,058 ) 285,731 466,721 (110,372) (192,794 ) (36,951)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Income (Loss) Before Income
Taxes.......................... (780,570 ) (2,213,852 ) (955,901) 971,568 336,913 (624,211 ) 124,394
Income tax expense (benefit)..... (260,000 ) (779,000 ) (360,080) 435,459 219,799 (192,346 ) 43,000
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net Income (Loss) (4)............ $ (520,570 ) $(1,434,852) $ (595,821) $ 536,109 $ 117,114 $ (431,865 ) $ 81,394
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
BALANCE SHEET DATA:
Working capital(deficiency)...... $2,059,840 $1,229,211 $(1,705,986) $(1,620,488) $(1,902,363) (1,717,490 ) (2,238,531)
Total assets..................... 11,586,309 10,147,420 10,519,859 12,577,992 12,874,503 12,376,973 17,639,673
Long-term debt................... 1,598,727 1,050,330 840,302 564,577 103,792 453,870 2,476,008
Total liabilities................ 10,020,182 9,713,789 10,690,072 11,819,796 11,670,962 11,639,830 16,354,738
Warrants outstanding.............
Stockholders' equity (deficiency)
(3)............................ 1,566,127 433,631 (170,213) 758,196 1,203,541 737,143 1,284,935
<CAPTION>
HLM DESIGN
(COMBINED)
SIX
MONTHS
ENDED
OCTOBER 31,
1997 (2)
-----------
Revenue.......................... $13,186,803
<S> <C>
-----------
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 (deficiency)
(3)............................ 407,848
</TABLE>
- ---------------
(1) The Predecessor Company is HLMI.
(2) Includes information for HLM Design and for the Managed Firms for the five
months from May 31, 1997 to October 31, 1997 on a combined basis. HLM
Design's operations for the month ended May 30, 1997 reflected herein
include no revenues or expenses.
(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.
13
<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)(14)... $ .22
------------
Weighted average shares outstanding
(000s).................................. 1,230
------------
------------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
14
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FOR THE TWELVE (1) ADJUSTMENTS FOR THE TWELVE
MONTHS ENDED PRO FORMA FOR THE MONTHS ENDED
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 (13)(14).................. $ .05
--------------
Weighted average shares outstanding (000s)............... 1,218.00
--------------
--------------
</TABLE>
- ---------------
(1) On May 23, 1997 BBH Corp., affiliated with HLM Design through a
majority-in-interest of common stockholders, acquired HLMI in a transaction
accounted for under the purchase method of accounting. BBH Corp. purchased
50,000 shares in HLMI for $3.2 million, and in connection with this
transaction, BBH Corp. was merged into HLMI with HLMI being the surviving
entity. Upon the merger, each share of common stock in BBH Corp.
outstanding at the time of merger was converted into one share of common
stock in HLMI. All Common Stock of HLMI held by BBH Corp. (including HLMI
Common Stock contributed to BBH Corp. by Messrs. Harris and Brannon as
their initial capital contribution to BBH Corp.) were canceled and retired.
As a part of the foregoing, the stockholders of HLMI (other than BBH
Corp.), including the HLMI Employee Stock Ownership Plan (the "ESOP"),
redeemed their HLMI common stock for $64 a share. As a result, there was a
90% change in voting control. The assets and liabilities of HLMI were
restated to fair value as of May 31, 1997. Purchase accounting was effected
May 31, 1997 as it was not materially different than May 23, 1997, May 30,
1997 was the normal accounting close for HLMI and a portion of the
acquisition funding commitment was not finalized until May 30, 1997. 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. and the merger of BBH Corp. into
HLMI.
(3) Reflects the adjustment necessary to record the net decrease in
depreciation expense as a result of the extended lives of depreciable
assets (furniture and fixtures) due to the establishment of remaining lives
subsequent to the acquisition by BBH. Management estimated the remaining
useful lives of such assets from their date of acquisition or the term of
lease if less.
(4) Reflects the increase in interest expense resulting from the financing
arrangement, which was in the form of a sale-leaseback agreement and which
is reduced by the interest costs associated with bank loans that were
repaid. Although the transaction was structured in the form of a sale
leaseback, the transaction was in substance a financing, and, therefore, no
gain or loss resulted.
(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.
15
<PAGE>
(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 1,057,040
shares of Common Stock are outstanding after the Offering. This amount
represents 500,000 shares of Common Stock to be issued in the Offering, and
557,040 shares of Common Stock owned by the Company's stockholders prior to
the Offering and inclusion of Common Stock equivalents of 184,377 related
to Warrants.
(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) Pro forma net income per share is based upon the assumption that 1,033,500
shares of Common Stock are outstanding after the Offering. This amount
represents 500,000 shares of Common Stock to be issued in the Offering and
533,500 shares of Common Stock owned by the Company's stockholders prior to
the Offering and inclusion of Common Stock equivalents of 184,377 related
to Warrants.
(14) Fully diluted earnings per share are not materially different.
16
<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............................................................................... (539,794) (590,924)
----------- -----------
Total other expense.......................................................................... (539,794) (590,924)
----------- -----------
Income (loss) before income taxes.............................................................. (564,208) 847,634
Income tax expense (benefit)................................................................... (147,344) 407,486
----------- -----------
Net Income (loss).............................................................................. $ (416,864) $ 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.
17
<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 $5.9 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 26.1% 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 5.3% 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.
18
<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 65.2% 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 18.4% 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
19
<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 $12.3 million resulting in a working capital of $0.6
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 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 3,422 shares of Common Stock (37,642 shares
after giving effect to the Stock Split), 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 December 1997, Berthel Leasing exercised its Warrants and
purchased 3,422 shares of Common Stock (37,642 shares after giving effect to the
Stock Split) at an exercise price of $.01 per share.
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 and
Equitas, (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") and obtained notes payable to employee stockholders for
$0.2 million. 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 (158,092 shares
after giving effect to the Stock Split), subject to adjustment in certain
circumstances, to Pacific, Equitas, 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. In November 1997, Mr. Caroland
exercised his Warrants and purchased 862 shares of Common Stock (9,482 shares
after giving effect to the Stock Split) at an exercise price of $.01 per share
and Mr. LeRoy transferred his Warrants to purchase 862 shares of Common Stock
(9,482 shares after giving effect to the Stock Split) to Equitas. 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.
20
<PAGE>
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. 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.
On November 20, 1997, EITF 97-2, "Application of FASB Statement No. 94,
CONSOLIDATION OF ALL MAJORITY-OWNED SUBSIDIARIES, and APB Opinion No. 16,
BUSINESS COMBINATIONS, to Physician Practice Management Entities and Certain
Other Entities with Contractual Management Arrangements", was issued which
reached a consensus that arrangements similar to HLM Design and the Managed
Firms should be accounted for on a consolidated basis. The Company intends to
reflect this change prospectively in the fiscal year ended April 24, 1998
financial statements. If the change had been effected for the six months ended
October 31, 1997, the effect would have been a reduction to Stockholder's Equity
by approximately $3,956, an increase in minority interest by approximately
$3,956 and a decrease in Net Income of approximately $3,948.
21
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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. Currently, HLM Design is not engaged in negotiations with any 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 will likely require
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."
As a management company, HLM Design's relationship with the Managed Firms
is contractual; it has no ownership interest in the Managed Firms. As a result,
stockholders in HLM Design will have no direct or indirect ownership interest in
the Managed Firms.
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
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
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:
(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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<PAGE>
EMPLOYEES
Prior to January 1, 1998, all employees were employed with HLMI, however,
under the Management and Services Agreement and consistent with HLM Design's
strategy, all employees were transferred to HLM Design as of January 1, 1998. As
of January 1, 1998, HLM Design 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. Mr. Harris' initial term as a director of HLM Design will
expire at the annual meeting of stockholders of HLM Design to be held in 1999.
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. Mr.
Brannon's initial term as a director of HLM Design will expire at the annual
meeting of stockholders of HLM Design to be held in 1999.
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<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. Mr. Caroland's
initial term as a director of HLM Design will expire at the annual meeting of
stockholders of HLM Design to be held in 1998.
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. Mr. LeRoy's initial term as a
director of HLM Design will expire at the annual meeting of stockholders of HLM
Design to be held in 1998.
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.
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<PAGE>
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 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 -0- -0- -0-
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 January 1998. 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
HLM Design has entered into employment agreements with Messrs. Harris and
Brannon (the "Employment Agreements"), which provide for an annual base salary
and certain other benefits. Pursuant to the Employment Agreements, the base
salaries of Messrs. Harris and Brannon will be $300,000 and $250,000,
respectively. Messrs. Harris and Brannon will also receive a monthly automobile
allowance of $2,500 and such additional compensation as may be determined by the
Board of Directors. Each of the Employment Agreements is for a term of three
years and will automatically be renewed for successive periods of one year.
Additionally, Messrs. Harris and Brannon each will receive options pursuant to
the Stock Option Plan, for 50,000 shares of Common Stock, exercisable, in the
case of incentive stock options, at 110% of the initial public offering price,
and in the case of nonstatutory stock options, at $10 per share.
The Employment Agreements contain similar noncompetition provisions. These
provisions, during the term of the Employment Agreement, (i) prohibit the
disclosure or use of confidential Company information, and (ii) prohibit the
solicitation of the Company's clients, the participation or operation in any
business or service provided by the Company and, in the case of Mr. Harris, the
lending of his name to any business which provides architectural and engineering
services to persons who were clients or prospective clients of the Company. The
provisions referred to in (ii) above shall also apply for a period of three
years following the expiration or termination of an Employment Agreement.
STOCK OPTION PLAN
In January 1998, the Board of Directors and stockholders of HLM Design
adopted the HLM Design, Inc. 1998 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
138,000 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").
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<PAGE>
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 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 to purchase 25,000 shares of Common Stock and
ISOs to purchase 25,000 shares of Common Stock to each of Joseph Harris and
Vernon Brannon. No other grants of ISOs or NSOs will be made on or before the
consummation of the Offering.
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
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<PAGE>
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 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 January 1998, 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 50,000
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. As of each Grant Date, each Participating
Employee will be deemed to have been granted an option to purchase that number
of shares of Common Stock that equals: (i) the Participating Employee's base pay
(as defined in the ESPP) as of the Grant Date divided by 1000, with fractional
amounts of .50 or more rounded up to the next dollar and fractional amounts of
less than .50 disregarded, multiplied by (ii) two. 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 base pay (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.
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<PAGE>
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.
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.
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<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 HLMI
common stock held by BBH Corp., which were (i) contributed to BBH Corp. by
Messrs. Harris and Brannon as their initial capital contribution to BBH Corp.
and (ii) purchased from HLM with a $3.2 million loan from HLM Design) 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.
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<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 January 15, 1998 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) OFFERINGP OFFERING(3)
- ------------------------------------------------------------------------------------- ---------------- -------- -----------
<S> <C> <C> <C>
Joseph M. Harris(4)(5) 225,500 29.9% 18.0%
Vernon B. Brannon(4)(5) 225,500 29.9% 18.0%
Clay R. Caroland(4) 9,482 1.0% *
Shannon LeRoy(4) -- * *
Berthel Leasing(6) 37,642 5.0% 3.0%
Pacific(7)(8) 85,371 11.3% 6.8%
Equitas(7)(9) 63,239 8.4% 5.0%
William Blalock(10) 82,500 10.9% 6.6%
All directors and executive officers as a group (4 persons) 460,482 61.0% 36.7%
</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) After giving effect to the Stock Split.
(3) If the Underwriters' over-allotment option is exercised in full, then after
the Offering the percentages of shares outstanding would be as follows:
Joseph Harris, 16.8%; Vernon Brannon, 16.8%; William Blalock, 6.2%; Clay
Caroland, less than 1%; Shannon LeRoy, less than 1%; Berthel Leasing, 2.8%;
Pacific, 6.4%; Equitas, 4.8% and all directors and executive officers as a
group, 34.6%.
(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.
(6) The address of such person is 100 Second Street Southeast, Cedar Rapids,
Iowa 52407.
(7) Includes shares of Common Stock which underlie currently exercisable
Warrants held by such person.
(8) The address of such person is Suite 1070, 3100 West End Avenue, Nashville,
Tennessee 37203.
(9) The address of such person is Suite 100, 2000 Glen Echo Road, Nashville,
Tennessee 37215.
(10) The address of such person is 133 Laurens Street, S.W., Aiken, South
Carolina 29801.
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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 1,106,364
outstanding shares of Common Stock (giving effect to the Stock Split and not
including Common Stock which underlies the Warrants) 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 First Union National Bank as the transfer agent
and registrar for the Common Stock.
WARRANTS
In May 1997, September 1997 and December 1997, HLM Design issued Warrants
to purchase an aggregate of 185,757 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. 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.
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<PAGE>
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.
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.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, HLM Design will have outstanding
1,106,364 shares of Common Stock (excluding shares of Common Stock which
underlie currently exercisable Warrants, options granted under the Stock Option
Plan and assuming no exercise of the Underwriters' over-allotment option). Of
such amount, the 500,000 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 580,624 shares (the "Restricted Shares") of
Common Stock held by affiliates of the Company are "restricted securities"
within the meaning of Rule 144. The 148,610 shares of Common Stock, which (i)
are held by non-affiliates of the company or (ii) which underlie (x) options to
be granted on or before the consummation of Offering under the Company's Stock
Option Plan, and (y) 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 606,364 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.
37
<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...............................................
Marion Bass Companies.....................................................................
---------
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 75,000 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.
At the request of HLM Design, the Underwriters have reserved up to 8,000
shares of the Common Stock for sale at the initial public offering price, and
otherwise on the same terms as sales pursuant to the Offering, to persons
designated by HLM Design. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the other
shares offered hereby.
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. Generally, such indemnification or contribution rights relate to
losses, claims, damages or liabilities resulting from (i) untrue statements of
material fact contained in the Registration Statement or any application or
other document filed to qualify the Common Stock under "blue sky" or securities
laws of any state, or the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading.
38
<PAGE>
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.
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), none 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 $.01 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 ($13.20 assuming
an initial public offering price of $11.00 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.
39
<PAGE>
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 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.
40
<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>
The accompanying financial statements reflect a decrease in the par value
to $.005 and an 11 for 1 split of common stock which is to be effected prior to
the effective date of the Offering. The following opinion is in the form which
will be signed by Deloitte & Touche upon consummation of the above events, which
are described in Note 1 of Notes to Financial Statements, and assuming that,
from November 11, 1997 to the date of such event, no other events have occurred
which would affect the accompanying financial statements and notes thereto.
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 (January , 1998 as to Note 1)
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, $.005 par value, voting, authorized 9,000,000 shares; issued 533,500 and 557,040,
respectively.................................................................................. 2,668 2,786
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........................................................................ 332 32,501
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
----------- ---------- -----------
----------- ---------- -----------
PRO FORMA NET INCOME PER SHARE (NOTE 1).......................................... $ .52
-----------
-----------
PRO FORMA NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA (NOTE 1)............... 729,647
-----------
-----------
</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.......... 533,500 2,668 332 (3,000)
-------- ------ --------------- ------------
BALANCE, APRIL 25, 1997........................ 533,500 2,668 332 (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)...... 23,540 118 31,575 (2,962) 28,731
Net Income -- Combined (unaudited)........... 379,115 379,115
-------- ------ --------------- -------- ------------ -------------
BALANCE OCTOBER 31, 1997 -- COMBINED
(UNAUDITED).................................. 557,840 $2,794 $32,501 $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. The Company
believes that the adoption of such statement would not result in earnings
materially different than pro forma earnings per share presented in accompanying
statements of income.
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.
On November 20, 1997, EITF 97-2, "Application of FASB Statement No. 94,
CONSOLIDATION OF ALL MAJORITY-OWNED SUBSIDIARIES, and APB Opinion No. 16,
BUSINESS COMBINATIONS, to Physician Practice Management Entities and Certain
Other Entities with Contractual Management Arrangements", was issued which
reached a consensus that arrangements similar to HLM Design and the Managed
Firms should be accounted for on a consolidated basis. The Company intends to
reflect this change prospectively in the fiscal year ended April 24, 1998
financial statements. If the change had been effected for the six months ended
October 31, 1997, the effect would have been a reduction to Stockholder's Equity
by approximately $3,956, an increase in minority interest by approximately
$3,956 and a decrease in Net Income of approximately $3,948.
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.
STOCK SPLIT AND PRO FORMA NET INCOME PER SHARE -- All share and per share
amounts included in the accompanying financial statements for all periods
presented have been adjusted to reflect an 11 for 1 stock split of the HLM
Design Common Stock effective as of January , 1998 and the decrease in Common
Stock par value to $.005. Pro forma net income per share in the accompanying
financial statements has been prepared based upon the shares outstanding without
giving effect to the issuance of common stock related to the offering.
F-9
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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).......................................... $ (416,864) $ 440,148
----------- -----------
----------- -----------
</TABLE>
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>
F-10
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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.
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 including interest of 13.5% due in monthly
payments...................................................................................................... 1,980,000
Notes payable to shareholders at 6% with final payment due at various dates to August 2002...................... 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>
F-11
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. FINANCING ARRANGEMENTS -- Continued
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.
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:
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>
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:
<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.
10. HLM DESIGN FINANCIAL INFORMATION (UNAUDITED)
HLM Design's balance sheet and income statement for the six months ended
October 31, 1997 are as follows:
<TABLE>
<S> <C>
BALANCE SHEET
Current assets........................................................................... 402,017
---------
Non-current assets....................................................................... 3,446,128
---------
Total assets............................................................................. 3,848,145
---------
---------
Current liabilities...................................................................... 1,163,169
---------
Non-current liabilities.................................................................. 2,162,307
---------
</TABLE>
F-13
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. HLM DESIGN FINANCIAL INFORMATION (UNAUDITED) -- Continued
<TABLE>
<S> <C>
Total liabilities........................................................................ 3,325,476
---------
---------
Total stockholders equity................................................................ 522,669
---------
Total liabilities & S/E.................................................................. 3,848,145
---------
---------
INCOME STATEMENT
Revenues................................................................................. 390,830
Net interest, tax and other expense...................................................... 146,971
---------
Net income............................................................................... 243,859
---------
---------
</TABLE>
F-14
<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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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......................................... 7
Use of Proceeds...................................... 10
Dividend Policy...................................... 11
Capitalization....................................... 11
Dilution............................................. 12
Selected Financial Data.............................. 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 17
Business............................................. 22
Management........................................... 26
Certain Transactions................................. 33
Principal Stockholders............................... 34
Description of Capital Stock......................... 35
Shares Eligible for Future Sale...................... 37
Underwriting......................................... 38
Legal Matters........................................ 40
Experts.............................................. 40
Additional Information............................... 40
Index to Financial Statements........................ F-1
</TABLE>
------------------
UNTIL , 1998 (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.
500,000 SHARES
HLM DESIGN, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
MARION BASS
COMPANIES
, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
<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................................................................... $ 2,121.22
NASD filing fee........................................................................ 1,200
AMEX fees.............................................................................. 10,000
Transfer agent and registrar fees...................................................... 15,000
Accounting fees and expenses........................................................... 235,000
Legal fees and expenses................................................................ 120,000
"Blue Sky" fees and expenses (including legal fees).................................... 5,000
Costs of printing and engraving........................................................ 90,000
Miscellaneous.......................................................................... 21,678.78
-----------
Total............................................................................. $500,000.00
-----------
-----------
</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 6.01 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 7, 1997, July 8, 1997,
July 14, 1997, August 22, 1997 and November 1, 1997 the Registrant issued an
aggregate of 2,340 shares of Common Stock to senior level employees of the
Company in exchange for $14.81 per share. As of May 30, 1997, September 10, 1997
and December 24, 1997, the Registrant issued warrants to purchase 17,794 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. On
December 26, 1997 Berthel Leasing exercised its Warrants and purchased 3,422
shares of Common Stock at an exercise 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
two of its officers and employees, pursuant to the Registrant's Stock Option
Plan, options to purchase 100,000 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------------------------------
<C> <S>
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.
10 .28 Promissory Note dated as of May 30, 1997 issued by HLM Design, Inc. in favor of First Charter National Bank.
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>
- ---------------
* Filed previously
** 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 Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Charlotte, North
Carolina on January 21, 1998.
HLM DESIGN, INC.
By: /s/_______VERNON B. BRANNON________
VERNON B. BRANNON
SENIOR VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 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/* President, Chief Executive Officer (principal January 21, 1998
JOSEPH M. HARRIS executive officer) and Chairman
/s/VERNON B. BRANNON Senior Vice President, Treasurer, Chief January 21, 1998
VERNON B. BRANNON Financial Officer (principal financial and
accounting officer) and Director
/s/* Director January 21, 1998
CLAY R. CAROLAND III
/s/* Director January 21, 1998
SHANNON LEROY
</TABLE>
*By: /s/_____VERNON B. BRANNON______
VERNON B. BRANNON
(ATTORNEY-IN-FACT FOR EACH
OF THE PERSONS INDICATED)
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.
10.28 Promissory Note dated as of May 30, 1997 issued by HLM Design, Inc. in favor of First Charter National
Bank.
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>
- -----------------------------------------------------------
* Filed previously
** To be furnished by Amendment.
<PAGE>
The accompanying financial statements reflect a decrease in the par value
to $.005 and an 11 for 1 split of common stock which is to be effected prior to
the effective date of the Offering. The following consent is in the form which
will be signed by Deloitte & Touche upon consummation of the above events, which
are described in Note 1 of Notes to Financial Statements, and assuming that,
from November 11, 1997 to the date of such event, no other events have occurred
which would affect the accompanying financial statements and notes thereto.
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"HLM DESIGN, INC.", FILED IN THIS OFFICE ON THE NINETEENTH OF NOVEMBER, A.D.
1997, AT 12:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[STATE SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2725383 8100 AUTHENTICATION: 8766272
971394844 DATE: 11-19-97
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HLM DESIGN, INC.
---------------------------------------------------------
Under Sections 242 and 245 of the General Corporation Law
of the State of Delaware
---------------------------------------------------------
HLM DESIGN, INC., a corporation organized and existing under and by virtue
of the laws of the Sate of Delaware (the "Corporation"), DOES HEREBY CERTIFY
THAT:
FIRST: The present name of the Corporation is "HLM Design, Inc." The
Corporation was originally incorporated under the name "HLM Design, Inc.," and
the date of filing of its original Certificate of Incorporation with the
Secretary of State was March 6, 1997.
SECOND: The entire Certificate of Incorporation of the Corporation, as
amended, is hereby further amended and/or deleted in their entirety and, as
amended, the Certificate of Incorporation is hereby restated, so that, as
amended and restated, it shall read in its entirety as set forth in Exhibit A
attached hereto and by this reference made a part hereof.
THIRD: The aforesaid amendments and this Amended and Restated Certificate
of Incorporation were duly adopted by the Board of Directors and stockholders of
the Corporation in accordance with the applicable provisions of Sections 141,
228, 242 and 245 of the General Corporation Law of the State of Delaware.
FOURTH: This Amended and Restated Certificate of Incorporation shall be
effective on filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, HLM Design, Inc. has caused its corporate seal to be
hereunto affixed and this Amended and Restated Certificate of Incorporation to
be signed by Joseph M. Harris, its President, and attested by Karen A. Kaplan,
its Assistant Secretary, this 13th day of November, 1997.
HLM DESIGN, INC.
[CORPORATE SEAL] By: /s/ Joseph M. Harris
----------------------------
Joseph M. Harris, President
ATTEST:
By: /s/ Karen A. Kaplan
------------------------------------
Karen A. Kaplan, Assistant Secretary
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") made as
of this 30th day of May, 1997 by and among HLM DESIGN, INC., a Delaware
corporation (the "Company") and EQUITAS, L.P., a Delaware limited partnership
("Equitas") and PACIFIC CAPITAL, L.P., a Delaware limited partnership
("Pacific") (collectively, the "Purchasers").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Purchasers have purchased from the Company Common Stock
Purchase Warrants, of even date herewith (the "Warrants"); and
WHEREAS, the parties hereto wish to provide for certain
registration rights with respect to securities of the Company that may be
acquired by the Purchasers upon exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged herein contained, the
parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Holder" shall mean the holder of the Registrable Securities
(including the Initiating Holders and the Non-Initiating Holders), either
individually or jointly, as the case may be.
"Initiating Holders" shall mean (i) for purposes of Section 3
hereof, Holders of more than fifty percent (50%) of the shares of the
Registrable Securities then outstanding who initiate a request for registration
pursuant to Section 3(a) hereof, and (ii) for purposes of Section 5 hereof,
Holders of more than twenty percent (20%) of the shares of the Registrable
Securities then outstanding who initiate a request for registration pursuant to
Section 5(a) hereof.
"Non-Initiating Holders" shall mean, with respect to any
request for registration pursuant to Sections 3 or 5 hereof, the Holders not
party to such request for registration.
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The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"Registrable Securities" shall mean, at any time, shares of
the Company's securities described in Section 2 hereof which are required to
bear the restrictive legend set forth in such Section.
"Registration Expenses" shall mean all expenses incurred by
the Company in compliance with Sections 3, 4 and 5 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the fees
and expenses of one counsel for all the selling Holders and other security
holders and the expense of any special audits incident to or required by any
such registration (but excluding the Selling Expenses and the compensation of
regular employees of the Company, which shall in any event be paid by the
Company).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel, if any, separately retained by any Holder
(not including the fees and disbursements of one such counsel included in
Registration Expenses).
2. Restrictive Legend. Each certificate representing shares of
common stock issued upon exercise of the Warrant shall (unless otherwise
permitted or unless the securities evidenced by such certificate shall have been
registered under the Securities Act) be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required under
applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
Upon request of a holder of such a certificate, the Company
shall remove the foregoing legend from the certificate or issue to such holder a
new certificate therefor free of any transfer legend, if, (x) with such request,
the Company shall have received either an opinion of counsel satisfactory to the
Company to the effect that any transfer by such holder of the securities
evidenced by such certificate will not violate the Securities Act and applicable
state securities laws or (y) in accordance with paragraph (k) of Rule 144, such
holder is not and has not during the last three months been an affiliate of the
Company and such holder has held the securities represented by
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such certificate for a period of at least one year. The Company will use its
best efforts to assist any holder in complying with the provisions of this
Section 2 for removal of the legend set forth above.
3. Requested Registration.
(a) Request for Registration. If at any time after three (3)
years from the date of this Agreement, the Company shall receive from Initiating
Holders a written request that the Company effect any registration with respect
to all, or, if not all, at least 25%, of the Registrable Securities held by the
Initiating Holders, the Company shall do the following:
(i) within ten (10) days of receipt of such request
from the Initiating Holders, give written notice of the proposed registration to
the Non-Initiating Holders; and
(ii) as soon as practicable, but in any event no
later than ninety (90) days after receipt of such request from the Initiating
Holders, effect such registration and appropriate qualification under applicable
blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act as may be so requested
and as would permit or facilitate the sale and distribution of all Registrable
Securities as are specified in such request, together with all Registrable
Securities of any Non-Initiating Holder(s) joining in such request as are
specified in a written request by the Non-Initiating Holders (subject to
limitation in accordance with Section 3(b) below) within thirty (30) days after
receipt of such written notice from the Company; provided, however, that the
Company shall not be obligated to effect, or to take any action to effect, any
such registration pursuant to this Section 3 after the Company has effected two
(2) registrations pursuant to this Section 3 and each such registration has been
declared or ordered effective by the Commission and the sale of such Registrable
Securities has closed or been effected.
(b) Underwriting.
(i) Any request for registration pursuant to Section
3(a) hereof may involve a registered underwritten public offering of the
Registrable Securities to be included in the registration. In such event, the
Company shall include any information that it shall have received as to the
nature of the underwriting in the written notice of the Company referred to in
Section 3(a)(i) above, including the name of the underwriter or representative
thereof selected for such underwriting. The right of any Non-Initiating Holder
to registration pursuant to this Section 3 shall be conditioned upon such
Non-Initiating Holder participating in such underwriting and the inclusion of
such Non-Initiating Holder's Registrable Securities in such underwriting to the
extent provided herein.
(ii) In the event of an underwritten requested
registration, the Company shall (together with all Holders proposing to
distribute their Registrable Securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or representative
thereof selected for such underwriting. Notwithstanding any other provision of
this Section 3, if the underwriter or representative thereof advises the
Initiating Holders in writing that, in its opinion, marketing factors require a
limitation on the number of shares to be underwritten, the Initiating Holders
shall so advise all Holders whose Registrable Securities would otherwise be
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underwritten pursuant hereto, and the number of shares of Registrable Securities
that are entitled to be included in the registration and underwriting shall be
allocated in the following manner:
(A) first, the securities of any stockholder
joining in the request for registration who
is not a Holder shall be excluded from such
registration; in the event that less than
all of such stockholders' securities are
required to be excluded, the remaining
number of shares shall be allocated as among
such stockholders in such proportion, as
nearly as practicable, to the relative
amount of securities then held by each such
stockholder;
(B) then, if a limitation on the number of
shares is still required, the Registrable
Securities held by the Non-Initiating
Holders joining in the request for
registration shall be excluded from such
registration to the extent required by such
limitation; in the event that less than all
of such Non-Initiating Holders' Registrable
Securities are required to be excluded, the
remaining number of shares shall be
allocated as among such Non-Initiating
Holders in proportion, as nearly as
practicable, to the relative amount of
Registrable Securities then held by each
such Non-Initiating Holder;
(C) then, if a limitation on the number of
shares is still required, the Registrable
Securities held by the Initiating Holders
joining in the request for registration
shall be excluded from such registration to
the extent required by such limitation; in
the event that less than all of such
Initiating Holders' Registrable Securities
are required to be excluded, the remaining
number of shares shall be allocated as among
such Initiating Holders in proportion, as
nearly as practicable, to the relative
amount of Registrable Securities then held
by each such Initiating Holder.
(iii) In the event that the number of shares of
Registrable Securities of any Holder included in any registration is reduced
below 75% of the shares requested to be included in such registration as a
result of allocations pursuant to this Section 3(b), then such registration
shall not be deemed a registration for purposes of Section 3 and shall not
diminish the number of registrations to which the Holders are entitled pursuant
to this Section 3.
(iv) If any Holder who has requested inclusion in
such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration.
4. "Piggyback" Registration.
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(a) Company Registration. If at any time the Company shall
determine to register any of its securities either for its own account or the
account of security holder(s) exercising its or their respective demand
registration rights other than pursuant to Section 3 above on any registration
form suitable for inclusion of the Registrable Securities, the Company shall do
the following:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable "blue sky" or
other state securities laws); and
(ii) include in such registration, and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within thirty (30) days after
receipt of the written notice from the Company described in clause (i) above,
except as limited by the provisions of Section 4(b)(ii) below. Such Holder's
written request may specify all or a part of a Holder's Registrable Securities.
There shall be no limitation on the number of registrations which may be
requested and obtained under this Section 4.
(b) Underwriting.
(i) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 4(a)(i). In such event, the right of any Holder to registration
pursuant to Section 4 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein.
(ii) The Company shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
representative thereof selected by the Company. Notwithstanding any other
provision of this Section 4, if the Underwriter or representative thereof
advises the Company in writing that, in its opinion, marketing factors require a
limitation on the number of shares to be underwritten, the underwriter or
representative thereof may (subject to the allocation priority set forth below),
(A) if the registration of which the Company gives notice is for the first
registered public offering of securities of the Company, exclude all of the
Holders' Registrable Securities provided that no other selling shareholders'
shares are included in the offering, or (B) in any other event, limit the number
of the Holders' Registrable Securities and securities being registered by any
other selling shareholders to be included in the registration and underwriting
to an amount not less than thirty percent (30%) of the total number of shares
being registered in such registration and underwriting. If such limitation is
required, the Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated first to the
Company for its own account, and then in the following manner: the Registrable
Securities of the Holders joining in the request for registration and the
securities to be sold by other selling shareholders participating in the
registration shall be excluded from such registration in the ratio of eighty
(80) to twenty (20) so that 80% of the shares included
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in the registration (other than Company shares) are Registrable Securities of
the Holders and 20% are shares owned by other shareholders joining in the
registration.
(iii) If any Holder of Registrable Securities or any
other stockholder disapproves of the terms of any such underwriting, such
stockholder may elect to withdraw therefrom by written notice to the Company and
the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
5. Registration on Form S-3.
(a) The Company shall use its best efforts to qualify for
registration on Form S-3 or any comparable or successor form. To that end the
Company shall register (whether or not required by law to do so) the Common
Stock under the Exchange Act in accordance with the provisions of the Exchange
Act following the effective date of the first registration of any securities of
the Company on Form S-1 or any comparable or successor form or forms.
(b) After the Company has qualified for the use of Form S-3,
in addition to the rights contained in the foregoing provisions of this
Agreement, the Holders shall have the right to request from time to time
registrations on Form S-3. Such requests shall be initiated by the Initiating
Holders, shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Holders. Whenever the Company is required by this Section 5 to
effect the registration of the Registrable Securities, each of the procedures
and requirements of Section 3 (including, without limitation, the requirement
that the Company notify the Non-Initiating Holders in order to provide them with
the opportunity to participate in the offering) shall apply to such
registration; provided, however, that there shall be no limitation on the number
of registrations on Form S-3 which may be requested and obtained under this
Section 5, other than a limit of two (2) such registrations in any calendar
year.
6. Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Agreement. All Selling Expenses
shall be borne by the holders, including the Company, of the securities so
registered pro rata on the basis of the number of their shares so registered.
7. Registration Procedures. In the case of each registration
effected by the Company pursuant to Sections 3, 4 or 5, the Company will keep
each Holder advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, the Company will do the following:
(a) Keep such registration effective for a period of three
months or until the Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, but in any
event not longer than six (6) months; provided, however, that in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold;
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(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of securities
covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchaser of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) If at the time of any request to register Registrable
Securities, the Company is engaged or has fixed plans to engage within 60 days
of the time of the request in a registered public offering as to which the
Holders may include Registrable Securities hereunder or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of ninety (90) days from
the effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any twelve (12) month period.
(f) Cause all such Registrable Securities to be listed on each
securities exchange or trading market on which similar securities issued by the
Company are then listed or traded;
(g) Provide a transfer agent and registrar for all Registrable
Securities and a CUSIP number for all such Registrable Securities, in each case
not later than the effective date of such registration;
(h) Make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney or accountant retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers and
directors to supply all information reasonably requested by any such seller,
underwriter, attorney or accountant in connection with such registration
statement; provided, however, that such seller, underwriter, attorney or
accountant shall agree to hold in confidence and trust all information so
provided;
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(i) Furnish to each selling Holder a signed counterpart,
addressed to the selling Holder, of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement in usual and customary form for
registered public offerings, and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the AICPA or other relevant authorities, covering
substantially the same matters with respect to the registration statement (and
the prospectus included therein) and (in the case of the accountants' "comfort"
letters) with respect to events subsequent to the date of the financial
statements, as are customarily covered in opinions of issuer's counsel and in
accountants' "comfort" letters delivered to the underwriters in underwritten
public offerings of securities;
(j) Furnish to each selling Holder a copy of all documents
filed with and all correspondence from or to the Commission in connection with
any such offering other than non- substantive cover letters and the like;
(k) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(l) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 3 hereof, the Company shall
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of the Registrable Securities, provided such underwriting agreement
shall contain customary underwriting provisions.
8. Indemnification.
(a) The Company shall indemnify each Holder, each of its
officers, directors and partners, and each person controlling such Holder, with
respect to which registration, qualification or compliance has been effected
pursuant to Sections 3, 4 or 5 and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions, proceedings or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse
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each such Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses as they are reasonably
incurred in connection with investigating and defending any such claim, loss,
damages, liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or underwriter.
(b) Each Holder shall, if Registrable Securities held by it
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and the rules and
regulations thereunder, each other Holder and each of their officers, directors
and partners, and each person controlling such Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or incomplete, and will reimburse the Company and such
Holders, directors, officers, partners, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder for the purpose of being included in such registration
statement, prospectus, offering circular or other document; provided, however,
that the obligations of such
Holders hereunder shall be limited to an amount equal to the net proceeds (after
Selling Expenses) to each such Holder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
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(d) If the indemnification provided for in this Section 8 is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and all shareholders offering
securities in the offering (the "Selling Shareholders") on the other, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the Selling Shareholders on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Selling
Shareholders on the other hand shall be the net proceeds from the offering
(before deducting expenses) received by the Company on the one hand and the
Selling Shareholders on the other. The relative fault of the Company on the one
hand and the Selling Shareholders on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Selling Shareholders
and the parties' relevant intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Selling Shareholders agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were based solely upon the number of
entities from whom contribution was requested or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages and liabilities referred to
above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim, subject to the provisions
of Section 8(d) hereof. Notwithstanding the provisions of this Section 8(d), no
Selling Shareholder shall be required to contribute any amount or make any other
payments under this Agreement which in the aggregate exceed the net proceeds
(after Selling Expenses) received by such Selling Shareholder. No person guilty
of fraudulent misrepresentation (within the meaning of the Securities Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. Information by Holder. Each Holder of Registrable
Securities shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in Sections 3, 4 or 5.
10. "Stand-Off" Agreement. Each Holder, if requested by the
Company and the Managing Underwriter of an offering by the Company of Common
Stock or other securities of the Company pursuant to a Registration Statement,
shall agree not to sell publicly or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company held by such Holder
for a specified period of time (not to exceed 180 days) following the effective
date of such Registration Statement; provided, that:
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(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold on its behalf to the public in an
underwritten offering; and
(b) all Holders holding not less than the number of shares of
Common Stock held by such Holder (including shares of Common Stock issuable upon
the conversion of Shares, or other convertible securities, or upon the exercise
of options, warrants or rights) and all officers and directors of the Company
enter into similar agreements.
11. Limitations on Registration of Issues of Securities. From
and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder a right to require the Company to
initiate any registration of any securities of the Company or to require the
Company, upon any registration of any of its securities, to include, among the
securities which the Company is then registering, securities owned by such
Holder which is on a parity with or superior to the rights given to the Holders
hereunder unless waived as provided in Section 15 below.
12. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to:
(a) Use its best efforts to make and keep public information
available as those terms are understood and defined in Rule 144 under the
Securities Act at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and
(c) So long as the Holders own any Registrable Securities,
furnish to the Holders forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as the Holders may reasonably request in availing itself of
any rule or regulation of the Commission allowing the Holder to sell any such
securities without registration.
13. Transfer or Assignment of Registration Rights. The rights
to cause the Company to register securities granted to the Holders by the
Company under Sections 3, 4 and 5 may be transferred or assigned by the
Purchaser, provided that the Company is given written notice at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the Registrable
Securities with respect to which such
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registration rights are being transferred or assigned, and provided further that
the transferee or assignee of such rights assumes the obligations of the Holders
under this Agreement.
14. Termination. The provisions of this Section 3, 4 and 5 of
this Agreement shall terminate when there shall no longer be any Registrable
Securities.
15. Entire Agreement; Amendment; Waiver. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof. No amendment, alteration or modification of this
Agreement shall be valid unless in each instance such amendment, alteration or
modification is expressed in a written instrument executed by the parties
hereto. No waiver of any provision of this Agreement shall be valid unless it is
expressed in a written instrument duly executed by the party or parties making
such waiver. The failure of any party to insist, in any one or more instances,
on performance of any of the terms and conditions of this Agreement shall not be
construed as a waiver or relinquishment of any rights granted hereunder or of
the future performance of any such term, covenant or condition but the
obligation of any party with respect thereto shall continue in full force and
effect.
16. Specific Performance. The parties hereby declare that it
is impossible to measure in money the damages which will accrue to a party
hereto by reason of a failure to perform any of the obligations under this
Agreement. Therefore, all parties hereto shall have the right to specific
performance of the obligations of the other parties under this Agreement, and if
any party hereto shall institute an action or proceeding to enforce the
provisions hereof, any person (including the Company) against whom such action
or proceeding is brought hereby waives the claim or defense therein that such
party has an adequate remedy at law, and such person shall not urge in any such
action or proceeding the claim or defense that such remedy at law exists.
17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be mailed first class
registered with postage prepaid as follows:
(a) If to a Purchaser, to the following:
Equitas, L.P.
Suite 100
2000 Glen Echo Road
Nashville, TN 37215
Attention: Shannon LeRoy
FAX: 615-383-8693
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, TN 37203
Attention: Clay R. Caroland III
FAX: 615-292-8803
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With a copy to:
John W. Titus
Boult, Cummings, Conners & Berry, PLC
Suite 1600
414 Union Street
P.O. Box 198062
Nashville, TN 37219
FAX: 615-252-6341
(b) If to the Company, to the following:
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
FAX: 704-358-0229
with a copy to:
Shirley J. Linn
Underwood Kinsey Warren & Tucker, P.A.
2020 Charlotte Plaza
201 South College Street
Charlotte, N.C. 28244-2020
FAX: 704-377-9630
Alternatively, to such other address as a party hereto
supplies to each other party in writing.
18. Successors and Assigns. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective transferees, successors and assigns of the parties
hereto, whether so expressed or not.
19. Governing Law. This Agreement is to be governed by and
interpreted under the laws of the State of Tennessee without giving effect to
the principles of conflicts of laws thereof.
20. Titles and Subtitles. The titles of the sections of this
Agreement are for the convenience of reference only and are not to be considered
in construing this Agreement.
21. Severability. The invalidity or unenforceability of any
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement.
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22. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
HLM DESIGN, INC.
By: /s/ Vernon B. Brannon
Name: Vernon B. Brannon
Title: Vice President
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.
By: /s/ Shannon LeRoy
Name: Shannon LeRoy
Title: President
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
By: /s/ J. Larry Williams
Name: J. Larry Williams
Title: Secretary-Treasurer
15
HLM DESIGN, INC.
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement ("Agreement") is entered into as
of the 30th day of May, 1997, by and between HLM DESIGN, INC. ("Seller"), a
Delaware corporation; and HANSEN LIND MEYER INC. ("Hansen Lind"), an Iowa
corporation, and BBH Corp. ("BBH"), a Delaware corporation (Hansen Lind and BBH
being collectively referred to herein as "Guarantor"); and PACIFIC CAPITAL, L.P.
("Pacific"), a Delaware limited partnership, and EQUITAS, L.P. ("Equitas"), a
Delaware limited partnership (Pacific and Equitas being sometimes referred to
herein, each as "Purchaser," and collectively as "Purchasers").
W I T N E S E T H:
WHEREAS, Seller has agreed to sell to Purchasers, and
Purchasers have agreed to purchase from Seller, certain Promissory Notes of even
date herewith evidencing indebtedness owed by Seller to the Purchasers in the
aggregate amount of $2,000,000.00, on certain terms and conditions as set forth
in this Note Purchase Agreement;
WHEREAS, concurrently with the purchase of the Notes, Seller
shall extend credit to BBH in the amount of $3,200,000.00 to fund BBH's
obligations pursuant to the Merger Transaction (as defined herein) whereby BBH
will merge with and into Hansen Lind, with Hansen Lind being the surviving
entity;
WHEREAS, one condition to each Purchaser's agreement to
purchase the respective Notes from Seller is that Purchasers, Seller and
Guarantor must enter into a comprehensive agreement setting forth the terms and
conditions of such purchase; and
WHEREAS, another condition to each Purchaser's agreement to
purchase the respective Notes from Seller is that Guarantor, which will directly
benefit from Purchasers' extension of credit to Seller, execute a guaranty in
favor of Purchasers.
NOW, THEREFORE, as an inducement to cause Purchasers to
purchase the Notes from Seller, and for other valuable consideration, the
receipt and sufficiency of which are acknowledged, it is agreed as follows:
I. NOTE PURCHASE
1.1. Sale and Purchase of Note. The Seller hereby transfers
and sells to each Purchaser, and each Purchaser hereby accepts and purchases
from the Seller, the respective promissory notes at the respective purchase
prices set forth below:
<PAGE>
(A) Promissory Note of even date herewith in the original
principal amount of $1,200,000 made payable to Pacific, in the
form attached hereto as Exhibit A- 1 (together with any
amendments, modifications, extensions or renewals thereof, the
"Pacific Note") to be purchased for a purchase price of
$1,188,000; and
(B) Promissory Note of even date herewith in the original
principal amount of $800,000 made payable to Equitas, in the
form attached hereto as Exhibit A-2 (together with any
amendments, modifications, extensions or renewals thereof, the
"Equitas Note") to be purchased for a purchase price of
$792,000;
(the Pacific Note and the Equitas Note being collectively referred to herein as
the "Notes").
1.2. Prepayment. Prepayment of principal or accrued interest
under the Notes may be made, in whole or in part, at any time without penalty.
Any such prepayments shall be made concurrently to each Purchaser in proportion
to each Purchaser's pro rata share of the original principal amount advanced to
Seller hereunder.
1.3. Use of Proceeds. The proceeds of the sale of the Notes
shall be used by Seller for funding Seller's loan to BBH in the approximate
principal amount of $3,200,000 pursuant to a promissory note made by BBH payable
to the order of Seller in form and substance satisfactory to Purchasers (the
"Affiliate Note"), which proceeds shall be used by BBH to fund its payment
obligations pursuant to that certain Merger Agreement dated as of April 3, 1997
by and between BBH and Hansen Lind (the "Merger Agreement"). Pursuant to the
terms of the Merger Agreement, BBH shall merge with and into Hansen Lind, with
Hansen Lind being the surviving entity (the "Merger Transaction"). Purchasers
will conduct a review of Seller's business records and operations within 30 days
after closing to verify the appropriate use of the proceeds of the sale of the
Notes and may require Seller to provide certifications or such other assurances
with respect thereto as Purchasers may determine in their discretion.
1.4. Definition of Secured Indebtedness. As used herein,
"Secured Indebtedness" shall mean all present and future debts and other
obligations of Seller to Purchasers under this Agreement and the indebtedness
and obligations evidenced by the Notes, and all modifications, extensions and
renewals thereof.
II. CONDITIONS TO CLOSING
2.1. Documents. Concurrently with the execution hereof, in
connection with the sale of the Notes, Seller shall deliver to Purchasers the
following documents (the "Transaction Documents"), in form and substance
acceptable to Purchasers:
(a) This Agreement;
(b) The Notes, each executed by Seller;
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(c) Security Agreement executed by Seller covering all of
Seller's personal property and fixtures;
(d) Collateral Assignment of Promissory Note executed by
Seller, together with original Affiliate Note made by
BBH payable to the order of Seller, which promissory
note shall be duly endorsed by Seller to Purchasers
for collateral security;
(e) Collateral Assignment of Contract Rights executed by
Seller (with respect to the management agreements),
together with copies of the management agreements;
(f) Guaranty executed by Guarantor;
(g) Collateral Assignment of Life Insurance on Vernon
Brannon in the amount of $1,000,000.00 and, within 30
days after Closing, a Collateral Assignment of Life
Insurance on Joe Harris in the amount of
$2,000,000.00;
(h) Noncompetition Agreements executed by each of Joe
Harris and Vernon Brannon (referred to herein,
respectively, as the "Harris Noncompete" and the
"Brannon Noncompete");
(i) Personal Guaranty executed by Joe Harris (the "Harris
Guaranty");
(j) Personal Guaranty executed by Vernon Brannon (the
"Brannon Guaranty");
(k) The Warrants as described in Section 3.1 hereof;
(l) Registration Rights Agreement;
(m) Form of shareholders' agreement to be agreed to by
shareholders of HLM Design, Inc., Purchasers, Clay
Caroland and Shannon LeRoy, within 45 days following
Closing, and subject to further amendment and
modification to the satisfaction of Purchasers, Clay
Caroland and Shannon LeRoy following Closing as
provided herein;
(n) UCC-1 Financing Statements/Negative Pledge Agreements
to be filed in such jurisdictions as Purchasers may
require;
(o) Small Business Administration Forms 1031 Portfolio
Financing Report Form, 480 Size Status Declaration
and 652-D Assurance of Compliance; and
(p) Legal Opinion delivered by counsel for Seller in form
and substance acceptable to Purchasers.
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<PAGE>
2.2. Other Closing Items. Concurrently with, or prior to, the
execution hereof, Seller shall also provide Purchasers with the following
documents and items, in form and substance acceptable to Purchasers:
(a) UCC-11, Judgment and Tax Lien Searches for Seller and
for Guarantor.
(b) If requested by Purchasers, Certificates of Insurance
insuring Seller's assets naming Purchasers as Loss
Payee/Insured Mortgagee accompanied by a detailed
listing of and copies of all insurance policies on
Seller's assets and facilities.
(c) Certified copy of Seller's Articles of Incorporation
issued by the Secretary of State of Delaware.
(d) Certificate of Seller's Good Standing and
Qualification to do Business under Delaware law
issued by the Secretary of State of Delaware, and in
all other states in which Seller does business.
(e) Copy of Seller's current By-laws, certified by
Seller's corporate secretary.
(f) Certified copy of Resolutions of Seller's Board of
Directors authorizing a named officer of Seller to
enter into this Agreement and to execute all related
documents on Seller's behalf.
(g) Certified copy of Hansen Lind and BBH's Articles of
Incorporation/Charter.
(h) Certificate of Hansen Lind's and BBH's Good Standing
and Qualification to do Business under the law in
which it was incorporated , and in all other states
in which Guarantor does business.
(i) Copy of Hansen Lind's and BBH's current By-laws,
certified by Guarantor's corporate secretary.
(j) Certified copy of Resolutions of Hansen Lind's and
Guarantor's Board of Directors authorizing a named
officer of Guarantor to enter into the Agreement and
to execute all related documents on Guarantor's
behalf.
(k) Merger documentation and diligence with respect to
the Merger Transaction, including a copy of merger
agreement, articles of merger and evidence that the
merger agreement was duly authorized and approved,
and consummation of the transactions contemplated
thereby, are not in conflict with, or in
contravention with or violation of any law,
regulation or agreement binding upon the parties
thereto, in such form and substance satisfactory to
Purchasers;
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(l) Payoff instructions and amounts with respect to the
BBH's funding obligations pursuant to the Merger
Agreement;
(m) Processing Fee in the amount of $40,000.00 plus
attorneys' fees for Boult, Cumming, Conners, & Berry,
PLC and related expenses;
(n) A pro forma balance sheet of the Seller and Guarantor
reflecting all of the transactions contemplated
above, including the Merger, issuance of the
Affiliate Note and the purchase of the Notes; and
(o) Closing Statement listing disbursements for all
closing expenses;
(p) Such other and further documentation as Purchaser may
require.
2.3. Completion of Due Diligence. As a condition to closing
the transactions referenced herein, including the purchase of the Notes,
Purchasers must have completed their due diligence review of Seller and
Guarantor with the results of such review being satisfactory to Purchasers in
their sole discretion.
2.4. Additional Conditions to Closing. Concurrently with the
execution hereof, the following additional conditions must be satisfied, in form
and substance acceptable to Purchasers:
(a) Purchasers shall have approved the management
agreements to be in force as of Closing between (i)
Seller and Hansen Lind, and (ii) Seller and HLM of
North Carolina, P.C. (collectively, the "Related
Party Management Agreements"), subject to further
amendment and modification to the satisfaction of
Purchasers following Closing as provided herein;
(b) Purchasers shall have approved and executed
Intercreditor Agreement among themselves;
(c) Payoff of any and all indebtedness of Guarantor to
Firstar Bank of Iowa, N.A. ("Firstar") together with
applicable release documentation and UCC termination
statements, including releases of any liens, security
interests or encumbrances by Firstar against the
assets of Guarantor;
(d) All necessary consents and approvals shall have been
obtained, including any necessary consents or
requirements by Berthel Fisher & Company Leasing,
Inc. ("Berthel Leasing") with respect to the
sale-leaseback arrangement between Berthel Leasing
and Guarantor;
(e) All Purchasers shall have approved the aforementioned
sale-leaseback arrangement between Berthel Leasing
and Guarantor, and the documentation thereof,
and said transaction shall be consummated
as of Closing;
(f) All Purchasers shall have approved the extension of
credit by First Charter Bank to Seller in an amount
not to exceed $1,000,000, and the guarantee of such
indebtedness by Guarantor secured by the accounts of
Guarantor, and the documentation thereof, and said
transaction shall be consummated as of Closing;
(g) The Merger Transaction shall be consummated according
to the terms and conditions of the Merger Agreement.
III. EQUITY PARTICIPATION
3.1. Stock Purchase Warrant. For a total purchase price of
$20,000.00, Seller shall issue to Purchasers and their designees, concurrently
with the Closing, common stock purchase warrants (the "Stock Purchase Warrants"
or "Warrants") in substantially the same form of the Stock Purchase Warrant
attached hereto as Exhibit B, with respect to a total of initially 14,372 shares
of common capital stock of the Seller. Pursuant to applicable state law and the
applicable provisions of Title 13, Code of Federal Regulations, the value of the
Stock Purchase Warrants shall be deemed an equity participation and shall not be
characterized as interest, loan charges, commitment fees or brokerage
commissions.
IV. WARRANTIES AND COVENANTS
Seller and Guarantor hereby jointly and severally represent,
warrant and covenant to Purchasers as follows:
4.1. Capacity. Seller warrants that it is and shall remain a
duly organized Delaware corporation in good standing under the laws of Delaware,
and that Seller is and shall remain duly qualified to do business in each other
state in which qualification is necessary, except where failure to so qualify
would not have a material adverse effect on Seller's business or financial
condition. Hansen Lind warrants that it is and shall remain a duly organized
Iowa corporation in good standing under the laws of Iowa, and that Hansen Lind
is and shall remain duly qualified to do business in Iowa, and the states of
California, Colorado, Virginia, Pennsylvania, Illinois and Florida, and each
other state in which qualification is necessary, except where failure to so
qualify would not have a material adverse effect on Hansen Lind's business or
financial condition. BBH warrants that it is a duly organized Delaware
corporation in good standing under the laws of Delaware, and that BBH is duly
qualified to do business in each state in which qualification is necessary,
except where failure to so qualify would not have a material adverse effect on
BBH's business or financial condition. Seller and Guarantor further warrants
that each of its subsidiaries, if any, are in good standing and qualified to do
business in their respective states of incorporation and states in which they do
business. Seller and Guarantor each have all requisite power and authority to
own and operate their respective properties and assets and to carry on their
respective businesses as presently conducted and as proposed to be conducted.
Seller and Guarantor warrant that their execution, delivery and performance
under this Agreement and all related documents are permitted under and will not
violate any provision of Seller's or Guarantor's Charter or By-Laws. Seller and
Guarantor further warrant that the execution of all necessary resolutions and
other prerequisites of corporate action have been
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<PAGE>
duly performed so that the individual(s) executing this Agreement and related
documents on behalf of Seller and Guarantor is duly authorized to bind Seller
and Guarantor by his or her respective signature.
4.2. Small Business Concern. Seller and Guarantor, together
with their "affiliates" (as that term is defined in Title 13, United States Code
of Federal Regulations ss. 121.401), if any, is a "small business concern"
within the meaning of ss. 121.802 of Title 13 of the United States Code of
Federal Regulations. The information set forth in the Small Business
Administration Form 480 and Form 652-D regarding the Seller and Guarantor is
true, accurate and complete.
4.3. Capitalization. The authorized capital stock of the
Seller is 100,000 shares of Common Stock par value $0.01 per share, of which
50,300 shares are or will be issued and outstanding immediately following
Closing. The Seller has reserved sufficient shares of Common Stock for issuance
upon exercise of the Warrants. All outstanding securities of the Seller were
issued in compliance with applicable federal and state securities laws. Except
as described above, there are no options, warrants, convertible securities,
reserved shares or other rights to purchase any of the Seller's authorized and
unissued capital stock.
4.4. Name. Seller and Guarantor warrant that neither Seller
nor Guarantor has been known under or done business under any name other than
the name used by Seller and Guarantor, respectively, in executing this Agreement
and related documents, except that Guarantor has done business under the name
"HLM of North Carolina, P.C." in the state of North Carolina and under the name
"HLM of Oregon, Architecture and Planning, P.C." in the state of Oregon. Seller
and Guarantor agree to give Purchasers at least fifteen (15) days prior written
notice before Seller or Guarantor begin using any name other than those used in
executing this Agreement and related documents.
4.5. Chief Executive Office. Seller warrants that Seller's
chief executive office is located at Suite 2950, 121 West Trade Street,
Charlotte, North Carolina 28202. Guarantor warrants that Guarantor's chief
executive office is located at Suite 2950, 121 West Trade Street, Charlotte,
North Carolina 28202. Neither Seller nor Guarantor shall move their chief
executive offices from their respective addresses without providing Purchasers
with at least 30 days prior written notice.
4.6. No Subsidiaries. Seller and Guarantor warrant that
neither Seller nor Guarantor presently has any subsidiaries or owns or controls,
directly or indirectly, any other equity interests in any corporation,
association, partnership or other business entity, except for HLM of North
Carolina, P.C., a North Carolina corporation, and HLM of Oregon, Architecture
and Planning, P.C., an Oregon corporation, which are affiliates of the Seller
due to management and service agreements that have been, or are anticipated to
be, entered into between the Seller and such corporations.
4.7. Corporate Records. Seller and Guarantor covenant to
maintain corporate minute books and stock ledgers current and complete in all
material respects and agree (a) to allow Purchasers to inspect the same at any
time; and (b) to make their representatives available to
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<PAGE>
Purchasers to discuss such records and any other matters regarding Seller's or
Guarantor's business or financial condition as Purchasers may request.
4.8. Board of Directors' Designee. So long as the Secured
Indebtedness is outstanding two (2) designees of Purchasers shall be elected to
the Board of Directors of Seller, which Board of Directors shall consist of no
more than five (5) members without the prior approval of such two (2) designees,
and, in addition, a representative of the Purchasers shall be entitled to attend
all board of directors and shareholders meetings of Guarantor. Through May,
1999, and so long as the Secured Indebtedness is outstanding, the Board of
Directors of Seller shall schedule and hold monthly telephonic board meetings,
provided that, at least once every quarter, the Board of Directors shall
schedule and hold a duly-convened board meeting at which all directors of Seller
shall be invited to attend in person, which meeting shall be held at the
principal office of Seller or such other location as approved by the Purchasers.
The corporate documents of Seller and Guarantor shall be amended as necessary to
assure compliance with the foregoing sentence. Seller and Guarantor shall
provide Purchasers with notice of any such meetings at the same time and in the
same manner as given to shareholders and statutory directors, and shall provide
such designees and representative of Purchasers with all documents and reports
associated therewith. Purchasers, Seller and Guarantor agree that a breach by
Seller or Guarantor of any of the provisions of this paragraph will cause
irreparable damage to Purchasers incapable of precise valuation. Therefore, in
the event of such breach, Purchasers, in addition to any other remedy available
to it at law or in equity, shall be entitled to a specific performance order by
a court of competent jurisdiction ordering Guarantor or Seller, as the case may
be, to specifically perform in accordance with the provisions of this paragraph.
The existence of any claim or cause of action asserted by Guarantor or Seller
against Purchasers, whether arising from this Agreement or otherwise, shall not
constitute a defense to the enforcement of this Agreement by Purchasers, nor of
any Purchaser's right to obtain an injunction against Seller or Guarantor, as
the case may be, for the violation of this covenant. In the event Seller or
Guarantor breaches this paragraph and Purchasers must enforce any of the rights
herein granted through an attorney, then Seller and Guarantor shall be liable
for any and all reasonable attorneys' fees, expenses and court costs incurred in
connection with the enforcement of each Purchaser's rights with respect to this
paragraph.
4.9. ERISA. Seller and Guarantor have not incurred and shall
not incur a material accumulated funding deficiency within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and have
not incurred any material liability to the Pension Benefit Guaranty Corporation
established under ERISA (or any successor thereto under ERISA) in connection
with any retirement plan, and no reportable event has occurred and is continuing
or shall occur with respect to any such plans.
4.10. Books and Records. Seller and Guarantor covenant to
maintain financial books and records in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), and to allow Purchasers to
inspect such records and to discuss such records with representatives of Seller
or Guarantor at any reasonable time.
4.11. Tax Matters. Each of Seller and Guarantor: (i) has
timely filed all tax returns that are required to have been or to be filed by
them with all appropriate federal, state, county and
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local governmental agencies, and will continue to do so throughout the term of
this Agreement; (ii) has timely paid all taxes owed by them, including those for
which they are obligated to withhold amounts owing to any employee (including
without limitation social security taxes), creditor or third party except such
taxes as are being contested in good faith and by proper proceedings, as to
which adequate reserves are maintained on the books of Seller or Guarantor, as
appropriate, in accordance with GAAP, and will continue to do so throughout the
term of this Agreement, and (iii) has not waived any statute of limitations with
respect to taxes or agreed to any extension of time with respect to a tax
assessment or deficiency. The assessment of any additional taxes for periods for
which returns have been filed is not expected to exceed the recorded liability
therefor, and, to the best of the Seller's and Guarantor's knowledge, there are
no material unresolved questions or claims concerning the Seller's or
Guarantor's tax liability. Seller's and Guarantor's tax returns have not been
reviewed or audited by any federal, state, local or county taxing authority.
There is no pending dispute with any taxing authority relating to any of said
returns which, if determined adversely to Seller or Guarantor, as applicable,
would result in the assertion by any taxing authority of any valid deficiency in
any material amount for taxes.
4.12. Disclosure of Litigation. Except as disclosed in
Schedule 4.12 hereto, Seller and Guarantor warrant that neither the Seller nor
Guarantor is presently a party to any pending litigation, arbitration or
administrative proceeding involving any relief, or to their knowledge the
subject of any investigation; that there is no litigation, arbitration or
administrative proceeding or investigation either threatened or, to their
knowledge likely to be instituted, in which Seller or Guarantor or any of their
property or assets will be a party; that neither Seller nor Guarantor is subject
to any outstanding court or administrative order; and that, to the best of
Seller's and Guarantor's knowledge, information and belief, no facts exist which
give rise to claims by third parties against Seller or Guarantor which have not
yet been asserted. Seller and Guarantor covenant to give Purchasers prompt
written notice of any litigation, arbitration, administrative proceeding or
investigation that may hereafter be instituted or threatened in which Seller or
Guarantor would be a party, whether or not Seller's or Guarantor's liability
under such proceeding would be covered by insurance.
4.13. Assistance in Litigation. Seller and Guarantor covenant,
upon request, to cooperate with Purchasers in any proceeding in which Seller or
Guarantor is not an adverse party to Purchasers and which concerns Purchasers'
rights regarding the Secured Indebtedness or any collateral securing its
payment.
4.14. Ownership of Patents, Licenses, Etc. Seller and
Guarantor warrant that they own or have the right to use all licenses, permits,
franchises, registrations, patents, copyrights, trademarks, tradenames or
service marks, or the rights to use the foregoing, that are necessary for the
continued operation of Seller's or Guarantor's businesses, respectively, without
infringing upon or otherwise acting adversely to the right of any other person
with respect thereto.
4.15. No Untrue or Misleading Representations. Seller and
Guarantor warrant that no written information, exhibit or report furnished to
Purchasers nor any written statement or representation made by Seller or
Guarantor to Purchasers in connection with the Secured
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Indebtedness contains any untrue statement of material fact or omits to state a
material fact necessary to make the foregoing not misleading.
4.16. No Defaults Under Other Agreements. Seller and Guarantor
warrant that, neither Seller nor Guarantor, nor, to the best of Seller's or
Guarantor's knowledge, information, and belief, any other party thereto, is
presently in default under or in breach of any contract or agreement which might
be material to the financial condition or prospects of Seller or Guarantor, and
no condition presently exists which, with the giving of notice, the passing of
time, or both, would cause such a default or breach.
4.17. No Burdensome Agreements. Seller and Guarantor warrant
that neither Seller nor Guarantor is a party to any contract or agreement or is
subject to any contingent liability that does or may impair Seller's or
Guarantor's ability to perform in all material respects under the terms of this
Agreement and related documents. Guarantor further warrants that the execution
and performance of this Agreement will not cause a default, acceleration or
other event under any other contract or agreement to which Seller or Guarantor
or any property of Seller or Guarantor is subject and will not result in the
imposition of any charge, penalty, lien or other encumbrance against any of
Seller's or Guarantor's property except in favor of Purchasers.
4.18. Legal and Binding Agreement. Seller and Guarantor
warrant that the execution, delivery and performance of this Agreement and any
other document necessary to effectuate this transaction will not violate any
judicial or administrative order or governmental law or regulation, and that
this Agreement is valid, binding and enforceable in every respect according to
its terms, except as enforcement may be limited by bankruptcy laws and other
laws affecting the rights of creditors generally and by principles of equity,
whether asserted in a proceeding at law or in equity.
4.19. No Consent Required. Seller and Guarantor warrant that
Seller's and Guarantor's execution, delivery and performance of this Agreement
does not require the consent of or the giving of notice to any third party
including, but not limited to, any other lender, governmental body or regulatory
authority, except such consents as have been received as of the date of this
Agreement.
4.20. Compliance with Law. Seller and Guarantor warrant that
Seller's and Guarantor's business activities are conducted in compliance with
all applicable laws and regulations, including environmental laws and
regulations, and Seller and Guarantor covenant that such activities shall
continue to be so conducted. In the event a governmental regulatory agency
notifies Seller or Guarantor of any violation by Seller or Guarantor of any laws
or regulations, Seller and Guarantor covenant to give prompt written
notification of such violation to Purchasers. Seller and Guarantor represent and
warrant that Seller's and Guarantor's operations are in compliance with all
architectural and engineering licensing laws and regulations in each of the
states in which they conduct business, and that Seller and Guarantor and their
respective employees have the necessary licenses to conduct business as
currently being conducted.
4.21. Financial Statements.
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A. Warranties. Seller and Guarantor warrant that all
financial statements delivered to Purchasers in connection with the Secured
Indebtedness have been prepared in accordance with GAAP, consistently applied,
and are true, accurate and complete in every material respect. Without limiting
the foregoing, Seller and Guarantor warrant that such financial statements
disclose all known contingent liabilities as well as direct liabilities, to the
extent required by GAAP. Seller and Guarantor acknowledge that Purchasers have
advanced (or shall advance) the Secured Indebtedness in reliance upon such
financial statements, and Seller and Guarantor warrant that no material adverse
change has occurred in the financial condition of Seller or Guarantor as set
forth in such financial statements. Seller and Guarantor further warrant that
Seller and Guarantor have good and absolute title to the assets disclosed on
Seller's and Guarantor's respective balance sheets disclosed to Purchasers,
subject only to liens, security interests and other encumbrances securing
liabilities listed thereon.
B. Absence of Changes. Since March 21, 1997: (a)
Seller and Guarantor have not entered into any transaction which was not in the
ordinary course of business, (b) there has been no materially adverse change in
the condition (financial or otherwise) or the business, property, assets or
liabilities of Seller or the Guarantor other than changes in the ordinary course
of business, none of which, individually or in the aggregate, has been
materially adverse, (c) there has been no damage to, destruction of or loss of
physical property (whether or not covered by insurance) materially adversely
affecting the business or operations of Seller or Guarantor, (d) neither Seller
nor Guarantor has declared or paid any dividend or made any distribution on its
stock, or redeemed, purchased or otherwise acquired any of its stock, (e)
neither Seller nor Guarantor has increased the compensation of any of its
officers, or the rate of pay of its employees as a group, except as part of
regular compensation increases in the ordinary course of business, (f) there has
been no resignation or termination of employment of any key officer or employee
of Seller or Guarantor, (g) there has not been any change, except in the
ordinary course of business, in the contingent obligations of Seller and
Guarantor, by way of guaranty, endorsement, indemnity, warranty or otherwise,
(h) to the best knowledge of Seller and Guarantor, there has been no other event
or condition of any character pertaining to and materially adversely affecting
the assets, business or property of Seller or Guarantor, except for such
corporate filings and disbursements as may have been necessary to complete the
Merger.
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C. Reporting Requirements.
Seller and Guarantor covenant to furnish to
Purchasers the following:
(1) As soon as practicable after the end of
each fiscal year, and in any event within 90 days thereafter, balance sheets of
Seller and Guarantor as of the end of such fiscal year, and the related
statements of income and statements of cash flows for such year, prepared in
accordance with GAAP, all in reasonable detail and, if requested by Purchasers,
audited by an independent public accounting firm approved by Purchasers.
Concurrently with the delivery of such financial statements, Seller and
Guarantor shall provide a certificate of compliance by the chief financial
officer of Seller and Guarantor, certifying that Seller and Guarantor are not in
default under this Agreement or any of the loan documents relating to the
transactions described herein, or any other agreement for borrowed money to
which Seller or Guarantor may be a party, and that Seller and Guarantor are in
compliance with all representations, warranties and covenants contained herein
and in any of the related loan documents.
(2) Not less than 30 days prior to the
beginning of each fiscal year, an annual business plan for the upcoming year
with a monthly budget and a three-year strategic plan. Seller and Guarantor
represent and warrant that the assumptions on which the projections will be
prepared will be reasonably based on the facts known to Seller and Guarantor at
the time the projections are prepared.
(3) As soon as available, and in any event
not more than 30 days following the end of each fiscal month, unaudited
financial statements of Seller and Guarantor, including balance sheet as of the
end of such month and statement of income and statement of cash flows for such
month and year-to-date.
4.22. Estoppel Letters. Seller and Guarantor covenant to
provide Purchasers, within ten (10) business days after request, an estoppel
letter stating (i) the balance of the Secured Indebtedness, (ii) to the best of
Seller's and/or Guarantor's knowledge, whether Seller or Guarantor has any
defenses to payment of the Secured Indebtedness, and (iii) the nature of any
defenses to payment of the Secured Indebtedness. Such balance as presented for
confirmation and the nonexistence of defenses shall be presumed if Seller and/or
Guarantor fails to respond to such a request within the required period.
4.23. Default Certificates. Seller and Guarantor shall
immediately notify Purchasers in the event of a default under this Agreement or
any other credit agreement to which either of them is a party or in the event
any governmental regulatory agency has notified Seller, Guarantor or any of
their subsidiaries of any material violation of any laws or regulations.
4.24. Securities Filings. Seller and Guarantor shall provide
Purchasers with copies of any reports filed by Seller or Guarantor with any
governmental securities agency and copies of any communications with
shareholders.
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4.25. Management Contracts. Seller and Guarantor will provide
Purchasers copies of all management contracts, consulting agreements and other
similar agreements to which Seller or Guarantor is or hereafter becomes a party,
together with any and all modifications or amendments thereof.
4.26. Employment and Consulting Contracts. Seller and
Guarantor will provide Purchasers copies of all employment contracts, agreements
with third parties who provide consulting services to Seller or Guarantor (other
than third party consulting agreements with respect to architectural or
engineering services provided for clients of Seller or Guarantor) and other
similar agreements to which Seller or Guarantor is or hereafter becomes a party,
in which the aggregate annual compensation payable to the subject employee or
person is greater than $100,000.
4.27. Notice of Changes in Financial Condition and Defaults.
Seller and Guarantor covenant to give Purchasers prompt written notice when it
becomes aware of (i) the creation or discovery of any material additional
contingent liability or the occurrence of any other material adverse change in
the financial condition of Seller or Guarantor or, to their knowledge, any other
person or entity presently or hereafter liable for payment of all or part of the
Secured Indebtedness, and (ii) the occurrence of any event, or presence of any
condition, which constitutes a default hereunder or which with the giving of
notice, the passing of time, or both, would constitute a default. Seller and
Guarantor represents that their respective fiscal years for financial reporting
purposes ends on the last Friday in the month of April each year, and Seller and
Guarantor covenant that they will not change their fiscal years without
obtaining the prior written consent of Purchasers, which will not be
unreasonably withheld.
4.28. Further Assurances. Seller and Guarantor acknowledge
that each Purchaser is a Small Business Investment Company, licensed by the
Small Business Administration under 13 CFR 107. Throughout the term of this
Agreement, Seller and Guarantor covenant to execute such other assignments,
security agreements, financing statements, and other documents that Purchasers
may reasonably deem necessary in the ordinary course of business to further
evidence the obligations provided for herein or to perfect, extend, or clarify
Purchasers' rights in any property securing or intended to secure the Secured
Indebtedness and to amend, modify or add to any provisions of this Agreement or
any of the other Transaction Documents as may be necessary in order to comply
with rules and regulations of the Small Business Administration applicable to
Small Business Investment Companies.
4.29. Merger Transaction. Seller and Guarantor represent,
warrant and covenant that (i) the Merger Transaction will be completed in
compliance with all federal and state laws and regulations, (ii) no
misrepresentations were made and there were no omissions to state any material
fact or facts in soliciting the necessary shareholder votes for approval of the
Merger Transaction according to the terms set forth in the Merger Agreement, and
(iii) the approval of the Merger Transaction by the Hansen Lind ESOP and
respective shareholders was conducted in compliance with all federal and state
laws and regulations including ERISA.
4.30. Solvency. Seller and Guarantor represent that neither
Seller nor Guarantor is insolvent and that Seller's and Guarantor's execution
hereof and the Transaction Documents does
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not render Seller or Guarantor insolvent, either before or after the
consummation of the Merger, for the purpose of state or federal fraudulent
transfer laws, other avoidance laws, laws regarding corporate distributions or
any other law.
4.31. Negative Covenants. Without Purchasers' prior written
consent, neither Seller nor Guarantor shall do any of the following:
A. Other Debt. Incur, create, assume or permit to
exist any indebtedness for borrowed money except:
(i) Indebtedness to Purchasers pursuant to the
Pacific Note and the Equitas Note.
(ii) Seller's indebtedness to First Charter Bank
which shall not exceed $1,000,000.00 at any
time, which indebtedness is guaranteed by
Guarantor, which guarantee is secured by the
accounts of Guarantor.
(iii) Debts existing as of the execution hereof
and disclosed in the financial statements
delivered to Purchasers, provided that (a)
Guarantor's indebtedness to First Charter
Bank shall not exceed $500,000, and (b) any
and all of Guarantor's indebtedness to
Firstar shall be paid in full at Closing and
refinanced pursuant to a sale-leaseback
arrangement between Berthel Leasing and
Guarantor, which lease obligations to
Berthel Leasing shall not exceed $2,800,000
and shall reduce according to the terms of
said Lease Agreement between Guarantor and
Berthel Leasing dated May 29, 1997 (the
"Berthel Lease Agreement") with an
applicable monthly lease payment of no more
than $65,000 per month for a period of no
more than five (5) years.
(iv) Indebtedness of Guarantor to Seller pursuant
to Affiliate Note.
(v) Unsecured debts on open account incurred in
the ordinary course of business.
(v) Normal and recurring management fees due and
payable between the Guarantor and the Seller
pursuant to management and service
agreements which have been collaterally
assigned to the Purchasers.
B. Reorganization; Acquisition. Enter into any
agreement to merge, consolidate, liquidate, dissolve or otherwise reorganize or
recapitalize, or become the subject of any change of control.
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C. Affiliate Contracts and Transactions. Enter into
or permit to exist any management, consulting or other contract with any
director, shareholder, or officer of Seller or Guarantor, or any affiliate
thereof, or engage in any transaction with any affiliate or related party.
D. Compensation. Increase (except for cost of living
adjustments made in the ordinary course of business) the compensation payable to
Joe Harris or Vernon Brannon.
E. Disposition of Assets. Sell, lease, or otherwise
transfer any of its assets other than in the ordinary course of business.
F. Distributions. Declare or pay a distribution or
dividend (of cash or other property) with respect to Seller's or Guarantor's
capital stock.
G. Encumbrances. Incur, create or permit to exist any
encumbrance on any of Seller's or Guarantor's assets, except for Permitted
Encumbrances. As used herein, "Permitted Encumbrances" shall mean liens arising
by operation of law evidencing accounts not past due, including ad valorem tax
liens and artisan liens, and purchase money security interests, and with respect
to the Seller and Guarantor the lien in favor of Purchasers created pursuant to
this Agreement and the Transaction Documents and with respect to Guarantor, (i)
that certain security interest in the personal property of Guarantor granted to
Berthel Leasing pursuant to the sale-leaseback arrangement between Guarantor and
Berthel Leasing pursuant to the Berthel Lease Agreement and (ii) that certain
security interest in the accounts of Guarantor granted to First Charter Bank
securing Guarantor's guarantee of the $1,000,000 of indebtedness of Seller to
First Charter Bank and securing Guarantor's $500,000 of permitted direct
indebtedness to First Charter Bank, which liens and security interests, as
applicable, shall be released following the termination of said lease and loan
facilities, respectively.
H. Stock Transactions. Issue, redeem or agree to
redeem any stock, warrants or debt securities convertible into stock except as
contemplated herein.
I. Change of Business. Engage in any business other
than that in which it is presently engaged.
J. Corporate Amendments. Amend its corporate Articles
of Incorporation/Charter or By-Laws except for amendments which could not have
an adverse effect on Purchasers.
K. Guaranties. Guarantee any obligations of any other
business or individual, including any subsidiary, except through the endorsement
of items tendered to Seller or Guarantor as payment in the ordinary course of
business, provided that, Guarantor shall be permitted to guarantee the
obligations of Seller to First Charter Bank in amount not to exceed $1,000,000,
which guarantee shall be secured by the accounts of Guarantor.
L. Loans; Letters of Credit. Make any loan or provide
for the issuance of letter of credit to any party, except for the granting of
unsecured trade credit, employee advances
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(not to exceed $7,500 per employee) and the issuance of letters of credit to
suppliers, all in the ordinary course of Seller's or Guarantor's business, as
the case may be.
M. Action Outside Ordinary Course. Take any other
action outside the ordinary course of its business.
N. Rental Commitments. Incur any rental commitment,
if after such incurrence, the total minimum required rental commitments
(including equipment leases, real property leases and any and all other forms of
rental expense) of Seller and Guarantor on a consolidated basis for the twelve
(12) month period after such incurrence would be in excess of $3,100,000.
4.32. Access to Records, Premises. Purchasers shall have the
right to inspect, during normal business hours, Seller's and Guarantor's books
and accounts and premises and to discuss the business of Seller and Guarantor
with its respective officers, employees and accountants at any reasonable time.
4.33. Change in Management. At the option of the Purchasers,
the Secured Indebtedness shall become immediately due and payable if Vernon
Brannon or Joe Harris shall cease to remain active on a full-time basis in the
management of the Seller and Guarantor and if the Seller and Guarantor fail to
locate a replacement reasonably suitable to the Purchasers within ninety (90)
days thereafter.
4.34. Debt Service Coverage. Seller and Guarantor shall attain
and maintain on a consolidated basis and determined in accordance with GAAP, as
measured as of the end of each fiscal quarter, a Debt Service Coverage Ratio
greater than 1.50 to 1.00. For purposes hereof, "Debt Service Coverage Ratio"
means, as of the date of determination, that ratio calculated by dividing (i)
the sum of EBITDA plus capital lease expenses, all computed for the immediately
preceding twelve (12) fiscal month period, by (ii) the sum of interest, current
maturities of debt, capital lease expenses, all computed for the immediately
preceding six (6) month period and scheduled for the immediately following six
(6) month period. "EBITDA" means, at the date of determination, net revenue less
all operating expenses, excluding depreciation, amortization, interest income,
interest expenses, lease payments of Guarantor under the Berthel Lease
Agreement, and income taxes, all computed for the immediately preceding twelve
(12) fiscal month period. The term "capital lease expenses" as used herein does
not include lease payments of Guarantor under the Berthel Lease Agreement.
Within thirty (30) days following each fiscal quarter, Seller and Guarantor
shall deliver a certificate to each Purchaser certifying as to Seller's and
Guarantor's compliance with the Debt Service Coverage Ratio set forth herein and
providing a detailed calculation of the same, which certificate shall be
executed by the President or Chief Financial Officer of both Seller and
Guarantor.
4.35. Personal Guaranties. Upon the occurrence of an event of
default pursuant to Subsection 5.1(M) herein, the Harris Guaranty and Brannon
Guaranty, which were delivered at Closing, shall automatically and immediately
take full force and effect and be fully enforceable by Purchasers against either
or both Harris and Brannon, jointly and severally, until the Secured
Indebtedness is paid in full.
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4.36. Insurance. Seller and Guarantor shall maintain
insurance, in form, amounts, and with companies in all respects satisfactory to
Purchasers, and in accordance with customary practices in Seller's and
Guarantor's field of enterprise. Purchasers shall be designated as additional
insureds under the terms of the policies evidencing such insurance. Seller and
Guarantor each agree to provide and maintain commercially available policies of
professional liability insurance, satisfactory to Purchasers, as shall be
necessary to insure Seller and Guarantor and their employees against damages or
claims for damages which may arise from the rendering, or failure to render,
professional services, by any employee of Seller or Guarantor, or by any other
person for whose acts or omissions Seller or Guarantor are responsible.. The
amounts and extent of such professional liability insurance coverage shall be in
such form and such amounts as are satisfactory to Purchasers and in no event
less than $2,000,000 per occurrence and $2,000,000 in the aggregate, with a
deductible or retention of no more than $200,000 per year. Seller and Guarantor
shall, upon the request of Purchasers, provide evidence of such insurance
coverage meeting the foregoing minimum requirements and naming Purchasers as
additional insureds (if permitted under such policy), and shall notify
Purchasers in writing, at least thirty (30) days in advance of any material
adverse change to, or cancellation of, such coverage, and direct such insurance
companies to do the same.
4.37. Expenses. Upon demand, Seller will advance to Purchasers
or, at Purchasers' option, reimburse Purchasers for, the following expenses:
A. Taxes. All taxes that Purchasers may be required
to pay because of the Secured Indebtedness or because of Purchasers' interest in
any property securing the payment of the Secured Indebtedness (except federal or
state taxes payable on Purchasers' income);
B. Administration. All expenses that Purchasers may
reasonably incur in connection with the preparation, execution, administration
or enforcement of this Agreement or of any other document pertaining to the
Secured Indebtedness;
C. Protection of Collateral. All reasonable costs of
preserving, insuring, preparing for sale (whether by improvement, repair or
otherwise) or selling any collateral securing the Secured Indebtedness.
D. Other Expenses. All reasonable costs of preparing
for closing, and closing this transaction, whether or not this transaction is
actually closed, and all reasonable travel and out-of-pocket expenses necessary
for Purchasers' visits to Seller's or Guarantor's facilities in the event Seller
or Guarantor is in default or Purchasers reasonably expects or anticipates
Seller or Guarantor to be in default under this Agreement or any other agreement
between Seller and Purchasers, and all reasonable out-of-pocket expenses,
including travel, lodging and food expenses, incurred by Purchasers or its
designees or representative for attending Directors' and Shareholders' meetings.
E. Costs of Collection. All court costs and other
reasonable costs of collecting any debt or other obligation included in the
Secured Indebtedness;
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F. Litigation. All reasonable costs arising from any
litigation, investigation, or administrative proceeding (whether or not any
Purchaser is a party thereto) that any Purchaser may incur as a result of the
Secured Indebtedness or as a result of any Purchaser's association with Seller
or Guarantor including, but not limited to, expenses incurred by any Purchaser
in connection with a case or proceeding involving Seller or Guarantor under any
chapter of the Bankruptcy Code or any successor statute thereto;
G. Attorneys' Fees. Reasonable attorneys' fees and
expenses incurred in connection with any of the foregoing, including search and
recording fees.
If any Purchaser pays any of the foregoing expenses, they shall become a part of
the Secured Indebtedness and shall bear interest at the highest rate applicable
to the Secured Indebtedness from time to time. This Section shall remain in full
effect regardless of the full payment of the Secured Indebtedness, the purported
termination of this Agreement, the delivery of the executed original of this
Agreement to Seller, or the content or accuracy of any representation made by
Seller or Guarantor to Purchasers; provided, however, Purchasers may terminate
this Section by executing and delivering to Seller a written instrument of
termination specifically referring to this Section.
4.38. Recitals. Seller and Guarantor warrant and agree that
the recitals set forth at the beginning of this Agreement are true.
4.39. No Default. Seller and Guarantor warrants that, as of
the execution of this Agreement, no default exists hereunder and no condition
exists which, with the giving of notice, the passing of time, or both, would
constitute such a default.
4.40. Post Closing Items. Within forty-five (45) days
following Closing, (i) Seller and Guarantor agree to take such actions, and
execute such documents, as are requested by Purchasers to amend and modify the
Related Company Management Agreements and to enter into a similar management
agreement with HLM of Oregon, Architecture and Planning, P.C., which are in form
and substance satisfactory to Purchasers, and (ii) Seller agrees to enter into,
and to cause Bill Blalock, Vernon Brannon and Joe Harris to enter into, and to
encourage such other existing shareholders of Seller to enter into, a
shareholders' agreement by, between and with, Seller, Purchasers, Shannon LeRoy,
Clay Caroland, Bill Blalock, Vernon Brannon and Joe Harris (or their respective
permitted successors and assigns), which is in form and substance satisfactory
to Purchasers and which provides customary minority interest protections and
rights to the holders of the Warrants immediately upon the exercise thereof as
referenced in said Warrants. Any and all amendments or modifications proposed by
Seller or Guarantor with respect to any of the documents specified in the
foregoing sentence shall be subject to Purchaser's prior written approval.
V. DEFAULT
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5.1. Default Defined. The occurrence of any one or more of the
following events shall constitute a default under this Agreement:
A. Monetary Default. The failure of Seller to timely
pay any amount due Purchasers under the Secured Indebtedness, provided that such
failure is not cured within five (5) days after the due dates of any such
payments.
B. Breach of Covenant. The failure of Seller,
Guarantor or any other party to perform or observe any obligation or covenant
made with respect to the Secured Indebtedness.
C. Breach of Warranty. Purchasers' discovery that any
representation or warranty in connection with this Agreement or the Secured
Indebtedness is materially false.
D. Default Under Other Document. The occurrence of a
default under the terms of any document evidencing, securing, or otherwise
pertaining to the Secured Indebtedness, including the Transaction Documents.
E. Voluntary Bankruptcy. The institution of
proceedings by Seller, Guarantor or any other person primarily or secondarily
liable with respect to the Secured Indebtedness under any state insolvency law
or under any federal bankruptcy law.
F. Involuntary Bankruptcy. The institution of
involuntary proceedings against Seller, Guarantor or any other person primarily
or secondarily liable with respect to the Secured Indebtedness under any state
insolvency law or under any federal bankruptcy law, provided that Seller or
Guarantor shall have sixty (60) days from the date proceedings are instituted
against Seller or Guarantor, as the case may be, in which to cure said default.
G. Failure to Pay Debts. Seller or Guarantor becoming
insolvent or generally failing to pay its debts as they become due.
H. Misrepresentation. The existence of a material
misrepresentation of financial condition in any oral or written statement made
to Purchasers by Seller, Guarantor or any other person or entity primarily or
secondarily liable with respect to the Secured Indebtedness.
I. Criminal Proceedings. The instigation of legal
proceedings against Seller or Guarantor for the violation of a criminal statute
that could have a material adverse effect on the Seller or Guarantor.
J. Attachment. The issuance of an attachment against
property of Seller or Guarantor unless removed, by bond or otherwise, within ten
(10) days.
K. Liquidation. Seller's or Guarantor's liquidation
or cessation of business.
L. Financial Deterioration. A material adverse change
shall occur in Seller's or Guarantor's financial condition as determined by
Purchasers in their own discretion.
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M. Default under Harris Noncompete or Brannon
Noncompete. The occurrence of an event of default under either the Harris
Noncompete or the Brannon Noncompete.
With respect to any default described above that is capable of
being cured and that does not already provide its own cure procedure or period
(a "Curable Default"), the occurrence of such Curable Default shall not
constitute an event of default hereunder if such Curable Default is fully cured
and/or corrected within thirty (30) days (ten (10) days if such Curable Default
may be cured by payment of a sum of money) after written notice thereof to
Seller and Guarantor given in accordance with the provisions hereof; provided,
however, that this provision shall not require notice (written or otherwise) to
Seller and Guarantor and an opportunity to cure any Curable Default of which an
officer of Seller or Guarantor had actual knowledge for the requisite number of
days set forth above.
5.2. Cross Default. If the holder of any other indebtedness or
lease obligation in excess of $50,000 owed by Seller or Guarantor declares a
default related to such other indebtedness or lease obligation, or if an event
of default occurs with respect to any indebtedness or lease obligation of Seller
or Guarantor to either Berthel Leasing, First Charter or their permitted
successors or assigns, whether or not such indebtedness or lease obligation is
accelerated, such default shall immediately constitute a default under this
Agreement.
5.3. Remedies Upon Default. Upon default, Purchasers may
exercise any right that they may have under any document evidencing or securing
the Secured Indebtedness or otherwise available to Purchasers at law or equity.
5.4. Attorney-in-Fact. Seller and Guarantor hereby irrevocably
appoints each Purchaser as Seller's and Guarantor's attorney-in-fact to take any
action to facilitate Purchaser's exercise of its remedies hereunder following
the occurrence of a default and the lapse of any applicable cure period.
5.5. Application of Proceeds. All amounts received by
Purchasers for Seller's account by exercise of its remedies hereunder shall be
applied as follows: First, to the payment of all expenses incurred by Purchasers
in exercising its rights hereunder, including attorney's fees, and any other
expenses due Purchasers from Seller; Second, to the payment of all interest
included in the Secured Indebtedness, in such order as Purchasers may elect;
Third, to the payment of all principal included in the Secured Indebtedness, in
such order as Purchasers may elect; and Fourth, surplus to Seller or other party
entitled thereto.
VI. GENERAL PROVISIONS
6.1. Consent to Jurisdiction. Seller and Guarantor hereby
irrevocably consent to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which any
Purchaser may be a party and which concerns this Agreement or the Secured
Indebtedness. It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee, unless Purchasers
agree to the contrary in writing.
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6.2. Not Partners; No Third Party Beneficiaries. Nothing
contained herein or in any related document shall be deemed to render any
Purchaser a partner or venturer of Seller or Guarantor for any purpose. This
Agreement has been executed for the sole benefit of Purchasers, and no third
party is authorized to rely upon Purchaser's rights hereunder or to rely upon an
assumption that Purchasers have or will exercise their rights under this
Agreement or under any document referred to herein.
6.3. Indemnification. Seller and Guarantor each agrees to
jointly and severally indemnify, defend (with counsel satisfactory to
Purchasers) and hold Purchasers harmless against any loss, liability, claim or
expense, including reasonable attorneys' fees, that Purchasers may incur as a
result of any investigation or court or administrative proceeding involving
Purchasers' investment in and credit relationship with Seller or Guarantor,
except those resulting from Purchasers' gross negligence or willful misconduct.
6.4. Maximum Rate. It is the intention of Seller, Guarantor
and Purchasers to conform strictly to all laws applicable to Purchasers that
govern or limit the interest and loan charges that may be charged in respect of
the indebtedness evidenced hereby. Anything in any of the documents evidencing,
securing, or otherwise pertaining to the Secured Indebtedness to the contrary
notwithstanding, in no event whatsoever, whether by reason of advancement of
proceeds of the loan evidenced hereby, demand for repayment of the unpaid
balance of the indebtedness evidenced hereby or otherwise, shall the interest
and loan charges agreed to be paid to Purchasers for the use of the money
advanced or to be advanced hereunder exceed the maximum amounts collectible
pursuant to applicable law.
6.5. Counterparts. This Agreement may be executed in several
counterparts and all such counterparts so executed shall constitute one
agreement binding on all the parties hereto, notwithstanding that all parties
are not signatory to the original or the same counterpart.
6.6. No Marshaling of Assets. Purchasers may proceed against
collateral securing the Secured Indebtedness and against parties liable therefor
in such order as it may elect, and neither Seller nor any surety or guarantor
for Seller nor any creditor of Seller shall be entitled to require Purchasers to
marshal assets. The benefit of any rule of law or equity to the contrary is
hereby expressly waived.
6.7. Impairment of Collateral. Purchasers may, in their sole
discretion, release any collateral securing the Secured Indebtedness or release
any party liable therefor. The defenses of impairment of collateral and
impairment of recourse and any requirement of diligence on Purchasers' part in
collecting the Secured Indebtedness are hereby waived by Seller and Guarantor.
6.8. Business Days. If any payment date under the Secured
Indebtedness falls on a day that is not a business day of Purchasers, or if the
last day of any notice period falls on such a day, the payment shall be due and
the notice period shall end on the next succeeding Purchaser business day.
6.9. Notices. Any communications concerning this Agreement or
the credit described herein shall be addressed as follows:
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As to Seller:
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
Attention: Vernon Brannon
As to Guarantor:
Hansen Lind Meyer Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
Attention: Vernon Brannon
BBH Corp.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
Attention: Vernon Brannon
With a copy to:
Underwood Kinsey Warren & Tucker PA
Charlotte Plaza Building
Suite 2020
201 South College Street
Charlotte, NC 28244-2020
Attention: Shirley Linn
As to Purchasers:
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Clay R. Caroland III
Equitas, L.P.
2000 Glen Echo Road
Suite 101
Nashville, Tennessee 37215
Attn: Shannon LeRoy
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<PAGE>
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
Communications to be given hereunder shall be effective when set forth in
writing and delivered to the addresses stated above. Any party may change its
address for receipt of notices by submitting the change in writing to the other
party.
6.10. No Reliance on Purchaser's Analysis. Seller and
Guarantor acknowledge and represents that, in connection with the Secured
Indebtedness, they have not relied upon any financial projection, budget,
assessment or other analysis by Purchasers or upon any representation by
Purchaser as to the risks, benefits or prospects of their business activities or
present or future capital needs incidental thereto, all such considerations
having been examined fully and independently by Seller and Guarantor.
6.11. Survival of Representations, Warranties and Covenants.
All representations, warranties and covenants contained herein shall survive the
execution and delivery of this Agreement and all of the Transaction Documents
and shall continue in full force and effect until the Secured Indebtedness is
irrevocably repaid in full.
6.12. Incorporation of Exhibits. All Exhibits referred to in
this Agreement are incorporated herein by this reference.
6.13. Indulgence Not Waiver. Purchasers' indulgence in the
existence of a default hereunder or any other departure from the terms of this
Agreement shall not prejudice Purchasers' rights to declare a default or
otherwise demand strict compliance with this Agreement.
6.14. Cumulative Remedies. The remedies provided Purchasers in
this Agreement are not exclusive of any other remedies that may be available to
Purchasers under any other document or at law or equity.
6.15. Amendment and Waiver in Writing. No provision of this
Agreement can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.
6.16. Assignment. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of Seller,
Guarantor and Purchasers, except that Seller and Guarantor shall not assign any
rights or delegate any obligations arising hereunder without the prior written
consent of Purchasers. Any attempted assignment or delegation by Seller or
Guarantor without the required prior consent shall be void.
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<PAGE>
6.17. Entire Agreement. This Agreement and the other written
agreements between Seller and Purchaser or Seller and Guarantor represent the
entire agreement between the parties concerning the subject matter hereof, and
all oral discussions and prior agreements are merged herein. Provided, if there
is a conflict between this Agreement and any other document executed
contemporaneously herewith with respect to the Secured Indebtedness, the
provision most favorable to Purchasers shall control.
6.18. Jury Trial. PURCHASERS, SELLER AND GUARANTOR EACH WAIVE
THEIR RIGHT TO JURY TRIAL IN ANY MATTER RELATED TO THE SECURED INDEBTEDNESS OR
STOCK PURCHASE WARRANT. PURCHASERS, SELLER AND GUARANTOR AGREE THAT THIS WAIVER
IS KNOWINGLY AND VOLUNTARILY GIVEN FOLLOWING CONSULTATION WITH THEIR RESPECTIVE
LEGAL COUNSEL.
6.19. Severability. Should any provision of this Agreement be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
6.20. Time of Essence. Time is of the essence of this
Agreement, and all dates and time periods specified herein shall be strictly
observed, except that Purchasers may permit specific deviations therefrom by its
written consent.
6.21. Applicable Law. The validity, construction and
enforcement of this Agreement and all other documents executed with respect to
the Secured Indebtedness shall be determined according to the laws of Tennessee
applicable to contracts executed and performed entirely within that state, in
which state this Agreement has been executed and delivered, in which state
Purchaser resides and in which state payments hereunder will be made.
6.22. Gender and Number. Words used herein indicating gender
or number shall be read as context may require.
6.23. Captions Not Controlling. Captions and headings have
been included in this Agreement for the convenience of the parties, and shall
not be construed as affecting the content of the respective paragraphs.
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<PAGE>
IN WITNESS WHEREOF, this Note Purchase Agreement has been
executed as of the date first written above.
THE UNDERSIGNED ACKNOWLEDGE
A THOROUGH UNDERSTANDING OF
THE TERMS OF THIS AGREEMENT
AND AGREE TO BE BOUND
THEREBY:
SELLER:
HLM DESIGN, INC.
By: /s/ Joseph M. Harris
Title: President
GUARANTOR:
BBH CORP.
By: /s/ Joseph M. Harris
Title: President
HANSEN LIND MEYER INC.
By: /s/ Joseph M. Harris
Title: President
- 25 -
<PAGE>
(continuation of Note Purchase Agreement signature page)
PURCHASERS:
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
Its: General Partner
By: /s/ J. Larry Williams
Title: Secretary-Treasurer
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.
Its: General Partner
By: /s/ Shannon LeRoy
Title: President
- 26 -
<PAGE>
EXHIBITS A-1 and A-2
[see copies of promissory notes attached hereto]
<PAGE>
EXHIBIT B
[attach copy of warrant]
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii)
UPON FIRST FURNISHING TO THE MAKER AN OPINION OF COUNSEL SATISFACTORY TO IT THAT
SUCH TRANSFER IS NOT IN VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE ACT OR
ANY STATE SECURITIES LAW.
PROMISSORY NOTE A-1
$1,200,000.00 Nashville, Tennessee May 30, 1997
FOR VALUE RECEIVED, HLM DESIGN, INC. ("Maker"), a Delaware
corporation, promises to pay to the order of PACIFIC CAPITAL, L.P. ("Payee"), a
Delaware limited partnership, the sum of One Million Two Hundred Thousand and
No/100 Dollars ($1,200,000.00), together with interest thereon at the fixed rate
of thirteen and one-half percent (13.50%) per annum. Commencing July 1, 1997,
and continuing on the first day of each calendar month thereafter until this
Note is paid in full, accrued interest payments on the outstanding balance of
this Note shall become due and payable. Commencing on June 1, 2000 and
continuing on the first day of each calendar month thereafter until and
including May 1, 2002, principal payments in the amount of Twenty Thousand and
No/100 Dollars ($20,000.00) each shall become due and payable, together with
accrued interest. The entire unpaid principal balance, together with all accrued
interest, shall be due and payable in full on June 1, 2002.
Interest Calculation. Interest hereunder will be calculated
based upon a 360-day year and actual days elapsed. The interest rate required
hereby shall not exceed the maximum rate permissible under applicable law, and
any amounts paid in excess of such rate shall be applied to reduce the principal
amount hereof or shall be refunded to Maker, at the option of the holder of this
Note.
Payment Directions. All amounts due under this Note are
payable at par in lawful money of the United States of America, at the principal
place of business of Payee in Nashville, Tennessee, or at such other address as
the Payee or other holder hereof (herein "Holder") may direct.
Defaults; Remedies and Default Interest. The occurrence of any
default under that Note Purchase Agreement of even date herewith executed by
Maker, Payee and certain other parties thereto, together with any and all
amendments and modifications thereof (the "Agreement") and the lapse of any
applicable cure period provided therein, shall constitute a default hereunder.
Upon the
Page 1 of 3
<PAGE>
occurrence of an event of default, as defined above, Holder may, at its option
and without notice (except as may be required under the Agreement and upon the
expiration of any applicable cure period as provided above) declare all
principal and interest provided for under this Note, and any other obligations
of Maker to Holder, to be presently due and payable, and Holder may enforce any
remedies available to Holder at law or equity or under any documents securing or
evidencing debts of Maker to Holder. Holder may waive any default before or
after it occurs and may restore this Note in full effect without impairing the
right to declare it due for a subsequent default, this right being a continuing
one. Upon default, the remaining unpaid principal balance of the indebtedness
evidenced hereby and all expenses due Holder shall, without any action being
required by Holder, bear interest at the lesser of (i) sixteen percent (16.00%)
per annum and (ii) the highest rate permissible under applicable law.
Application of Payments; Prepayment Rights. All amounts
received for payment of this Note shall be first applied to any expenses due
Holder under this Note or under any other documents evidencing or securing
obligations of Maker to Holder, then to accrued interest, and finally to the
reduction of principal. Prepayment of principal or accrued interest may be made,
in whole or in part, at any time without penalty at the option of Maker. Any
prepayment(s) shall reduce the amount of indebtedness outstanding under the Note
according to the prepayment provisions in the Agreement.
Consents and Waivers. Maker and all sureties, guarantors,
endorsers and other parties to this instrument hereby consent to any and all
renewals, waivers, modifications, or extensions of time (of any duration) that
may be granted by Holder with respect to this Note and severally waive demand,
presentment, protest, notice of dishonor, and all other notices that might
otherwise be required by law. All parties hereto waive the defense of impairment
of collateral and all other defenses of suretyship.
Security. This Note is subject to the terms and provisions set
forth in the Agreement and Maker's performance under this Note is secured by
that certain collateral as more particularly described in the Agreement.
Payments of Legal Fees and Costs. Maker and all sureties,
guarantors, endorsers and other parties hereto agree to pay reasonable
attorneys' fees and all court and other costs that Holder may incur in the
course of efforts to collect the debt evidenced hereby or to protect Holder's
interest in any collateral securing the same.
Tennessee Law and Construction. The validity and construction
of this Note shall be determined according to the laws of Tennessee applicable
to contracts executed and performed within that state. If any provision of this
Note should for any reason be invalid or unenforceable, the remaining provisions
hereof shall remain in full effect.
Amendments. The provisions of this Note may be amended or
waived only by instrument in writing signed by the Holder and Maker and attached
to this Note.
Page 2 of 3
<PAGE>
Words used herein indicating gender or number shall be read as
context may require.
Executed as of the date first written above.
HLM DESIGN, INC., Maker
By: /s/ Joseph M. Harris
Title: President
Page 3 of 3
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii)
UPON FIRST FURNISHING TO THE MAKER AN OPINION OF COUNSEL SATISFACTORY TO IT THAT
SUCH TRANSFER IS NOT IN VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE ACT OR
ANY STATE SECURITIES LAW.
PROMISSORY NOTE A-2
$800,000.00 Nashville, Tennessee May 30, 1997
FOR VALUE RECEIVED, HLM DESIGN, INC. ("Maker"), a Delaware
corporation, promises to pay to the order of EQUITAS, L.P. ("Payee"), a Delaware
limited partnership, the sum of Eight Hundred Thousand and No/100 Dollars
($800,000.00), together with interest thereon at the fixed rate of thirteen and
one-half percent (13.50%) per annum. Commencing July 1, 1997, and continuing on
the first day of each calendar month thereafter until this Note is paid in full,
accrued interest payments on the outstanding balance of this Note shall become
due and payable. Commencing on June 1, 2000 and continuing on the first day of
each calendar month thereafter until and including May 1, 2002, principal
payments in the amount of Thirteen Thousand Three Hundred Thirty-Three and
34/100 Dollars ($13,333.34) each shall become due and payable, together with
accrued interest. The entire unpaid principal balance, together with all accrued
interest, shall be due and payable in full on June 1, 2002.
Interest Calculation. Interest hereunder will be calculated
based upon a 360-day year and actual days elapsed. The interest rate required
hereby shall not exceed the maximum rate permissible under applicable law, and
any amounts paid in excess of such rate shall be applied to reduce the principal
amount hereof or shall be refunded to Maker, at the option of the holder of this
Note.
Payment Directions. All amounts due under this Note are
payable at par in lawful money of the United States of America, at the principal
place of business of Payee in Nashville, Tennessee, or at such other address as
the Payee or other holder hereof (herein "Holder") may direct.
Defaults; Remedies and Default Interest. The occurrence of any
default under that Note Purchase Agreement of even date herewith executed by
Maker, Payee and certain other parties thereto, together with any and all
amendments and modifications thereof (the "Agreement") and the lapse of any
applicable cure period provided therein, shall constitute a default hereunder.
Upon the occurrence of an event of default, as defined above, Holder may, at its
option and without notice
Page 1 of 3
<PAGE>
(except as may be required under the Agreement and upon the expiration of any
applicable cure period as provided above) declare all principal and interest
provided for under this Note, and any other obligations of Maker to Holder, to
be presently due and payable, and Holder may enforce any remedies available to
Holder at law or equity or under any documents securing or evidencing debts of
Maker to Holder. Holder may waive any default before or after it occurs and may
restore this Note in full effect without impairing the right to declare it due
for a subsequent default, this right being a continuing one. Upon default, the
remaining unpaid principal balance of the indebtedness evidenced hereby and all
expenses due Holder shall, without any action being required by Holder, bear
interest at the lesser of (i) sixteen percent (16.00%) per annum and (ii) the
highest rate permissible under applicable law.
Application of Payments; Prepayment Rights. All amounts
received for payment of this Note shall be first applied to any expenses due
Holder under this Note or under any other documents evidencing or securing
obligations of Maker to Holder, then to accrued interest, and finally to the
reduction of principal. Prepayment of principal or accrued interest may be made,
in whole or in part, at any time without penalty at the option of Maker. Any
prepayment(s) shall reduce the amount of indebtedness outstanding under the Note
according to the prepayment provisions in the Agreement.
Consents and Waivers. Maker and all sureties, guarantors,
endorsers and other parties to this instrument hereby consent to any and all
renewals, waivers, modifications, or extensions of time (of any duration) that
may be granted by Holder with respect to this Note and severally waive demand,
presentment, protest, notice of dishonor, and all other notices that might
otherwise be required by law. All parties hereto waive the defense of impairment
of collateral and all other defenses of suretyship.
Security. This Note is subject to the terms and provisions set
forth in the Agreement and Maker's performance under this Note is secured by
that certain collateral as more particularly described in the Agreement.
Payments of Legal Fees and Costs. Maker and all sureties,
guarantors, endorsers and other parties hereto agree to pay reasonable
attorneys' fees and all court and other costs that Holder may incur in the
course of efforts to collect the debt evidenced hereby or to protect Holder's
interest in any collateral securing the same.
Tennessee Law and Construction. The validity and construction
of this Note shall be determined according to the laws of Tennessee applicable
to contracts executed and performed within that state. If any provision of this
Note should for any reason be invalid or unenforceable, the remaining provisions
hereof shall remain in full effect.
Amendments. The provisions of this Note may be amended or
waived only by instrument in writing signed by the Holder and Maker and attached
to this Note.
Page 2 of 3
<PAGE>
Words used herein indicating gender or number shall be read as
context may require.
Executed as of the date first written above.
HLM DESIGN, INC., Maker
By: /s/ Joseph M. Harris
Title: President
Page 3 of 3
COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS
THIS COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS ("Assignment")
made as of this 30th day of May, 1997, by and between HLM DESIGN, INC.
("Borrower"), a Delaware corporation, and PACIFIC CAPITAL, L.P. ("Pacific"), a
Delaware limited partnership, and EQUITAS, L.P. ("Equitas"), a Delaware limited
partnership (Pacific and Equitas being sometimes referred to herein,
collectively as "Lender" with Equitas acting as collateral agent for the Lender
pursuant to that certain Intercreditor and Collateral Agent Agreement of even
date herewith by and between the Lenders).
W I T N E S S E T H
WHEREAS, Lender has extended credit to Borrower pursuant to
that Note Purchase Agreement of even date herewith by and among Lender,
Borrower, Hansen Lind Meyer Inc. and BBH Corp. (together with any modifications
or amendments thereof, the "Note Purchase Agreement"), on certain terms and
conditions; and
WHEREAS, one condition to Lender's extension of credit to
Borrower is that Borrower must provide Lender a first priority security interest
in Borrower's architectural and engineering management and services contract
rights;
NOW, THEREFORE, as an inducement to cause Lender to extend
credit to Borrower, and for other valuable consideration, the receipt and
sufficiency of which are acknowledged, it is agreed as follows:
(1) Definition of Secured Indebtedness. As used herein,
"Secured Indebtedness" shall mean all present and future debts and other
obligations of Borrower to Lender under the Note Purchase Agreement, including
those certain Promissory Notes of even date herewith in the aggregate original
principal amount of $2,000,000.00 made by Borrower payable to the order of
Lender, or each of them as the case may be, including all modifications,
amendments, extensions and renewals thereof.
(2) Assignment; Security Interest. To secure the payment of
the Secured Indebtedness Borrower hereby collaterally assigns to Lender
(including Equitas, L.P., as agent for the benefit of Lender) and grants to
Lender (including Equitas, L.P., as agent for the benefit of Lender) a security
interest in all of Borrower's presently existing and hereafter arising contract
rights arising from, or related or incidental to, management and services
agreements (and all amendments and modifications thereof) which Borrower enters
into with various architectural and engineering firms (each, an "Obligor," and
collectively, the "Obligors"), including without limitation, those certain
management and services agreements identified on Exhibit A attached hereto and
incorporated by reference (collectively, the "Contracts"), copies of which are
also attached hereto, together with all renewals, modifications, amendments and
extensions thereof, and all existing and hereafter arising accounts and/or
rights to receive payments associated therewith, rights to any claims and/or
damages with respect thereto, and any and all proceeds from any of the foregoing
(collectively the "Contract Rights").
(3) No Assumption of Obligations. Neither Lender's execution
hereof nor Lender's exercise of any remedies hereunder shall cause Lender to
assume any obligations of Borrower under the Contracts; provided, however,
Lender may assume Borrower's obligations under any of the Contracts if Lender
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<PAGE>
so agrees by written instrument specifically referencing this Paragraph and
addressed to the respective Obligor thereto.
(4) Notice of Assignment. Borrower agrees to execute and cause
each Obligor under the Contracts to execute that certain letter in substantially
the same form as Exhibit B which is attached hereto and incorporated herein by
reference.
(5) Warranties. Borrower warrants to Lender the following:
(a) Valid Contract. Each Contract is and shall remain
valid and enforceable according to its terms.
(b) No Default. No default presently exists under any
of the Contracts and no condition exists which, with the giving of notice, the
passage of time, or both, would allow any party thereto to declare any other
party in default under the terms of any of the Contracts.
(c) No Other Lien. Borrower's rights under the
Contracts are not subject to any other assignment, security interest, lien,
claim or other encumbrance.
(d) Title. Borrower is the legal and equitable owner
of the Contracts and Contract Rights assigned hereby, and each Contract is
described on Exhibit A attached hereto.
(e) No Amendments to Contract. The terms of the
Contracts have not been modified or waived as to vary in any way from the terms
set forth in the copy of the Contracts attached hereto as Exhibit A, which
represents the entire agreements between the contracting parties.
(6) Covenants. Borrower covenants with Lender as follows:
(a) Performance of Contract Obligations. Borrower
shall duly perform Borrower's obligations under the Contracts, and shall not
cause or allow a default on its part thereunder.
(b) No Amendment Without Consent. Borrower shall not
modify, amend, cancel or waive any obligation or right of Borrower or any other
party to the Contracts, without the prior written approval of Lender. Any
attempted modification, amendment, cancellation or waiver without such consent
shall be void.
(c) Notice of Default. Borrower shall promptly notify
Lender in writing if Borrower or any other party to any of the Contracts
defaults thereunder.
(d) Supporting Documents. Borrower shall furnish
Lender any information that Lender may reasonably request pertaining to the
Contracts. Upon the reasonable request of Lender, Lender shall cause Borrower or
an independent auditor (at Borrower's expense) to obtain audit confirmations
relating to the Contracts from any Obligor at any time.
(e) No Other Lien. Borrower shall not grant or allow
any security interest or lien to attach to the Contract Rights, except for the
security interest provided for herein.
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<PAGE>
(f) Perfection/New Contracts/Assignments. Borrower
agrees to take such action that Lender may reasonably request at any time to
perfect Lender's security interest in the Contract Rights, whether currently
existing or hereafter arising. Borrower shall give Lender twenty (20) days
written notice prior to entering into any new Contract, the terms of which shall
be subject to Lender's prior written approval. Upon entering into any new
Contract which is approved by Lender, Exhibit A to this Assignment shall be
amended by Borrower and Lender to reflect the additional Contract. None of the
Contracts shall prohibit a security interest and collateral assignment in favor
of Lender (or subsequent assignee of Lender). Upon Lender's request, Borrower
shall immediately execute and deliver to Lender additional specific assignments
related to the Contracts, including those Contracts entered into following the
date of this Assignment. A copy of this Assignment may be filed as a financing
statement.
(g) Collection Rights of Lender. Upon the occurrence
of a default hereunder, Lender may notify any Obligor(s) to make all payments
due under its respective Contract directly to Lender for the account of
Borrower, and Borrower hereby directs each Obligor to comply with Lender's
instructions without the need of confirmation from Borrower.
(h) Prohibition against Assignment. Except as
provided hereunder, neither Borrower nor any Obligor shall assign any rights or
delegate any obligations arising hereunder without the prior written consent of
Lender. Any attempted assignment or delegation by Borrower or Obligor without
the required prior consent shall be void and shall be a default hereunder.
(7) Compliance with Law. Borrower warrants that the Contracts,
and the performance by the parties of their obligations thereunder, comply with
all applicable laws and regulations.
(8) Name. Borrower warrants that Borrower has not been known
under or done business under any name other than the name used by Borrower in
executing this Assignment. Borrower agrees to give Lender at least fifteen (15)
days prior written notice before Borrower begins using any name other than that
used in executing this Assignment.
(9) Further Assurances. Borrower covenants to execute such
other assignments, security agreements, financing statements, and other
documents that Lender may deem necessary to further evidence the obligations
provided for herein or to perfect, extend, or clarify Lender's rights in any
property and contract rights securing or intended to secure the Secured
Indebtedness. Lender is hereby appointed as Borrower's attorney-in-fact for the
signing of such documents. Borrower acknowledges that this power of attorney is
coupled with an interest and is irrevocable.
(10) Default Defined. Applying the applicable cure periods as
forth in the Note Purchase Agreement, the occurrence of any one or more of the
following events shall constitute a default under this Agreement:
(a) Default under Note Purchase Agreement. The
occurrence of a default under the Note Purchase Agreement.
(b) Breach of Covenant. The failure of Borrower or
any other party to perform or observe any obligation or covenant made under this
Assignment or with respect to the Secured Indebtedness.
(c) Breach of Warranty. Lender's discovery that any
representation or warranty in connection with this Assignment or the Secured
Indebtedness is materially false.
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<PAGE>
(d) Contract Default or Termination. The occurrence
of a default under any Contract by any party thereto, or the termination or
cancellation of any Contract whether voluntary or involuntary.
(11) Remedies Upon Default. Upon the occurrence of a default
hereunder, Lender may pursue any or all of the following remedies, without any
notice to Borrower except as required below:
(a) Exercise of Rights. Lender may, but shall not be
obligated to, exercise any or all of Borrower's rights under any or all of the
Contracts. If Lender notifies an Obligor of Lender's election to exercise its
rights under this Assignment, such Obligor shall thereafter give all notices
concerning the respective Contract directly to Lender, and shall otherwise
regard Lender as the sole owner of Borrower's rights under the Contract unless
otherwise instructed by Lender. Borrower hereby directs each and every Obligor
to comply with the provisions of this subparagraph upon receipt of said notice
from Lender, without any inquiry on Obligor's part. An Obligor shall not be
liable to Borrower for compliance with such notice. Lender may exercise
Borrower's rights under the Contracts by giving any notice or demand; by
initiating or settling any claim or administrative or judicial proceeding; or by
taking any other action that is, in Lender's judgment, appropriate in connection
with the exercise of Borrower's rights under the Contracts. Any such actions may
be taken by Lender without notice to Borrower, and may be taken in Lender's own
name or in the name of Borrower. Borrower hereby irrevocably appoints Lender as
Borrower's attorney-in-fact for the purpose of so enforcing Borrower's rights
under the Contracts. All expenses incurred by Lender in the course of enforcing
Borrower's rights under the Contracts shall become part of the Secured
Indebtedness.
(b) Performance of Obligations. Lender may, but shall
not be obligated to, perform or cause to be performed any or all of Borrower's
obligations under the Contracts. Lender may take such action pursuant to the
terms of the Contracts or pursuant to any demand made by any Obligor concerning
the Contracts. Any demand made by any Obligor concerning the Contracts may be
settled, complied with, or contested by Lender in its name or in Borrower's name
and by any means, including administrative proceedings and litigation, without
notice to Borrower. Borrower hereby appoints Lender as Borrower's
attorney-in-fact for the purpose of settling or contesting any matter regarding
Borrower's obligations under the Contracts. This power of attorney shall be
deemed a power coupled with an interest. No action taken by Lender hereunder
shall cause Lender to assume Borrower's obligations under the Contracts, except
as otherwise provided herein. All expenses incurred by Lender in the course of
performing Borrower's obligations under the Contracts shall become part of the
Secured Indebtedness.
(c) Further Assignment. Upon five (5) days notice to
Borrower, Lender may assign Borrower's rights in any or all the Contracts to
such party as Lender may elect, with all consideration therefor to be applied to
the Secured Indebtedness as received. Lender may execute such assignment in
Lender's own name or in the name of Borrower. Borrower hereby appoints Lender as
Borrower's attorney-in-fact for the purpose of executing such an assignment.
This power of attorney shall be deemed a power coupled with an interest.
(d) Setoff. Lender may exercise its lien upon and
right of setoff against any monies, items, credits, deposits or instruments that
Lender may have in its possession and which belong to Borrower or any other
person or entity liable for the payment of any or all of the Secured
Indebtedness.
(e) Other Remedies. Borrower may seek any other
remedy available under any other document evidencing or securing the Secured
Indebtedness or otherwise available at law or equity.
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<PAGE>
(f) Application of Proceeds. All amounts received by
Lender for Borrower's account through Lender's exercise of its remedies
hereunder shall be applied as set forth in the Note Purchase Agreement.
(12) Incorporation of Exhibits. All Exhibits referred to in
this Assignment are incorporated herein by this reference.
(13) Indulgence Not Waiver. Lender's indulgence in the
existence of a default hereunder or any other departure from the terms of this
Assignment shall not prejudice Lender's rights to declare a default or otherwise
demand strict compliance with this Assignment.
(14) Cumulative Remedies. The remedies provided Lender in this
Assignment are not exclusive of any other remedies that may be available to
Lender under any other document or at law or equity.
(15) Amendment and Waiver in Writing. No provision of this
Assignment can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.
(16) Notices. Any communications concerning this Assignment or
the credit described herein shall be addressed as follows:
As to Borrower:
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
Attention: Vernon Brannon
As to Lender:
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Clay R. Caroland III
Equitas, L.P.
2000 Glen Echo Road
Suite 101
Nashville, Tennessee 37215
Attn: Shannon LeRoy
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<PAGE>
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
Communications to be given to Lender shall only be effective when set forth in
writing and actually received by an officer of Lender at the address indicated
above. Communications to be given to Borrower shall be effective when actually
or constructively received by Borrower or when set forth in writing and mailed
or delivered to Borrower's address stated above. Lender or Borrower may change
its address for receipt of notices by submitting the change in writing to the
other party.
(17) Assignment. This Assignment shall be binding upon and
inure to the benefit of the respective heirs, successors and assigns of Borrower
and Lender, except that Borrower shall not assign any rights or delegate any
obligations arising hereunder without the prior written consent of Lender. Any
attempted assignment or delegation by Borrower without the required prior
consent shall be void.
(18) Entire Agreement. This Assignment and the other written
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein. Provided, if there is a conflict between
this Assignment and any other document executed contemporaneously herewith with
respect to the Secured Indebtedness, the provision most favorable to Lender
shall control.
(19) Severability. Should any provision of this Assignment be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
(20) Time of Essence. Time is of the essence of this
Assignment, and all dates and time periods specified herein shall be strictly
observed, except that Lender may permit specific deviations therefrom by its
written consent.
(21) Applicable Law. The validity, construction and
enforcement of this Assignment and all other documents executed with respect to
the Secured Indebtedness shall be determined according to the laws of Tennessee
applicable to contracts executed and performed entirely within that state, in
which state this Assignment has been executed and delivered.
(22) Gender and Number. Words used herein indicating gender or
number shall be read as context may require.
(23) Captions Not Controlling. Captions and headings have been
included in this Assignment for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Collateral Assignment of Contract Rights to be executed and delivered on their
behalf by their duly authorized officers, as of the date first set out above.
THE UNDERSIGNED ACKNOWLEDGE A THOROUGH
UNDERSTANDING OF THE TERMS OF THIS
AGREEMENT AND AGREE TO BE BOUND THEREBY:
Borrower:
HLM DESIGN, INC.
By:___________________________________
Title:________________________________
Lender:
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation,
General Partner
By:___________________________________
Title:________________________________
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.,
General Partner
By:___________________________________
Title:________________________________
-7-
<PAGE>
EXHIBIT A
Contracts, together with amendments and modifications
<PAGE>
EXHIBIT B
PACIFIC CAPITAL, L.P.
EQUITAS, L.P.
May ___, 1997
VIA CERTIFIED MAIL-
RETURN RECEIPT REQUESTED
__________________________
Attn:_____________________
__________________________
__________________________
Re: Notice of Collateral Assignment of Contract Rights
under that certain Management and Services Agreement
dated ________, 1997 between HLM Design, Inc. and
________________ (the "Contract"); Consent to
Assignment to Pacific Capital, L.P. and Equitas, L.P.
(collectively, "Lender")
Ladies and Gentlemen:
As you know, your firm, ______________________ ("Obligor"),
has entered into the above-referenced Contract with HLM Design, Inc. ("HLM")
whereby HLM will provide Obligor certain management services specified in the
Contract and Obligor will pay HLM certain amounts on a [monthly] [quarterly]
basis (the "Contract Payments") for said services, said Contract to expire
____________________ [any renewal options].
Please be informed that HLM's rights under the Contract,
including HLM's right to the Contract Payments, is to be collaterally assigned
to Lender, pursuant to that certain Collateral Assignment of Contract Rights
("Collateral Assignment") dated May 30, 1997, between HLM and Lender. HLM's
entering into the Collateral Assignment is one of the conditions to Lender's
extension of credit to HLM.
No provision of the Contract may hereafter be amended, waived,
renewed, modified or extended without Lender's prior written consent. Obligor
hereby agrees to promptly notify Lender in writing of any default under the
Contract, and if said default is not cured by HLM within 20 days of Lender's
receipt of written notice of the default, Obligor hereby agrees to give Lender
30 days thereafter to cure said default (collectively, the "Cure Period").
Obligor agrees that it shall not terminate the Contract in the event HLM is in
default or breach of the Contract during the Cure Period. In the event of
default, Obligor hereby agrees to permit Lender, or any agent appointed by
Lender, to assume all of HLM's obligations under the Contract, and upon written
notice from Lender to Obligor, and without the need of confirmation from HLM,
Obligor will send all Contract Payments, and any other monies, due under the
Contract directly to Lender at the such address as Lender may designate from
time to time.
<PAGE>
In the event Lender elects to assume HLM's obligations under
the Contract, Lender shall be entitled to exercise any and all of HLM's renewal
or extension options under the Contract and shall be entitled to all other
rights and benefits under the Contract.
Notwithstanding the foregoing, Obligor and its affiliates
agree to hold Lender harmless from any and all existing or future claims against
HLM or its affiliates, or for any existing or future violations of any
applicable laws by HLM or its affiliates, and shall not, as a result of said
claims or violations, deduct or setoff any amounts payable by Obligor under the
Contract. Upon Lender's request, Obligor agrees to furnish Lender with a letter
confirming that neither Obligor, nor, to Obligor's knowledge, HLM, is in default
under the Contract, and that Obligor is not aware of any fact that may now or in
the future result in a default under the Contract.
This letter is a standard notice given by Lender when the
rights under a contract are collaterally assigned to Lender. Please sign below
to evidence your acknowledgment and consent to the terms of this letter, and
return the original of this letter to Lender at the above- referenced address.
HLM has consented to the sending of this notice and the terms contained herein,
evidenced by its signature below.
<PAGE>
Please contact Shannon LeRoy of Equitas, L.P. at (615)
383-8673 if you have any questions regarding this notice of collateral
assignment of contract rights.
Sincerely,
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
Its: General Partner
By: /s/ J. Larry Williams
Title: Secretary-Treasurer
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.
Its: General Partner
By: /s/ Shannon LeRoy
Title: President
<PAGE>
THE UNDERSIGNED, ACTING THROUGH ITS DULY
AUTHORIZED OFFICER, HEREBY AGREES TO THE
TERMS AND PAYMENT INSTRUCTIONS AS SET
FORTH HEREIN.
HLM DESIGN, INC., as assignor of its
rights under the Contract
By: /s/ Joseph M. Harris
Title: President
THE UNDERSIGNED, ACTING THROUGH ITS DULY
AUTHORIZED OFFICER, HEREBY ACKNOWLEDGES
AND CONSENTS TO THE ABOVE REFERENCED
COLLATERAL ASSIGNMENT OF THE CONTRACT
AND AGREES TO THE TERMS AND PAYMENT
INSTRUCTIONS AS SET FORTH HEREIN.
___________________________, a _________
corporation
By:_____________________________________
Title:__________________________________
SECURITY AGREEMENT
This Security Agreement ("Agreement") entered into as of the
30th day of May, 1997, by and between HLM DESIGN, INC. ("Borrower"), a Delaware
corporation, and PACIFIC CAPITAL, L.P. ("Pacific"), and EQUITAS, L.P.
("Equitas"), a Delaware limited partnership (Pacific and Equitas being sometimes
referred to herein, collectively as "Lender," with Equitas acting as collateral
agent for the Lender pursuant to that certain Intercreditor and Collateral Agent
Agreement of even date herewith by and between the Lender).
W I T N E S S E T H
WHEREAS, Lender has extended credit to Borrower, on certain
terms and conditions; and
WHEREAS, one condition to Lender's extension of credit to
Borrower is that Borrower must provide Lender a first priority security interest
in all of its personal property and fixtures;
NOW, THEREFORE, as an inducement to cause Lender to take the
aforementioned actions, and for other valuable consideration, the receipt and
sufficiency of which are acknowledged, it is agreed as follows:
1. Definition of Secured Indebtedness. As used herein, the
"Secured Indebtedness" shall mean all obligations and indebtedness of Borrower
under this Agreement, the Note Purchase Agreement of even date herewith by and
between Borrower, BBH Corp., Hansen Lind Meyer Inc., and Lender (together with
any modifications or amendments thereof, the "Note Purchase Agreement") and
under those certain Promissory Notes of even date herewith in the aggregate
original principal amount of $2,000,000.00 made by Borrower payable to the order
of Lender, or each of them as the case may be, together with all modifications,
extensions and renewals thereof.
2. Grant of Security Interest. To secure the payment of the
Secured Indebtedness, Borrower hereby grants to Lender (including Equitas, L.P.,
as agent for the benefit of Lender) a security interest in all of Borrower's
presently owned and hereafter acquired personal property and fixtures,
including, but not limited to, all equipment, inventory, accounts, general
intangibles, instruments, documents, contract rights, chattel paper and
fixtures, and all products and proceeds thereof (all as defined in the UCC),
including insurance proceeds (collectively the "Collateral"). For purposes
hereof, "UCC" shall mean the Uniform Commercial Code as in effect on the date
hereof in the State of Tennessee, as it may be amended from time to time;
provided that if by reason of mandatory provisions of law, the perfection or the
effect of perfection or non-perfection of a security interest in any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than Tennessee, "UCC" means the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
<PAGE>
3. Warranties. Borrower warrants to Lender the following:
(a) Title. Borrower is the sole legal and equitable
owner of the Collateral.
(b) No Other Encumbrances. None of the Collateral is
subject to any security interest, lien, option or other encumbrance, except for
the security interest provided for in this Agreement and Permitted Encumbrances.
As used herein, Permitted Encumbrances shall mean, and be limited solely to,
liens arising by operation of law evidencing accounts not past due, including ad
valorem tax liens and artisans liens.
(c) No Financing Statement. None of the Collateral is
covered by any financing statement executed by Borrower and not yet terminated,
except for financing statements executed in favor of Lender.
(d) Valid Security Interest. This Agreement grants to
Lender a valid security interest in the Collateral, subject only to Permitted
Encumbrances.
(e) No Leased Property. Borrower presently possesses
no property of a type included in the Collateral as lessee or on consignment or
as bailee for hire or otherwise.
(f) Collateral Not Leased. None of the Collateral is
presently subject to a lease, agreement to lease, option, or other such
obligation pursuant to which Borrower is lessor, optionor, or subject to such
other obligation.
(g) No Warehousing. None of the Collateral is
presently stored in a commercial warehouse, and none of the Collateral is
presently subject to a negotiable shipper's bill or other negotiable document.
(h) Collateral Acquired in Ordinary Course of
Business. Borrower has acquired all the Collateral by purchases in the ordinary
course of business from sellers in the business of selling such property.
Without limiting the foregoing, Borrower warrants that none of the Collateral
has been purchased in a bulk sale or other purchase of a business.
4. Limitation on Assignment of General Intangibles and
Accounts. The security interest granted herein covering accounts and general
intangibles shall be effective only to the extent that rights thereunder may be
assigned under applicable laws without causing default under or termination of
any agreements giving rise thereto.
5. Maintenance of Collateral. Borrower shall take all
reasonable measures to protect the Collateral and to maintain all Collateral in
good condition. Borrower shall notify Lender of any event or condition that
materially impairs the value of any part of the Collateral.
6. Insurance. Borrower shall obtain and keep insurance against
"all risks of physical loss" (except flood and earthquake, unless Lender
specifically so requires) and such other insurance as Lender may require on all
tangible Collateral in an amount
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<PAGE>
equal to its maximum insurable value, with insurers and insurance policies that
are acceptable to Lender. Borrower shall deliver copies of all insurance
policies covering the Collateral to Lender. All such policies shall name Lender
as insured mortgagee and loss payee and shall provide that coverage shall not be
terminated or amended without at least twenty (20) days prior written notice to
Lender. If Borrower fails to provide evidence that it has obtained the required
insurance or if Borrower fails to pay the premiums therefor, Lender may, at its
option, obtain or bring current insurance coverage on the Collateral. Any
insurance obtained by Lender may, at Lender's option, insure only its interest
in the Collateral. Borrower hereby assigns to Lender any claim settlements,
unearned premiums or other payments that may be made by or on behalf of an
insurer under any policy covering the Collateral, and Borrower hereby directs
such insurer(s) to pay Lender any amount so due. Lender is hereby irrevocably
appointed Borrower's attorney-in-fact to endorse with Borrower's name any draft
or check that may be issued by or on behalf of the issuer of any insurance
policy covering the Collateral. All proceeds, unearned premiums, or other sums
received by Lender as a result of said insurance policies may be applied by
Lender, at its option and in its sole discretion, and in whole or in part, to
the reduction of the Secured Indebtedness, in such manner as Lender may
determine, or may be paid to Borrower with or without restrictions.
7. Compliance With Law; Taxes. Borrower shall comply with all
laws, regulations and other requirements of governmental bodies or agencies
having jurisdiction pertaining to the ownership or operation of the Collateral,
and Borrower shall pay all taxes and fees assessed on account of the Collateral
as they become due.
8. Disposition or Encumbrance Prohibited. Borrower shall not
sell, lease, transfer, assign or otherwise dispose of title or possession of any
of the Collateral, except that, as long as no default exists hereunder,
inventory may be sold in the ordinary course of business. Borrower shall not
grant or allow any security interest, lien, attachment or other encumbrance to
attach to any part of the Collateral, except for Permitted Encumbrances and
encumbrances in favor of Lender, without the prior written consent of Lender.
9. Location of Collateral. Tangible Collateral shall be stored
only at Suite 2950, 121 West Trade Street, Charlotte, North Carolina 28202. No
material amount of Collateral shall be removed from said location(s), except for
repairs or other temporary purposes in the ordinary course of business, without
the prior written approval of Lender. In no event shall Collateral be moved
outside the State of North Carolina for any purpose or duration without Lender's
prior written consent. Notwithstanding the foregoing, nothing shall preclude
Borrower from owning tangible or intangible Collateral acquired in the future
which is not located within the State of North Carolina, provided that, Borrower
gives Lender ten (10) days written notice prior to Borrower's acquisition of
such Collateral, and at Lender's request, Borrower takes all reasonable actions
to perfect Lender's first priority security interest in such after-acquired
Collateral which is located outside the State of North Carolina.
10. Fixtures. Borrower warrants that the Collateral presently
affixed to real property as to become a fixture thereto is located at Suite
2950, 121 West Trade Street, Charlotte, North Carolina 28202. Borrower covenants
that none of the Collateral will be here after so affixed to real property
except at said location.
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<PAGE>
11. Inspection; Inventory. Agents of Lender shall be allowed
to inspect the Collateral at any time. Additionally, Borrower shall prepare an
inventory of the Collateral and submit the same to Lender within five (5)
business days after Lender so requests.
12. Availability Upon Default. Borrower covenants that if
Lender declares a default hereunder and so requests, Borrower shall make all
Collateral and records pertaining thereto available to Lender at a reasonable
time and place.
13. Rental Proceeds. Borrower acknowledges that the security
interest granted herein extends to all of Borrower's rights as lessor under any
future lease of any of the Collateral. Borrower acknowledges and agrees that all
rental proceeds of the Collateral constitute "cash collateral" under the
Bankruptcy Code. As provided above, Borrower must obtain Lender's prior consent
if Borrower wishes to lease any of the Collateral. Notwithstanding Lender's
consent to any proposed lease, such lease shall be subordinate to Lender's
security interest in the leased Collateral unless Lender specifically agrees to
the contrary in writing.
14. Warranties and Other Rights. Borrower acknowledges that
the security interest granted herein extends to all of Borrower's rights under
warranties pertaining to the Collateral and also includes all rights of Borrower
against any third party arising from damage to any Collateral. Borrower agrees
to give Lender prompt written notice of any warranty claim or other claim that
Borrower may have against a third party as a result of the condition or
performance of the Collateral or as a result of any damage caused thereto. No
such claim shall be settled without the written consent of Lender.
15. No Warehousing. None of the Collateral shall be stored by
a commercial warehouse or shipped under a negotiable document unless Lender is
given at least thirty (30) days prior notice to enable it to take such measures
as it may deem appropriate to protect its rights in the Collateral to be so
stored.
16. Notice of Subsequent Leases. Borrower agrees to give
Lender prompt written notice if Borrower hereafter leases from others property
of a type included in the Collateral or if Borrower accepts such property on
consignment or as bailee.
17. Chief Executive Office. Borrower warrants that Borrower's
chief executive and principal office is Suite 2950, 121 West Trade Street,
Charlotte, North Carolina 28202. Borrower shall not move Borrower's chief
executive office from that address without at least thirty (30) days prior
written notice to Lender; provided, however, this undertaking by Borrower does
not evidence Lender's consent to such a move if Lender's consent is required
therefor under any other document pertaining to the Secured Indebtedness.
18. Perfection. Borrower agrees to take such action as may be
requested by Lender at any time to perfect Lender's security interest in the
Collateral. Without limiting the foregoing, Borrower agrees (i) to immediately
deliver to Lender, upon receipt by Borrower, any instrument, chattel paper,
document or other Collateral (other than goods) in which a security interest may
be perfected or Lender's rights against purchasers protected by possession, with
any appropriate
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<PAGE>
endorsement affixed, and (ii) to immediately notify Lender upon Borrower's
acquisition of an aircraft, copyright, trademark, patent titled vehicle, or
other Collateral in which a security interest may be perfected or Lender's
rights against purchasers protected by means other than possession or by the
filing of a financing statement with a government office located within the
state in which the Collateral, or any part thereof, is deemed located. A copy of
this Agreement may be filed as a financing statement.
19. Rights Against Prior Parties. Lender shall not be
obligated to take any steps to preserve rights against prior parties under any
instrument or chattel paper which is part of the Collateral and which is at any
time in Lender's possession.
20. Accounts.
(a) Records of Accounts. Borrower shall maintain
detailed records of its accounts, including an itemized list of each charge
giving rise to the accounts, the name and address of each account debtor, all
relevant charge and billing dates, and all other information that Lender may
deem necessary or which is ordinarily maintained with respect to such accounts.
All records of the accounts shall be maintained at Borrower's office at Suite
2950, 121 West Trade Street, Charlotte, North Carolina 28202, and Lender may
require that they be plainly marked to the effect that they have been assigned
to Lender as Collateral for an outstanding obligation. Payments on Borrower's
accounts shall be received by mail at Borrower's principal address provided
herein. If Lender so requires, Borrower shall store its account records in an
appropriately fire-rated vault or Borrower shall store a duplicate set of
records of accounts at an off-premises location. Lender may inspect such records
at any time.
(b) Information Regarding Accounts. Upon demand,
Borrower shall furnish Lender any information that Lender may reasonably request
pertaining to Borrower's accounts, including, but not limited to, a detailed
listing of all account balances, arranged according to age of the accounts,
together with the invoices evidencing the transactions that gave rise to the
accounts, addresses, and phone numbers of all account debtors. Lender may cause
Borrower or an independent auditor (at Borrower's expense) to obtain audit
confirmations from Borrower's account debtors at any time.
(c) Specific Assignments. Upon Lender's request,
Borrower shall immediately execute and deliver to Lender additional specific
assignments of any or all of its accounts.
(d) Lock Box. Following an event of default, Lender
may at any time require that Borrower direct its account debtors to forward all
payments to a lock box under Lender's exclusive control, with all payment
proceeds to be applied in accordance with this Agreement.
(e) Collection Rights of Lender. Following an event
of default, Lender may notify any or all account debtors under the accounts to
make all payments due Borrower directly to Lender for the account of Borrower.
Borrower hereby directs account debtors so notified to comply with Lender's
instructions without the need of confirmation from Borrower.
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<PAGE>
21. Capacity. Borrower warrants that its execution of and
performance under this Agreement and all related documents are permitted under
and will not violate any provision of Borrower's Charter or By-Laws. Borrower
further warrants that the execution of all necessary resolutions and other
prerequisites of corporate action have been duly performed so that the
individual executing this Agreement and related documents on behalf of Borrower
is duly authorized to bind Borrower by his signature. By signing below on behalf
of Borrower, the individual executing this Agreement on behalf of Borrower also
personally makes the warranties set forth in the preceding sentence.
22. Insurance. In addition to any specific insurance
requirements contained herein or in any other document pertaining to the Secured
Indebtedness, Borrower agrees to generally maintain adequate insurance against
casualty and liability losses in accordance with customary practices in
Borrower's field of enterprise. Borrower agrees to provide Lender with proof of
the existence of such insurance upon demand.
23. Recitals. Borrower warrants and agrees that the recitals
set forth at the beginning of this Agreement are true.
24. No Burdensome Agreements. Borrower warrants that Borrower
is not a party to any contract or agreement and is not subject to any contingent
liability that does or may impair Borrower's ability to perform under the terms
of this Agreement. Borrower further warrants that the execution and performance
of this Agreement will not cause a default, acceleration or other event under
any other contract or agreement to which Borrower or any property of Borrower is
subject, and will not result in the imposition of any charge, penalty, lien or
other encumbrance against any of Borrower's property except in favor of Lender.
25. Legal and Binding Agreement. Borrower warrants that the
execution and performance of this Agreement will not violate any judicial or
administrative order or governmental law or regulation, and that this Agreement
is valid, binding and enforceable in every respect according to its terms.
26. No Consent Required. Borrower warrants that Borrower's
execution, delivery and performance of this Agreement do not require the consent
of or the giving of notice to any third party including, but not limited to, any
other lender, governmental body or regulatory authority.
27. No Default. Borrower warrants that, as of the execution of
this Agreement, no default exists hereunder and no condition exists which, with
the giving of notice, the passing of time, or both, would constitute such a
default.
28. Security Interest; Setoff. In order to further secure the
payment of the Secured Indebtedness, Borrower hereby grants to Lender a security
interest and right of setoff against all of Borrower's presently owned or
hereafter acquired monies, items, credits, deposits and instruments (including
certificates of deposit) presently or hereafter in the possession of Lender. By
maintaining any such accounts or other property at Lender, Borrower acknowledges
that Borrower voluntarily subjects the property to Lender's rights hereunder.
Lender may exercise its rights under this
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<PAGE>
Paragraph without prior notice following default. Borrower agrees that Lender
shall not be liable for the dishonor of any instrument resulting from Lender's
exercise of its rights under this Paragraph.
29. Default Defined. After applying the applicable cure
periods as forth in the Note Purchase Agreement, the occurrence of any one or
more of the following events shall constitute a default under this Agreement:
(a) Default under Note Purchase Agreement. The
occurrence of a default under the Note Purchase Agreement.
(b) Breach of Covenant. The failure of Borrower or
any other party to perform or observe any obligation or covenant made under this
Agreement or with respect to the Secured Indebtedness.
(c) Breach of Warranty. Lender's discovery that any
representation or warranty in connection with this Agreement or the Secured
Indebtedness is materially false.
30. Remedies Upon Default. Upon default, Lender may pursue any
or all of the following remedies, without any notice to Borrower except as
required below:
(a) Notice of Default. Lender may give written notice
of default to Borrower, following which Borrower shall not dispose of, conceal,
transfer, sell or encumber any of the Collateral (including, but not limited to,
cash proceeds) without Lender's prior written consent. Any such disposition,
concealment, transfer or sale after the giving of such notice shall constitute a
wrongful conversion of the Collateral. Lender may obtain a temporary restraining
order or other equitable relief to enforce Borrower's obligation to refrain from
so impairing Lender's Collateral.
(b) Repossession. Lender may take possession of any
or all of the Collateral. Borrower hereby consents to Lender's entry into any of
Borrower's premises to repossess Collateral, and specifically consents to
Lender's forcible entry thereto as long as Lender causes no significant damage
to the Premises in the process of entry (drilling of locks, cutting of chains
and the like do not in themselves cause "significant" damage for the purposes
hereof) and provided that Lender accomplishes such entry without a breach of the
peace.
(c) Disposition. Lender may dispose of the Collateral
at private or public sale. Any required notice of sale shall be deemed
commercially reasonable if given at least five (5) days prior to sale. Lender
may adjourn any public or private sale to a different time or place without
notice or publication of such adjournment, and may adjourn any sale either
before or after offers are received. The Collateral may be sold in such lots as
Lender may elect, in its sole discretion. Lender may take such action as it may
deem necessary to repair, protect, or maintain the Collateral pending its
disposition.
(d) Recovery of Proceeds of Accounts. Lender may
recover any or all proceeds of accounts from any bank or other custodian who may
have possession thereof. Borrower hereby authorizes and directs all custodians
of Borrower's assets to comply with any demand for
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<PAGE>
payment made by Lender pursuant to this Agreement, without the need of
confirmation from Borrower and without making any inquiry as to the existence of
a default hereunder or any other matter. Lender may engage a collection agent to
collect accounts for a reasonable percentage commission or on any other
reasonable compensation arrangement.
(e) Notice to Account Debtors. Lender may notify any
or all account debtors that subsequent payments must be made directly to Lender
or its designated agent. Such notice may be made over Lender's signature or over
Borrower's name with no signature or both, in Lender's discretion. Borrower
hereby authorizes and directs all existing or future account debtors to comply
with any such notice given by Lender, without the need of confirmation from
Borrower and without making any inquiry as to the existence of a default
hereunder or as to any other matter.
(f) Enforcement of Rights of Collection. Lender may,
but shall not be obligated to, take such measures as Lender may deem necessary
in order to collect any or all of the accounts. Without limiting the foregoing,
Lender may institute any administrative or judicial action that it may deem
necessary in the course of collecting and enforcing any or all of the accounts.
Any administrative or judicial action or other action taken by Lender in the
course of collecting the accounts may be taken by Lender in its own name or in
Borrower's name. Lender may compromise any disputed claims and may otherwise
enter into settlements with account debtors or obligors under the accounts,
which compromises or settlements shall be binding upon Borrower. Lender shall
have no duty to pursue collection of any account, and may abandon efforts to
collect any account after such efforts are initiated.
(g) Action to Preserve Accounts and Other Contractual
Collateral. Lender may, with respect to any account involving uncompleted
performance by Borrower, and with respect to any general intangible or other
Collateral whose value may be preserved by additional performance on Borrower's
part, take such action as Lender may deem appropriate including, but not
limited, to performing or causing the performance of any obligation of Borrower
thereunder, the making of payments to prevent defaults thereunder, and the
granting of adequate assurances to other parties thereto with respect to future
performance. Lender's action with respect to any such accounts or general
intangibles shall not render Lender liable for further performance thereunder
unless Lender so agrees in writing.
(h) Setoff. Lender may exercise its lien upon and
right of setoff against any monies, items, credits, deposits or instruments that
Lender may have in its possession and which belong to Borrower or to any other
person or entity liable for the payment of any or all of the Secured
Indebtedness.
(i) Other Remedies. Lender may exercise any right
that it may have under any other document evidencing or securing the Secured
Indebtedness or otherwise available to Lender at law or equity.
(j) Attorney-in-Fact. Borrower hereby irrevocably
appoints Lender as Borrower's attorney-in-fact to take any action to facilitate
Lender's exercise of its remedies hereunder.
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<PAGE>
(k) Application of Proceeds. All amounts received by
Lender for Borrower's account by exercise of its remedies hereunder shall be
applied as follows: First, to the payment of all expenses incurred by Lender in
exercising its rights hereunder, including attorney's fees, and any other
expenses due Lender from Borrower; Second, to the payment of all interest
included in the Secured Indebtedness, in such order as Lender may elect; Third,
to the payment of all principal included in the Secured Indebtedness, in such
order as Lender may elect; and Fourth, surplus to Borrower or other party
entitled thereto.
31. Notices. Any communications concerning this Guaranty or
the credit described herein shall be addressed as follows:
As to Borrower:
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
Attention: Vernon Brannon
With a copy to:
Underwood Kinsey Warren & Tucker PA
Charlotte Plaza Building
Suite 2020
201 South College Street
Charlotte, NC 28244-2020
Attention: Shirley Linn
As to Lender:
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Clay R. Caroland III
Equitas, L.P.
2000 Glen Echo Road
Suite 101
Nashville, Tennessee 37215
Attn: Shannon LeRoy
- 9 -
<PAGE>
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
Communications to be given to Lender shall only be effective when set forth in
writing and actually received by an officer of Lender at the address indicated
above. Communications to be given to Borrower shall be effective when actually
or constructively received by Borrower or when set forth in writing and mailed
or delivered to Borrower's address stated above. Lender or Borrower may change
its address for receipt of notices by submitting the change in writing to the
other party.
32. Incorporation of Exhibits. All Exhibits referred to in
this Agreement are incorporated herein by this reference.
33. Indulgence Not Waiver. Lender's indulgence in the
existence of a default hereunder or any other departure from the terms of this
Agreement shall not prejudice Lender's rights to declare a default or otherwise
demand strict compliance with this Agreement.
34. Cumulative Remedies. The remedies provided Lender in this
Agreement are not exclusive of any other remedies that may be available to
Lender under any other document or at law or equity.
35. Amendment and Waiver in Writing. No provision of this
Agreement can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.
36. Assignment. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, successors and assigns of Borrower and
Lender, except that Borrower shall not assign any rights or delegate any
obligations arising hereunder without the prior written consent of Lender. Any
attempted assignment or delegation by Borrower without the required prior
consent shall be void.
37. Entire Agreement. This Agreement and the other written
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein.
38. Severability. Should any provision of this Agreement be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
39. Time of Essence. Time is of the essence of this Agreement,
and all dates and time periods specified herein shall be strictly observed,
except that Lender may permit specific deviations therefrom by its written
consent.
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<PAGE>
40. Applicable Law. The validity, construction and enforcement
of this Agreement and all other documents executed with respect to the Secured
Indebtedness shall be determined according to the laws of Tennessee applicable
to contracts executed and performed entirely within that state, in which state
this Agreement has been executed and delivered.
41. Gender and Number. Words used herein indicating gender or
number shall be read as context may require.
42. Captions Not Controlling. Captions and headings have been
included in this Agreement for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
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<PAGE>
IN WITNESS WHEREOF, this Security Agreement has been executed
as of the date first written above.
THE UNDERSIGNED ACKNOWLEDGE A THOROUGH
UNDERSTANDING OF THE TERMS OF THIS
AGREEMENT AND AGREE TO BE BOUND THEREBY:
Borrower:
HLM DESIGN, INC.
By: /s/ Joseph M. Harris
Title: President
Lender:
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
Its: General Partner
By: /s/ J. Larry Williams
Title: Secretary-Treasurer
EQUITAS, L.P., in its capacity as a
Lender and agent for the benefit of
Lender
By: Tennessee Business Investments, Inc.
Its: General Partner
By: /s/ Shannon LeRoy
Title: President
- 12 -
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii)
UPON FIRST FURNISHING TO THE MAKER AN OPINION OF COUNSEL SATISFACTORY TO IT THAT
SUCH TRANSFER IS NOT IN VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE ACT OR
ANY STATE SECURITIES LAW.
AFFILIATE PROMISSORY NOTE
$3,200,000.00 Charlotte, North Carolina May 30, 1997
FOR VALUE RECEIVED, BBH CORP. ("Maker"), a Delaware corporation,
promises to pay to the order of HLM DESIGN, INC. ("Payee"), a Delaware
corporation, the sum of Three Million Two Hundred Thousand and No/100 Dollars
($3,200,000.00), together with interest thereon at the fixed rate of thirteen
and one-half percent (13.50%) per annum. Commencing July 1, 1997, and continuing
on the first day of each calendar month thereafter until this Note is paid in
full, accrued interest payments on the outstanding balance of this Note shall
become due and payable. Commencing on June 1, 2000 and continuing on the first
day of each calendar month thereafter until and including May 1, 2002, principal
payments in the amount of Fifty-Three Thousand Three Hundred Thirty-Three and
34/100 ($53,333.34) each shall become due and payable, together with accrued
interest. The entire unpaid principal balance, together with all accrued
interest, shall be due and payable in full on June 1, 2002.
Interest Calculation. Interest hereunder will be calculated based upon
a 360-day year and actual days elapsed. The interest rate required hereby shall
not exceed the maximum rate permissible under applicable law, and any amounts
paid in excess of such rate shall be applied to reduce the principal amount
hereof or shall be refunded to Maker, at the option of the holder of this Note.
Payment Directions. All amounts due under this Note are payable at par
in lawful money of the United States of America, at the principal place of
business of Payee in Charlotte, North Carolina, or at such other address as the
Payee or other holder hereof (herein "Holder") may direct.
Defaults; Remedies and Default Interest. The occurrence of any default
in the timely payment of any part of principal or interest in accordance with
the terms hereof which is not cured within five (5) days after the due date of
any such payment, or upon failure of Maker to keep and perform all the covenants
and
Page 1 of 3
<PAGE>
provisions of this Note, or the occurrence of any default under that Note
Purchase Agreement of even date herewith executed by Maker, Payee and certain
other parties thereto, together with any and all amendments and modifications
thereof (the "Agreement") and the lapse of any applicable cure period provided
therein, shall constitute a default hereunder. Upon the occurrence of an event
of default, as defined above, Holder may, at its option and without notice
(except as may be required under the Agreement and upon the expiration of any
applicable cure period) declare all principal and interest provided for under
this Note, and any other obligations of Maker to Holder, to be presently due and
payable, and Holder may enforce any remedies available to Holder at law or
equity or under any documents securing or evidencing debts of Maker to Holder.
Holder may waive any default before or after it occurs and may restore this Note
in full effect without impairing the right to declare it due for a subsequent
default, this right being a continuing one. Upon default, the remaining unpaid
balance of the indebtedness evidenced hereby and all expenses due Holder shall,
without any action being required by Holder, bear interest at the lesser of (i)
sixteen percent (16.00%) per annum and (ii) the highest rate permissible under
applicable law.
Application of Payments; Prepayment Rights. All amounts received for
payment of this Note shall be first applied to any expenses due Holder under
this Note or under any other documents evidencing or securing obligations of
Maker to Holder, then to accrued interest, and finally to the reduction of
principal. Prepayment of principal or accrued interest may be made, in whole or
in part, at any time without penalty at the option of Maker. Any prepayment(s)
shall reduce the amount of indebtedness outstanding under the Note according to
the prepayment provisions in the Agreement.
Consents and Waivers. Maker and all sureties, guarantors, endorsers and
other parties to this instrument hereby consent to any and all renewals,
waivers, modifications, or extensions of time (of any duration) that may be
granted by Holder with respect to this Note and severally waive demand,
presentment, protest, notice of dishonor, and all other notices that might
otherwise be required by law. All parties hereto waive the defense of impairment
of collateral and all other defenses of suretyship.
Payments of Legal Fees and Costs. Maker and all sureties, guarantors,
endorsers and other parties hereto agree to pay reasonable attorneys' fees and
all court and other costs that Holder may incur in the course of efforts to
collect the debt evidenced hereby or to protect Holder's interest in any
collateral securing the same.
North Carolina Law and Construction. The validity and
construction of this Note shall be determined according to the laws
of North Carolina applicable to contracts executed and performed
Page 2 of 3
<PAGE>
within that state. If any provision of this Note should for any reason be
invalid or unenforceable, the remaining provisions hereof shall remain in full
effect.
Amendments. The provisions of this Note may be amended or
waived only by an instrument in writing signed by the Holder and
Maker and attached to this Note.
Words used herein indicating gender or number shall be read as the
context may require.
IN WITNESS WHEREOF, this Note has been executed effective as of
May 22, 1997.
BBH CORP., Maker
By: /s/ Vernan B. Brannon
Title: Vice President
PAY TO THE ORDER OF PACIFIC CAPITAL, L.P., a
Delaware limited partnership and EQUITAS, L.P.,
a Delaware limited partnership
HANSEN LIND MEYER INC., an Iowa corporation
(successor by merger with BBH Corp.)
By: Vernan B. Brannon
Title: Vice President
Page 3 of 3
COLLATERAL ASSIGNMENT OF PROMISSORY NOTE
THIS COLLATERAL ASSIGNMENT OF PROMISSORY NOTE ("Assignment")
made as of this 30th day of May, 1997, by and between HLM DESIGN, INC.
("Borrower"), a Delaware corporation, and PACIFIC CAPITAL, L.P. ("Pacific"), a
Delaware limited partnership, and EQUITAS, L.P. ("Equitas"), a Delaware limited
partnership (Pacific and Equitas being sometimes referred to herein,
collectively as "Lender" with Equitas acting as collateral agent for the Lender
pursuant to that certain Intercreditor and Collateral Agent Agreement of even
date herewith by and between the Lenders).
W I T N E S S E T H
WHEREAS, Lender has extended credit to Borrower pursuant to
that Note Purchase Agreement of even date herewith by and among Lender,
Borrower, Hansen Lind Meyer Inc. and BBH Corp. (together with any modifications
or amendments thereof, the "Note Purchase Agreement"), on certain terms and
conditions; and
WHEREAS, one condition to Lender's agreement to extend credit
to Borrower is that Lender must be provided a first priority perfected
collateral assignment of a certain promissory note owned by Borrower;
NOW, THEREFORE, as an inducement to cause Lender to extend
credit to Borrower, and for other valuable consideration, the receipt and
sufficiency of which are acknowledged, it is agreed as follows:
1. Definition of Secured Indebtedness. As used herein,
"Secured Indebtedness" shall mean all present and future debts and other
obligations of Borrower to Lender under this Assignment, the Note Purchase
Agreement, including those certain Promissory Notes of even date herewith in the
aggregate original principal amount of $2,000,000.00 made by Borrower payable to
the order of Lender, or each of them as the case may be, including all
modifications, amendments, extensions and renewals thereof.
2. Security Interest; Assignment. To secure the payment of the
Secured Indebtedness, Borrower hereby assigns to Lender and grants Lender a
security interest in that Affiliate Promissory Note dated May ___, 1997, made by
BBH Corp., a Delaware corporation, and assumed by Hansen Lind Meyer Inc., an
Iowa corporation, pursuant to merger between BBH Corp. and Hansen Lind Meyer
Inc. ("Obligor"), in the original principal amount of $3,200,000.00 payable to
the order of Borrower (the "Collateral Note"), together with all proceeds
thereof.
3. Negotiation of Collateral Note; Perfection. Borrower shall
negotiate the Collateral Note to Lender by endorsing the Collateral Note to the
order of Lender (without restriction or qualification) and delivering the
Collateral Note to Lender. Lender shall retain possession of the Collateral Note
to perfect its security interest therein.
4. Warranties. Borrower warrants to Lender the following:
(a) Sole Instrument. The Collateral Note is the only
instrument evidencing the indebtedness described therein.
<PAGE>
(b) Ownership of Collateral. Borrower is the lawful
holder and owner of the Collateral Note.
(c) No Obligation to Remit Payments. Borrower has not
agreed, and no holder of the Collateral Note shall be obligated, to remit any
payments made under the Collateral Note for the account of any other person or
business entity, except that Lender shall apply all funds received by it as
holder thereof for the account of Borrower.
(d) Binding Agreement. The Collateral Note is valid,
binding and enforceable according to its terms.
(e) No Other Assignment. The Collateral Note is not
subject to any assignment, lien or other encumbrance or claim except for the
security interest provided for herein in favor of Lender.
(f) Payments Current. All payments due under the
Collateral Note to date have been timely made, and no amount of the principal
debt evidenced by the Collateral Note has been prepaid.
(g) No Default. No default presently exists under the
Collateral Note and no condition presently exists which, with the giving of
notice, the passage of time, or both, will cause such a default.
(h) No Setoff. The indebtedness evidenced by the
Collateral Note is not, and shall not be, subject to any defense or setoff.
(i) Principal Balance. The present principal balance
outstanding under the Collateral Note is $3,200,000.00.
(j) Valid Assignment. This Assignment grants Lender a
valid first priority assignment of, and security interest in, the Collateral
Note.
(k) Copy of Collateral Note. A correct and complete
copy of the Collateral Note is attached hereto as Exhibit A.
(l) No Amendment or Waiver. No provision of the Note
has been amended or waived as to vary from the terms shown in Exhibit A hereto.
(m) Address of Obligor. The correct current address
of Obligor is as follows:
Hansen Lind Meyer Inc. (successor by merger with BBH Corp.)
Suite 2950
121 West Trade Street
Charlotte, NC 28202
(n) Financial Ability of Obligor. Obligor is
financially capable of performing pursuant to the Collateral Note.
(o) Negotiability. The Collateral Note is a
negotiable instrument under the Uniform Commercial Code as adopted in North
Carolina.
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<PAGE>
(p) Holder in Due Course. Upon the negotiation of the
Collateral Note to Lender, Lender shall become the holder in due course of the
Note as provided by the Uniform Commercial Code as adopted in North Carolina.
5. Covenants. Borrower covenants with Lender as follows:
(a) Notice of Default. Borrower shall immediately
notify Lender if a default occurs under the Collateral Note.
(b) No Amendment or Waiver. Borrower shall not
purport to modify or waive any terms of the Collateral Note without the prior
written approval of Lender.
(c) Notice of Prepayment. Borrower shall notify
Lender immediately if prepayment is made on the Collateral Note, and will hold
prepayment proceeds in trust for Lender pending notice to Lender and
instructions from Lender regarding the disposition of such proceeds, which
Lender may, in its sole discretion, require to be applied to the Secured
Indebtedness.
(d) Notices. Borrower shall promptly convey to Lender
any notice received by Borrower concerning the Collateral Note.
(e) No Further Encumbrances. Borrower shall not sell,
assign, or grant or allow any other security interest, claim or encumbrance to
attach to the Collateral Note, or to permit the payment under the Collateral
Note to be subject to any defense or right of setoff.
6. Collection Rights of Lender. Upon the occurrence of a
default under this Assignment (notwithstanding and excluding the application of
any applicable cure period for purposes of this Section 6), all payments made
under the Collateral Note by Obligor shall be payable as Lender shall so direct,
and Obligor shall send all payments, or such portion thereof as specified by
Lender, directly and exclusively to Lender at such address or addresses as
Lender may specify, and Obligor is hereby authorized and directed by Borrower to
comply with any such instructions given by Lender, without any inquiry on
Obligor's part. Obligor shall not be liable to Borrower for compliance with such
instructions given by Lender and Obligor shall receive full credit against the
Note for payments delivered to Lender.
7. Notice to Obligor. Concurrently with the execution hereof,
Borrower shall execute a letter in form and substance acceptable to Lender, in
substantially the same form as Exhibit B attached hereto, to be sent to inform
Obligor of Lender's rights under this Assignment.
8. No Conflict. Borrower warrants that its execution of and
performance under this Assignment and all related documents are permitted under
and will not violate any provision of Borrower's Charter or By-Laws. Borrower
further warrants that the execution of all necessary resolutions and other
prerequisites of corporate action have been duly performed so that the
individual executing this Assignment and related documents on behalf of Borrower
is duly authorized to bind Borrower by his signature. By signing below on behalf
of Borrower, the individual executing this Assignment on behalf of Borrower also
personally makes the warranties set forth in the preceding sentence.
9. Chief Executive Office. Borrower warrants that the address
designated herein to which notices are to be sent to Borrower is Borrower's
chief executive office. Borrower agrees to notify Lender
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<PAGE>
in writing of any change thereof and agrees that the same shall not in any event
be moved outside Mecklenburg County, North Carolina, without Lender's prior
written consent.
10. Recitals. Borrower warrants and agrees that the recitals
set forth at the beginning of this Assignment are true.
11. No Burdensome Agreements. Borrower warrants that Borrower
is not a party to any contract or agreement and is not subject to any contingent
liability that does or may impair Borrower's ability to perform under the terms
of this Assignment. Borrower further warrants that the execution and performance
of this Assignment will not cause a default, acceleration or other event under
any other contract or agreement to which Borrower or any property of Borrower is
subject, and will not result in the imposition of any charge, penalty, lien or
other encumbrance against any of Borrower's property except in favor of Lender.
12. Legal and Binding Agreement. Borrower warrants that the
execution and performance of this Assignment will not violate any judicial or
administrative order or governmental law or regulation, and that this Assignment
is valid, binding and enforceable in every respect according to its terms.
13. No Consent Required. Borrower warrants that Borrower's
execution, delivery and performance of this Assignment do not require the
consent of or the giving of notice to any third party including, but not limited
to, any other lender, governmental body or regulatory authority.
14. Default Defined. Applying the applicable cure periods set
forth in the Note Purchase Agreement, the occurrence of any one or more of the
following events shall constitute a default under this Agreement:
(a) Default under Note Purchase Agreement. The
occurrence of a default under the Note Purchase Agreement.
(b) Breach of Covenant. The failure of Borrower or
any other party to perform or observe any obligation or covenant made under this
Assignment or with respect to the Secured Indebtedness.
(c) Breach of Warranty. Lender's discovery that any
representation or warranty in connection with this Assignment or the Secured
Indebtedness is materially false.
(d) Collateral Note Default. The occurrence of a
default under the Collateral Note.
15. Remedies Upon Default. Upon default, Lender may pursue any
or all of the following remedies without notice to Borrower except as required
below:
(a) Rights of Holder. Lender may exercise any or all
rights of the holder of the Collateral Note. Without limiting the foregoing,
Lender may initiate any administrative or judicial proceeding that it may deem
necessary in the course of enforcing any rights under the Collateral Note. Any
administrative or judicial action or other action taken by Lender pursuant to
the Collateral Note may be taken by Lender in its own name or in Borrower's
name. Lender may enter into any amendment or extension of the Collateral Note
and may grant any indulgences with respect thereto that Lender may deem
appropriate in the course of exercising its rights under the Collateral Note.
Borrower hereby appoints Lender Borrower's attorney-in-fact
- 4 -
<PAGE>
to take any action authorized by this Assignment upon default. Borrower
acknowledges that this power of attorney is coupled with an interest and is
irrevocable.
(b) Sale of Collateral Note. Lender may sell the
Collateral Note pursuant to Lender's rights under the Uniform Commercial Code.
Any such sale may be either public or private. If public, the sale may be
postponed by announcement at the scheduled time and place and adjourned to
another time or place, or both. It is agreed that five (5) days' notice of any
sale is commercially reasonable notice thereof. Any public sale may be adjourned
to a different time, place, or both by announcement at the advertised time and
place of sale, without further publication. Any advertised sale may be cancelled
in Lender's discretion, either before or after the opening of bidding. Lender
shall transfer the Collateral Note to any purchaser thereof by endorsing the
Collateral Note to the purchaser's order, without warranty or recourse on the
part of Lender.
(c) Setoff. Lender may exercise its lien upon and
right of setoff against any monies, items, credits, deposits or instruments that
Lender may have in its possession and which belong to Borrower or any other
person or entity liable for the payments of any or all of the Secured
Indebtedness.
(d) Other Remedies. Lender may pursue any other
remedies available under any other document evidencing or securing the Secured
Indebtedness or otherwise available to Lender at law or equity.
(e) Application of Proceeds. All amounts received by
Lender for Borrower's account by exercise of its remedies hereunder shall be
applied as set forth in the Note Purchase Agreement.
16. Incorporation of Exhibits. All Exhibits referred to in
this Assignment are incorporated herein by this reference.
17. Indulgence Not Waiver. Lender's indulgence in the
existence of a default hereunder or any other departure from the terms of this
Assignment shall not prejudice Lender's rights to declare a default or otherwise
demand strict compliance with this Assignment.
18. Cumulative Remedies. The remedies provided Lender in this
Assignment are not exclusive of any other remedies that may be available to
Lender under any other document or at law or equity.
19. Amendment and Waiver in Writing. No provision of this
Assignment can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.
20. Notices. Any communications concerning this Assignment or
the credit described herein shall be addressed as follows:
As to Borrower:
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
Attention: Vernon Brannon
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<PAGE>
As to Lender:
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Clay R. Caroland III
Equitas, L.P.
2000 Glen Echo Road
Suite 101
Nashville, Tennessee 37215
Attn: Shannon LeRoy
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
Communications to be given to Lender shall only be effective when set forth in
writing and actually received by an officer of Lender at the address indicated
above. Communications to be given to Borrower shall be effective when actually
or constructively received by Borrower or when set forth in writing and mailed
or delivered to Borrower's address stated above. Lender or Borrower may change
its address for receipt of notices by submitting the change in writing to the
other party.
21. Assignment. This Assignment shall be binding upon and
inure to the benefit of the respective heirs, successors and assigns of Borrower
and Lender, except that Borrower shall not assign any rights or delegate any
obligations arising hereunder without the prior written consent of Lender. Any
attempted assignment or delegation by Borrower without the required prior
consent shall be void.
22. Entire Agreement. This Assignment and the other written
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein. Provided, if there is a conflict between
this Assignment and any other document executed contemporaneously herewith with
respect to the Secured Indebtedness, the provision most favorable to Lender
shall control.
23. Severability. Should any provision of this Assignment be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
24. Time of Essence. Time is of the essence of this
Assignment, and all dates and time periods specified herein shall be strictly
observed, except that Lender may permit specific deviations therefrom by its
written consent.
25. Applicable Law. The validity, construction and enforcement
of this Assignment and all other documents executed with respect to the Secured
Indebtedness shall be determined according to the
- 6 -
<PAGE>
laws of Tennessee applicable to contracts executed and performed entirely within
that state, in which state this Assignment has been executed and delivered.
26. Gender and Number. Words used herein indicating gender or
number shall be read as context may require.
27. Captions Not Controlling. Captions and headings have been
included in this Assignment for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
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<PAGE>
IN WITNESS WHEREOF, this Collateral Assignment of Promissory
Note has been executed as of the date first written above.
THE UNDERSIGNED ACKNOWLEDGE A THOROUGH
UNDERSTANDING OF THE TERMS OF THIS
ASSIGNMENT AND AGREE TO BE BOUND THEREBY:
Borrower:
HLM DESIGN, INC.
By: /s/ Joseph M. Harris
Title: President
Lender:
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation,
General Partner
By: /s/ J. Larry Williams
Title: Secretary-Treasurer
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.,
General Partner
By: /s/ Shannon LeRoy
Title: President
- 8 -
<PAGE>
EXHIBIT A
Copy of Collateral Note
<PAGE>
EXHIBIT B
PACIFIC CAPITAL, L.P.
EQUITAS, L.P.
May 30, 1997
Hansen Lind Meyer Inc.
(successor by merger with BBH Corp.)
Suite 2950
121 West Trade Street
Charlotte, NC 28202
Re: Notice of Assignment of Promissory Note; Direct Payment to
Lender
Ladies and Gentlemen:
As you know, you are the obligor under that certain Affiliate
Promissory Note dated May ___, 1997, made by BBH Corp. and assumed by Hansen
Lind Meyer Inc., an Iowa corporation, pursuant to merger between BBH Corp. and
Hansen Lind Meyer Inc. (the "Obligor") in the original principal amount of
$3,200,000.00 payable to the order of HLM Design Inc. (the "Note").
Please be advised that the Note has been negotiated to Pacific
Capital, L.P. and Equitas, L.P. (collectively, "Lender") as collateral for
certain obligations of HLM Design, Inc. to Lender.
Upon your notification by Lender that an event of default has
occurred with respect to certain obligations of HLM Design, Inc. to Lender
pursuant to that Note Purchase Agreement dated May 30, 1997, by and among
Lender, HLM Design, Inc., Hansen Lind Meyer Inc. and BBH Corp., or related
Transaction Documents described therein, you are hereby directed to send all
payments, or a portion thereof, as directed by Lender, made under the Note,
without deduction or offset, directly to Lender, at such address or addresses as
Lender may specify.
Obligor is hereby authorized and directed by HLM Design, Inc.
to comply with any such instructions given by Lender, without any inquiry on
Obligor's part. All such payments shall be made payable to the order of Lender,
or shall be sent via wire transfer to an account or accounts designated by
Lender. If you wish to prepay principal or interest under the Note, you must
first obtain the written consent of Lender in order to ensure that you receive
proper credit for the payment.
No provision of the Note may hereafter be amended or waived
without Lender's written consent.
It is Lender's understanding that thus far you have not made
any prepayment toward any amounts due under the Note. Please advise Lender
immediately if this is not correct.
Notwithstanding the foregoing, Obligor and its affiliates
agree to hold Lender harmless from any and all existing or future claims against
HLM Design, Inc. or its affiliates, or for any existing or future
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<PAGE>
violations of any applicable laws by HLM Design, Inc. or its affiliates, and
shall not, as a result of said claims or violations, or for any other reason
whatsoever, deduct or setoff any amounts payable by Obligor under the Note.
This letter is a standard notice given by Lender when a
promissory note is negotiated to it as collateral. Please sign below to evidence
your acknowledgment and consent to the terms of this letter, and return the
original of this letter to Lender at the above-referenced address. HLM Design,
Inc., the previous holder of the Note, has consented to the sending of this
notice and the terms contained herein, evidenced by its signature below.
Please contact Shannon LeRoy of Equitas, L.P. at (615)
383-8673 if you have any questions regarding this notice of collateral
assignment of promissory note.
Sincerely,
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
Its: General Partner
By: /s/ J. Larry Williams
Title: Secretary-Treasurer
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.
Its: General Partner
By: /s/ Shannon LeRoy
Title: President
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<PAGE>
THE UNDERSIGNED, ACTING THROUGH ITS DULY
AUTHORIZED OFFICER, HEREBY AGREES TO THE
TERMS AND PAYMENT INSTRUCTIONS AS SET FORTH
HEREIN.
HLM DESIGN, INC., as assignor of the Note
By: /s/ Joseph M. Harris
Title: President
THE UNDERSIGNED, ACTING THROUGH ITS DULY
AUTHORIZED OFFICER, HEREBY ACKNOWLEDGES AND
CONSENTS TO THE ABOVE REFERENCED COLLATERAL
ASSIGNMENT OF THE NOTE AND AGREES TO THE
TERMS AND PAYMENT INSTRUCTIONS AS SET FORTH
HEREIN.
HANSEN LIND MEYER INC., an Iowa corporation
(successor by merger with BBH Corp.)
By: /s/ Vernon B. Brannon
Title: Senior Vice President
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UNCONDITIONAL GUARANTY
THIS UNCONDITIONAL GUARANTY ("Guaranty") is executed as of the
30th day of May, 1997, by HANSEN LIND MEYER INC. ("Hansen Lind"), an Iowa
corporation, and BBH CORP. ("BBH"), a Delaware corporation (Hansen Lind and BBH
being collectively referred to herein as "Guarantor"), in favor of PACIFIC
CAPITAL, L.P. ("Pacific"), a Delaware limited partnership, and EQUITAS, L.P.
("Equitas"), a Delaware limited partnership (Pacific and Equitas being sometimes
referred to herein, collectively as "Lender").
W I T N E S S E T H:
WHEREAS, Lender has agreed to extend credit (the "Loan") to
HLM Design, Inc. ("Borrower"), a Delaware corporation, on certain terms and
conditions pursuant to that Note Purchase Agreement of even date herewith by and
among Lender, Borrower and Guarantor (the "Note Purchase Agreement"); and
WHEREAS, Guarantor is an affiliate of Borrower, and
concurrently with the extension of the Loan, Borrower shall extend credit to BBH
in the approximate amount of $3,200,000.00 to fund BBH's obligations pursuant to
the terms of that certain Merger Agreement dated as of April 3, 1997 by and
between BBH and Hansen Lind, whereby BBH will merge with and into Hansen Lind,
with Hansen Lind being the surviving entity (the "Merger");
WHEREAS, one condition to Lender's agreement to extend credit
to Borrower is that Guarantor must unconditionally guarantee certain obligations
of Borrower to Lender, including the Loan; and
WHEREAS, Guarantor has determined that the consummation of the
transactions described above will inure to their direct and indirect benefit;
NOW, THEREFORE, as an inducement to cause Lender to extend
credit to Borrower, and for other valuable consideration, the receipt and
sufficiency of which are acknowledged, it is agreed as follows:
(1) Definition of Obligations. As used herein, the
"Obligations" shall mean all obligations of Guarantor under this Guaranty and
all obligations and indebtedness of Borrower and/or Guarantor under the Note
Purchase Agreement (as defined herein) and under those certain Promissory Notes
of even date herewith in the aggregate original principal amount of
$2,000,000.00 made by Borrower payable to the order of Lender, or each of them
as the case may be, together with all modifications, extensions and renewals
thereof.
(2) Solvency of Guarantor. Guarantor warrants to Lender that
Guarantor is not insolvent and that Guarantor's execution hereof does not render
Guarantor insolvent, either before or after the consummation of the Merger, for
the purpose of state or federal fraudulent transfer laws, other avoidance laws,
laws regarding corporate distributions or any other law.
(3) Guaranty of Payment. Guarantor hereby guarantees to Lender
the timely payment and performance of the Obligations.
<PAGE>
(4) Savings Provision. Should the liability of Guarantor
hereunder for the entire amount of the Obligations be subject to avoidance or
limitation, notwithstanding the contrary agreement and intention of Guarantor
and Lender, under any state or federal fraudulent transfer laws, laws regarding
corporate distributions or other law, then the liability of Guarantor for the
Obligations shall be limited to the maximum amount for which Guarantor may be
liable without legal impairment.
(5) Guaranty Unconditional. Guarantor's guarantee of the
Obligations is absolute and unconditional. The validity of this Guaranty shall
not be impaired by any event whatsoever, including, but not limited to, the
merger, consolidation, dissolution, cessation of business or liquidation of
Borrower; the financial decline or bankruptcy of Borrower; the failure of any
other party to guarantee the Obligations or to provide collateral therefor;
Lender's compromise or settlement with or without release of Borrower or any
other party liable for the Obligations; Lender's release of any collateral for
the Obligations; Lender's failure to file suit against Borrower (regardless of
whether Borrower is becoming insolvent, is believed to be about to leave the
state or any other circumstance); Lender's failure to give Guarantor notice of
default by Borrower; the unenforceability of the Obligations against Borrower
due to bankruptcy discharge, counterclaim or for any other reason; Lender's
acceleration of the Obligations at any time; the extension, modification or
renewal of the Obligations; Lender's failure to undertake or exercise diligence
in collection efforts against any party or property; the termination of any
relationship of Guarantor with Borrower, including, but not limited to, any
relationship of employment, ownership or commerce; Borrower's change of name or
use of any name other than the name used to identify Borrower in this Guaranty;
or Borrower's use of the credit extended for any purpose whatsoever. All
Obligations arising after the execution hereof shall be deemed made in reliance
upon the continued operation of this Guaranty and shall constitute additional
consideration for Guarantor's execution of this Guaranty. Guarantor agrees that
this Guaranty shall be valid and binding upon Guarantor upon the delivery of
this executed Guaranty to Lender by any party whomsoever.
(6) Primary Liability of Guarantor. This Guaranty constitutes
a guarantee of payment and performance and not of collection. Accordingly,
Lender may enforce this Guaranty against Guarantor without first making demand
upon or instituting collection proceedings against Borrower. Guarantor's
liability for the Obligations is hereby declared to be primary, and not
secondary, and Guarantor may be called upon hereunder to make any payment when
due under the Obligations. Each document presently or hereafter executed by
Borrower to evidence or secure an obligation to Lender is incorporated herein by
reference and shall be fully enforceable against Guarantor.
(7) Irrevocable Guaranty. Guarantor's guarantee of the
Obligations is irrevocable.
(8) Corporate Capacity. BBH warrants that it is a duly
organized Delaware corporation in good standing under the laws of Delaware, and
that BBH is duly qualified to do business in each other state in which
qualification is necessary. Hansen Lind warrants that it is and shall remain a
duly organized Iowa corporation in good standing under the laws of Iowa, and
that Hansen Lind is and shall remain duly qualified to do business in each other
state in which qualification is necessary. Guarantor warrants that its execution
and delivery of and performance under this Guaranty and all related documents
are permitted under and will not violate any provision of Guarantor's Charter or
By-Laws. Guarantor further warrants that the execution of all necessary
resolutions and other prerequisites of corporate action have been duly performed
so that the individual executing this Guaranty and related documents on behalf
of Guarantor is duly authorized to bind Guarantor by his signature. By signing
below on behalf of Guarantor, the individual executing this Guaranty on behalf
of Guarantor also personally makes the warranties set forth in the preceding
sentence.
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<PAGE>
(9) No Marshalling of Assets. Lender may proceed against any
collateral securing the Obligations and against parties liable therefor in such
order as it may elect, and Guarantor shall not be entitled to require Lender to
marshal assets. The benefit of any rule of law or equity to the contrary is
hereby expressly waived.
(10) Impairment of Collateral; Release of Liable Parties.
Lender may, in its sole discretion and with or without consideration, release
any collateral securing the Obligations or release any party liable therefor.
The defenses of impairment of collateral and impairment of recourse and any
requirement of diligence on Lender's part in collecting the Obligations are
hereby waived.
(11) Amendment of Obligations. Lender may, without notice to
or the joinder of Guarantor and without affecting Guarantor's liability
hereunder, modify, extend, accelerate, reinstate, refinance or renew the
Obligations (with or without the execution of new promissory notes) and grant
any consent or indulgence with respect thereto.
(12) Waivers of Notice. Guarantor hereby waives any
requirement of presentment, protest, notice of dishonor, notice of default,
demand, and all other actions or notices that may be otherwise required on
Lender's part in connection with the Obligations.
(13) Subordination. Guarantor agrees that any existing or
future loan made by Guarantor to Borrower and any other existing or future
obligation of Borrower to Guarantor (including but not limited to any rights
Guarantor may have against Borrower by virtue of Guarantor's performance
hereunder) shall be subordinate to the Obligations as to both payment and
collection. Accordingly, Guarantor agrees not to accept any payment whatsoever
from Borrower or to allow any payment by Borrower on Guarantor's behalf until
this Guaranty has been terminated in full; provided, however, that Lender
consents to Borrower repaying inter-company loans from Guarantor in the ordinary
course of business so long as no event of default exists hereunder or under the
Loan Agreement. Guarantor hereby grants Lender a security interest in all
obligations now or hereafter owed Guarantor by Borrower and in all instruments,
chattel paper and other property now or hereafter evidencing obligations of
Borrower to Guarantor, together with all collateral therefor. Guarantor shall
advise Lender of the status of such obligations and shall provide a payment
history therefor upon request. Lender may file this Guaranty (or a copy hereof)
as a financing statement with respect thereto, or Lender may require Guarantor
to execute a separate financing statement with respect thereto, or Lender may
require Guarantor to take any other action necessary to perfect Lender's
security interest therein, at Guarantor's expense. Without limiting the
foregoing, all such property owned by Guarantor in which a security interest may
be perfected by possession shall be delivered to Lender immediately as made
available to Guarantor. Guarantor agrees that, in the event of a bankruptcy or
other insolvency proceeding involving Borrower, Guarantor will timely file a
claim for the amount of the subordinated debt described herein, in form approved
by Lender. Guarantor agrees to pursue said claim with diligence and to comply
with any instructions from Lender pertaining to the pursuit of the claim. The
proceeds of any such claim shall be delivered to Lender for application to the
Obligations.
(14) Postponement of Rights Against Borrower. Guarantor hereby
agrees to exercise no right of subrogation, indemnity, or other right of
reimbursement against Borrower in connection with the Obligations, or any right
of contribution against any other party whatsoever in connection with the
Obligations, in either case until and unless the Obligations have been satisfied
in full.
(15) Statute of Limitations. Guarantor acknowledges and agrees
that the statute of limitation applicable to this Guaranty shall begin to run
only upon Lender's accrual of a cause of action against
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<PAGE>
Guarantor hereunder caused by Guarantor's refusal to honor a demand for
performance hereunder made by Lender in writing; provided, however, if,
subsequent to the demand upon Guarantor, Lender reaches an agreement with
Borrower on any terms causing Lender to forbear in the enforcement of its demand
upon Guarantor, the statute of limitation shall be reinstated for its full
duration until Lender subsequently again makes demand upon Guarantor.
(16) Cancellation by Lender. Lender may evidence its
cancellation of this Guaranty and the release of Guarantor from liability
hereunder by delivering to Guarantor an instrument of release, or by delivering
this Guaranty to Guarantor, or both. Unless Lender delivers this original
Guaranty to Guarantor with a notation on its face signed and dated by an
authorized officer of Lender stating "Cancelled in Full As To All Obligations,"
however, the purported cancellation hereof and release of Guarantor shall not
impair Guarantor's continuing liability for: (i) any amount of principal,
interest or expenses that was mistakenly omitted by Lender in calculating the
final payment due under the Obligations, if the release of Guarantor was based
upon Lender's belief that it had been paid in full; (ii) any surviving liability
of Borrower to reimburse Lender for expenses or to indemnify Lender provided for
in any document executed prior to the purported cancellation hereof evidencing
or securing the Obligations; and (iii) liability for avoided payments and
expenses related thereto (as provided in detail below). Lender shall not be
obligated to release any collateral securing this Guaranty until after all
applicable time periods have expired regarding bankruptcy preferences or other
avoidance actions that may be applicable to the circumstances of payment of any
or all of the Obligations.
(17) Recovery of Avoided Payments. If any amount applied by
Lender to the Obligations is subsequently challenged by a bankruptcy trustee or
debtor-in-possession as an avoidable transfer on the grounds that the payment
constituted a preferential payment or a fraudulent conveyance under state law or
the Bankruptcy Code or any successor statute thereto or on any other grounds,
Lender may, at its option and in its sole discretion, elect whether to contest
such challenge. If Lender contests the avoidance action, all costs of the
proceeding, including Lender's attorneys fees, will become part of the
Obligations. If the contested amount is nevertheless successfully avoided, the
avoided amount will become part of the Obligations hereunder. If Lender elects
not to contest the avoidance action, Lender may tender the amount subject to the
avoidance action to the bankruptcy court, trustee or debtor-in-possession and
the amount so advanced shall become part of the Obligations hereunder.
Guarantor's obligation to reimburse Lender for amounts due under this paragraph
shall survive the purported cancellation hereof except as otherwise provided
above.
(18) Costs of Collection Against Guarantor. Guarantor agrees
to pay all costs of collection, including, without limitation, court costs,
attorney's fees and compensation for time spent by Lender employees, that Lender
may incur in enforcing the terms of this Guaranty against Guarantor.
(19) Changes in Financial Condition. Guarantor covenants to
give Lender prompt written notice of the creation or discovery of any additional
material contingent liability or the occurrence of any other material adverse
change in the financial condition of Guarantor.
(20) No Unpaid Taxes. Guarantor warrants that Guarantor is not
presently delinquent in the payment of any taxes imposed by any governmental
authority or in the filing of any tax return and that Guarantor is not involved
in a dispute with any taxing authority over tax amounts due. Guarantor covenants
that all future taxes assessed against Guarantor shall be timely paid and that
all tax returns required of Guarantor shall be timely filed.
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<PAGE>
(21) Compliance with Law. Guarantor warrants that Guarantor's
business activities are conducted in accordance with all applicable laws and
regulations, and Guarantor covenants that such activities shall continue to be
so conducted.
(22) Assistance in Litigation. Guarantor covenants to, upon
request, cooperatively participate in any proceeding in which Guarantor is not
an adverse party to Lender and which concerns Lender's rights regarding the
Obligations or any collateral securing its payment.
(23) Recitals. Guarantor warrants and agrees that the recitals
set forth at the beginning of this Guaranty are true.
(24) No Burdensome Agreements. Guarantor warrants that
Guarantor is not a party to any contract or agreement and is not subject to any
contingent liability that does or may materially impair Guarantor's ability to
perform under the terms of this Guaranty. Guarantor further warrants that the
execution and performance of this Guaranty will not cause a default,
acceleration or other event under any other contract or agreement to which
Guarantor or any property of Guarantor is subject, and will not result in the
imposition of any charge, penalty, lien or other encumbrance against any of
Guarantor's property, except in favor of Lender.
(25) Legal and Binding Agreement. Guarantor warrants that the
execution, delivery and performance of this Guaranty will not violate any
judicial or administrative order or governmental law or regulation, and that
this Guaranty is valid, binding and enforceable in every respect according to
its terms.
(26) No Consent Required. Guarantor warrants that Guarantor's
execution, delivery and performance of this Guaranty do not require the consent
of or the giving of notice to any third party including, but not limited to, any
other lender, governmental body or regulatory authority.
(27) Consent to Jurisdiction and Venue. Guarantor hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Lender
may be a party and which concerns this Guaranty or the Secured Indebtedness. It
is further agreed that venue for any such action shall lie exclusively with
courts sitting in Davidson County, Tennessee, unless Lender agrees to the
contrary in writing.
(28) WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR HEREBY
KNOWINGLY AND VOLUNTARILY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY ISSUE ARISING
FROM THE LENDING RELATIONSHIP OF LENDER, GUARANTOR AND BORROWER. GUARANTOR
ACKNOWLEDGES THAT THE EFFECT OF THIS WAIVER IS THAT ISSUES OF FACT IN ANY SUCH
DISPUTE WILL BE DETERMINED BY A JUDGE RATHER THAN BY A JURY. GUARANTOR
ACKNOWLEDGES THAT THERE HAVE BEEN NO ORAL REPRESENTA TIONS TO GUARANTOR LIMITING
THE ENFORCEMENT OF THIS WAIVER, AND GUARANTOR AGREES THAT THE EFFECT OF THIS
WAIVER OF RIGHT TO JURY TRIAL MAY BE HEREAFTER LIMITED ONLY UPON THE SPECIFIC
WRITTEN ACTION OF LENDER.
(29) Not Partners; No Third Party Beneficiaries. Nothing
contained herein or in any related document shall be deemed to render Lender a
partner of Guarantor for any purpose. This Guaranty has been executed for the
sole benefit of Lender, and no third party is authorized to rely upon Lender's
rights
- 5 -
<PAGE>
hereunder or to rely upon an assumption that Lender has or will exercise its
rights under this Guaranty or under any document referred to herein.
(30) Notices. Any communications concerning this Guaranty or
the credit described herein shall be addressed as follows:
As to Guarantor:
Hansen Lind Meyer Inc.
Suite 2950
121 West Trade Street
Charlotte, North Carolina 28202
Attn: Vernon Brannon
BBH Corp.
Suite 2950
121 West Trade Street
Charlotte, North Carolina 28202
Attn: Vernon Brannon
With a copy to:
Underwood Kinsey Warren & Tucker PA
Charlotte Plaza Building
Suite 2020
201 South College Street
Charlotte, NC 28244-2020
Attention: Shirley Linn
As to Lender:
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Clay R. Caroland III
Equitas, L.P.
2000 Glen Echo Road
Suite 101
Nashville, Tennessee 37215
Attn: Shannon LeRoy
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<PAGE>
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
Communications to be given to Lender shall only be effective when set forth in
writing and actually received by an officer of Lender at the address indicated
above. Communications to be given to Guarantor shall be effective when actually
or constructively received by Guarantor or when set forth in writing and mailed
or delivered to Guarantor's address stated above. Lender or Guarantor may change
its address for receipt of notices by submitting the change in writing to the
other party.
(31) Indulgence Not Waiver. Lender's indulgence in any
departure from the terms of this Guaranty or any other document shall not
prejudice Lender's rights to make demand and recover from Guarantor in
accordance with this Guaranty, or otherwise demand strict compliance with this
Guaranty.
(32) Cumulative Remedies. The remedies provided Lender in this
Guaranty are not exclusive of any other remedies that may be available to Lender
under any other document or at law or equity.
(33) Amendment and Waiver in Writing. No provision of this
Guaranty can be amended or waived except by a statement in writing signed by the
party against which enforcement of the amendment or waiver is sought.
(34) Assignment. This Guaranty shall be binding upon and inure
to the benefit of the respective heirs, successors and assigns of Guarantor and
Lender, except that Guarantor shall not assign any rights or delegate any
obligations arising hereunder without the prior written consent of Lender. Any
attempted assignment or delegation by Guarantor without the required prior
consent shall be void.
(35) Severability. Should any provision of this Guaranty be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
(36) Applicable Law. The validity, construction and
enforcement of this Guaranty and all other documents executed with respect to
the Obligations shall be determined according to the laws of Tennessee
applicable to contracts, in which state this Guaranty has been executed and
delivered.
(37) Gender and Number. Words used herein indicating gender or
number shall be read as context may require.
(38) Captions Not Controlling. Captions and headings have been
included in this Guaranty for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
(39) NOTICE TO LENDER UPON PERCEIVED BREACH. GUARANTOR AGREES
TO GIVE LENDER WRITTEN NOTICE OF ANY ACTION OR INACTION BY LENDER IN CONNECTION
WITH THE OBLIGATIONS THAT GUARANTOR BELIEVES MAY BE ACTIONABLE AGAINST LENDER OR
A DEFENSE TO PAYMENT FOR ANY REASON, INCLUDING, BUT NOT
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<PAGE>
LIMITED TO, COMMISSION OF A TORT OR VIOLATION OF ANY CONTRACTUAL DUTY OR DUTY
IMPLIED BY LAW. GUARANTOR AGREES THAT UNLESS SUCH NOTICE IS DULY GIVEN AS
PROMPTLY AS POSSIBLE (AND IN ANY EVENT WITHIN TEN (10) DAYS) AFTER GUARANTOR
LEARNS OF ANY SUCH ACTION OR INACTION, GUARANTOR SHALL NOT ASSERT AGAINST
LENDER, AND GUARANTOR SHALL BE DEEMED TO HAVE WAIVED, ANY CLAIM OR DEFENSE
ARISING THEREFROM.
(40) NO ORAL REPRESENTATIONS LIMITING ENFORCEMENT. GUARANTOR
ACKNOWLEDGES LENDER'S INTENTION TO ENFORCE THIS GUARANTY TO THE FULLEST EXTENT
POSSIBLE AND GUARANTOR ACKNOWL EDGES THAT LENDER HAS MADE NO ORAL STATEMENTS TO
GUARANTOR THAT COULD BE CONSTRUED AS A WAIVER OF LENDER'S RIGHT TO ENFORCE THIS
GUARANTY BY ALL AVAILABLE LEGAL MEANS.
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<PAGE>
Executed the date first written above.
THE UNDERSIGNED
ACKNOWLEDGES A THOROUGH
UNDERSTANDING OF THE TERMS
OF THIS GUARANTY AND AGREES
TO BE BOUND THEREBY:
GUARANTOR:
HANSEN LIND MEYER INC.
By: /s/ Joseph M. Harris
Title: President
BBH CORP.
By: /s/ Joseph M. Harris
Title: President
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<PAGE>
<PAGE>
GUARANTY
THIS GUARANTY ("Guaranty") is executed as of the 30th day of
May, 1997, by JOE HARRIS ("Guarantor"), resident of the state of North Carolina,
in favor of PACIFIC CAPITAL, L.P. ("Pacific"), a Delaware limited partnership,
and EQUITAS, L.P. ("Equitas"), a Delaware limited partnership (Pacific and
Equitas being sometimes referred to herein collectively as "Lender").
W I T N E S S E T H:
WHEREAS, Lender has agreed to extend credit to HLM Design,
Inc. ("Borrower"), a Delaware corporation, on certain terms and conditions; and
WHEREAS, one condition to Lender's agreement to extend credit
to Borrower is that Guarantor must unconditionally guarantee the obligations of
Borrower to Lender;
NOW, THEREFORE, as an inducement to cause Lender to extend
credit to Borrower, and for other valuable consideration, the receipt and
sufficiency of which are acknowledged, it is agreed as follows:
1. Definition of Guaranteed Obligations. As used herein, the
"Guaranteed Obligations" shall mean all obligations of Guarantor under this
Guaranty and all obligations and indebtedness of Borrower, BBH Corp. and/or
Hansen Lind Meyer Inc. under that certain Note Purchase Agreement of even date
herewith by and between Borrower, BBH Corp., Hansen Lind Meyer Inc. ("HLM"), and
Lender (the "Note Purchase Agreement") and under those certain Promissory Notes
of even date herewith in the aggregate original principal amount of
$2,000,000.00 made by Borrower payable to the order of Lender, or each of them
as the case may be, together with all modifications, extensions and renewals
thereof.
2. Guaranty of Payment. Guarantor hereby guarantees to Lender
the timely payment and performance of the Guaranteed Obligations.
3. Solvency of Guarantor. Guarantor warrants to Lender that
Guarantor is not insolvent and that Guarantor's execution hereof does not render
Guarantor insolvent, either before or after the consummation of the Merger, for
the purpose of state or federal fraudulent transfer laws, other avoidance laws
or any other law.
4. Guaranty Unconditional. Guarantor's guarantee of the
Guaranteed Obligations is absolute and unconditional, provided that this
Guaranty shall only become effective in the event that Guarantor ceases to be
employed by Borrower or HLM, whether voluntarily or involuntarily, except if
such cessation of employment is due to death, continued disability for a period
of at least six (6) months or involuntary termination by the Borrower or HLM
without "cause". For purposes of this Agreement, "cause" shall include (i)
commission of a fraud or other act of dishonesty by the Guarantor that is likely
to have a material adverse effect on the Borrower or HLM, (ii) instigation of a
criminal charge against the Guarantor that is likely to have a material adverse
effect on the Borrower or HLM, (iii) the failure of Guarantor to faithfully
perform the duties and responsibilities assigned to him from time to time by the
boards of directors of the Borrower and HLM, after notice and failure of
Guarantor to cure within twenty (20) days, (iv) the commission of any acts, or
failure to perform any acts, by the Guarantor that cause material disruption to
the Borrower's or HLM's business, after notice and failure of Guarantor to
cure within twenty (20) days, (v) the failure of Guarantor to adhere
<PAGE>
to any written employee policies or procedures of Borrower or HLM in any
material respect, after notice and failure of Guarantor to cure within twenty
(20) days, (vi) the appropriation (or attempted appropriation) by Guarantor of a
material business opportunity of the Borrower, including attempting to secure or
securing any material personal profit in connection with any transaction entered
into on behalf of the Borrower without the prior consent of Borrower's board of
directors, or (vii) the occurrence of an event of default under that certain
Noncompetition Agreement of even date herewith between Guarantor and Borrower.
Except as otherwise provided herein, the validity of this Guaranty shall not be
impaired by any event whatsoever, including, but not limited to, the death,
disability, or incompetence of Borrower, if Borrower is an individual; the
merger, consolidation, dissolution, cessation of business or liquidation of
Borrower, if Borrower is a business entity; the financial decline or bankruptcy
of Borrower; the failure of any other party to guarantee the Guaranteed
Obligations or to provide collateral therefor; Lender's compromise or settlement
with or without release of any other party liable for the Guaranteed
Obligations; Lender's release of any collateral for the Guaranteed Obligations;
Lender's failure to file suit against Borrower (regardless of whether Borrower
is becoming insolvent, is believed to be about to leave the state or any other
circumstance); Lender's failure to give Guarantor notice of default by Borrower;
the unenforceability of the Guaranteed Obligations against Borrower, due to
bankruptcy discharge or otherwise; the availability to Borrower of any setoff,
counterclaim or defense against Lender; Lender's acceleration of the Guaranteed
Obligations at any time; the extension, modification or renewal of the
Guaranteed Obligations; Lender's failure to exercise diligence in collection;
the termination of any relationship of Guarantor with Borrower, including, but
not limited to, any relationship of employment, ownership, commerce, or
marriage; Borrower's change of name or use of any name other than the name used
to identify Borrower in this Guaranty; or Borrower's use of the credit extended
for any purpose whatsoever. Each advance of credit by Lender to Borrower
following the execution hereof shall be deemed made in reliance upon the
continued operation of this Guaranty and shall constitute additional
consideration for Guarantor's execution of this Guaranty. Guarantor agrees that
this Guaranty shall be valid and binding upon Guarantor upon the delivery of
this executed Guaranty to Lender by any party whomsoever.
5. Guaranty Irrevocable. Guarantor's guarantee of the
Guaranteed Obligations is irrevocable; provided, however, Guarantor may at any
time by written notice to Lender prospectively terminate Guarantor's liability
for any advances made by Lender subsequent to Lender's receipt of the
termination notice, except for any advance that Lender had previously committed
to make. After the delivery of such notice to Lender, Guarantor shall remain
fully liable for all principal, interest and expenses outstanding as of the time
of Lender's receipt of the cancellation hereof; for all interest subsequently
accruing thereon and for all expenses subsequently incurred by Lender with
respect thereto; and for all subsequent principal advances that Lender may have
previously committed to make (regardless of whether Lender waived any default or
condition precedent in actually making the advance(s)), together with all
interest thereon and expenses related thereto. The renewal or extension of the
maturity of obligations covered by this paragraph shall not relieve Guarantor of
continuing liability therefor.
6. Primary Liability of Guarantor. This Guaranty constitutes a
guarantee of payment and performance and not of collection. Accordingly, Lender
may enforce this Guaranty against Guarantor without first making demand upon or
instituting collection proceedings against Borrower. Guarantor's liability for
the Guaranteed Obligations is hereby declared to be primary, and not secondary,
and Guarantor may be called upon hereunder to make any payment when due under
the Guaranteed Obligations irrespective of the existence of any default
thereunder. Each document presently or hereafter executed by Borrower to
evidence or secure an obligation to Lender is incorporated herein by reference
and shall be fully enforceable against Guarantor.
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<PAGE>
7. No Marshalling of Assets. Lender may proceed against any
collateral securing the Guaranteed Obligations and against parties liable
therefor in such order as it may elect, and Guarantor shall not be entitled to
require Lender to marshall assets. The benefit of any rule of law or equity to
the contrary is hereby expressly waived.
8. Impairment of Collateral; Release of Liable Parties. Lender
may, in its sole discretion and with or without consideration, release any
collateral securing the Guaranteed Obligations or release any party liable
therefor. The defenses of impairment of collateral and impairment of recourse
and any requirement of diligence on Lender's part in collecting the Guaranteed
Obligations are hereby waived.
9. Amendment of Guaranteed Obligations. Lender may, without
notice to or the joinder of Guarantor and without affecting Guarantor's
liability hereunder, modify, extend, accelerate, reinstate, refinance, or renew
the Guaranteed Obligations (with or without the execution of new Promissory
Notes) and grant any consent or indulgence with respect thereto.
10. Waivers of Notice. Guarantor hereby waives any requirement
of presentment, protest, notice of dishonor, notice of default, demand, and all
other actions or notices that may be required on Lender's part in connection
with the Guaranteed Obligations.
11. Subordination. Guarantor agrees that any existing or
future loan made by Guarantor to Borrower and any other existing or future
obligation of Borrower to Guarantor shall be subordinate to the Guaranteed
Obligations as to both payment and collection. Accordingly, Guarantor agrees not
to accept any payment whatsoever from Borrower (except for reasonable salary,
bonus approved by the board of directors of Borrower, and reimbursement of
necessary and reasonable business expenses, unless Lender notifies Guarantor to
the contrary) or to allow any payment by Borrower on Guarantor's behalf until
this Guaranty has been terminated in full. Guarantor hereby grants Lender a
security interest in all accounts owed Guarantor by Borrower and in all
instruments, chattel paper and other property now or hereafter evidencing
obligations of Borrower to Guarantor, together with all collateral therefor.
Lender may file this Guaranty (or a copy hereof) as a financing statement with
respect thereto, or Lender may require Guarantor to execute a separate financing
statement with respect thereto, or Lender may require Guarantor to take any
other action necessary to perfect Lender's security interest therein, at
Guarantor's expense. Without limiting the foregoing, all such property owned by
Guarantor in which a security interest may be perfected by possession shall be
delivered to Lender immediately as made available to Guarantor. Guarantor agrees
that, in the event of a bankruptcy or other insolvency proceeding involving
Borrower, Guarantor will timely file a claim for the amount of the subordinated
debt, in form approved by Lender. Guarantor agrees to pursue said claim with
diligence and to comply with any instructions from Lender pertaining to the
pursuit of the claim. The proceeds of any such claim shall be delivered to
Lender.
12. Subrogation of Guarantor. Guarantor shall not be
subrogated to any rights of Lender against Borrower until the Guaranteed
Obligations have been paid in full.
13. Statute of Limitations. Guarantor acknowledges that the
statute of limitation applicable to this Guaranty shall begin to run only upon
Lender's accrual of a cause of action against Guarantor hereunder caused by
Guarantor's refusal to honor a demand for performance hereunder made by Lender
in writing; provided, however, if, subsequent to the demand upon Guarantor,
Lender reaches an agreement with Borrower on any terms causing Lender to forbear
in the enforcement of its demand upon Guarantor, the statute of limitation shall
be reinstated for its full duration until Lender subsequently again makes demand
upon Guarantor.
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<PAGE>
14. Death of Guarantor. In the event of the death of Guarantor
and provided that this Guaranty has become effective in accordance with section
4 hereof prior to the date of death, the obligation of Guarantor shall continue
in full force and effect against Guarantor's estate, and the executor or
administrator of such estate shall be obligated and authorized to pay such debt
and otherwise honor this Guaranty, and, if acceptable to Lender, to execute
renewal Guaranties or endorsements or notes or other evidences of indebtedness,
from time to time, with respect to any unpaid obligations hereunder. In the
event of the death of Guarantor and provided that this Guaranty has not become
effective in accordance with section 4 hereof prior to the date of death,
Guarantor's obligations pursuant to this Guaranty shall be cancelled.
15. Cancellation by Lender. Lender may evidence its
cancellation of this Guaranty and the release of Guarantor from liability
hereunder by delivering to Guarantor an instrument of release, or by delivering
this Guaranty to Guarantor, or both. Unless Lender delivers this original
Guaranty to Guarantor with a notation on its face signed and dated by an
authorized officer of Lender stating "Cancelled in Full As To All Guaranteed
Obligations," however, the purported cancellation hereof and release of
Guarantor shall not impair Guarantor's continuing liability for (a) any amount
of principal, interest, or expenses that was mistakenly omitted by Lender in
calculating the final payment due under the Guaranteed Obligations, if the
release of Guarantor was based upon Lender's belief that it had been paid in
full; (b) any surviving liability of Borrower to reimburse Lender for expenses
or to indemnify Lender provided for in any document executed prior to the
purported cancellation hereof evidencing or securing the Guaranteed Obligations;
and (c) liability for avoided payments and expenses related thereto (as provided
in detail below). Lender shall not be obligated to release any collateral
securing this Guaranty until after all applicable time periods have expired
regarding bankruptcy preferences or other avoidance actions that may be
applicable to the circumstances of payment of any or all of the Guaranteed
Obligations.
16. Recovery of Avoided Payments. If any amount applied by
Lender to the Guaranteed Obligations is subsequently challenged by a bankruptcy
trustee or debtor-in-possession as an avoidable transfer on the grounds that the
payment constituted a preferential payment or a fraudulent conveyance under
state law or the Bankruptcy Code or any successor statute thereto or on any
other grounds, Lender may, at its option and in its sole discretion, elect
whether to contest such challenge. If Lender contests the avoidance action, all
costs of the proceeding, including Lender's attorneys fees, will become part of
the Guaranteed Obligations. If the contested amount is successfully avoided, the
avoided amount will become part of the Guaranteed Obligations hereunder. If
Lender elects not to contest the avoidance action, Lender may tender the amount
subject to the avoidance action to the bankruptcy court, trustee or
debtor-in-possession and the amount so advanced shall become part of the
Guaranteed Obligations hereunder. Guarantor's obligation to reimburse Lender for
amounts due under this paragraph shall survive the purported cancellation hereof
except as otherwise provided above.
17. Disclosure of Litigation. Guarantor warrants that, except
as disclosed to Lender in writing, Guarantor is not presently a defendant in any
pending litigation, arbitration or administrative proceeding or the subject of
any investigation; that there is no arbitration, administrative proceeding or
investigation threatened against Guarantor; and that Guarantor is not subject to
any outstanding court or administrative order. Guarantor covenants to give
Lender prompt written notice of any litigation, administrative proceeding or
investigation that may hereafter be instituted or threatened against Guarantor,
whether or not Guarantor's liability under such proceeding would be covered by
insurance.
18. Financial Statements. Guarantor warrants that, except as
disclosed to Lender in writing, Guarantor's financial statements delivered to
Lender in connection with the Guaranteed Obligations have been prepared in
accordance with generally accepted accounting principles, consistently applied,
and are true, accurate and complete in every respect. Guarantor acknowledges
that Lender has advanced (or committed
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<PAGE>
to advance) the Guaranteed Obligations in reliance upon such financial
statements, and Guarantor warrants that no material change has occurred in
Guarantor's financial condition as set forth in such financial statements.
Guarantor covenants to furnish to Lender, upon demand, copies of Guarantor's tax
returns and additional financial statements in form and substance acceptable to
Lender.
19. Changes in Financial Condition. Guarantor covenants to
give Lender prompt written notice of the creation or discovery of any additional
contingent liability or the occurrence of any other material adverse change in
the financial condition of Guarantor.
20. No Unpaid Taxes. Guarantor warrants that Guarantor is not
presently delinquent in the payment of any taxes imposed by any governmental
authority or in the filing of any tax return and that Guarantor is not involved
in a dispute with any taxing authority over tax amounts due. Guarantor covenants
that all future taxes assessed against Guarantor shall be timely paid and that
all tax returns required of Guarantor shall be timely filed.
21. Compliance with Law. Guarantor warrants that Guarantor's
business activities are conducted in accordance with all applicable laws and
regulations, and Guarantor covenants that such activities shall continue to be
so conducted.
22. Assistance in Litigation. Guarantor covenants to, upon
request, cooperatively participate in any proceeding in which Guarantor is not
an adverse party to Lender and which concerns Lender's rights regarding the
Guaranteed Obligations or any collateral securing its payment.
23. Solvency of Guarantor. Guarantor warrants to Lender that
Guarantor is not insolvent and that Guarantor's execution hereof does not render
Guarantor insolvent.
24. Security Interest; Setoff. In order to further secure the
payment of the Guaranteed Obligations, Guarantor hereby grants to Lender a
security interest and right of setoff against all of Guarantor's presently owned
or hereafter acquired monies, items, credits, deposits and instruments
(including certificates of deposit) presently or hereafter in the possession of
Lender. By maintaining any such accounts or other property at Lender, Guarantor
acknowledges that Guarantor voluntarily subjects the property to Lender's rights
hereunder.
25. Recitals. Guarantor warrants and agrees that the recitals
set forth at the beginning of this Guaranty are true.
26. No Burdensome Agreements. Guarantor warrants that the
execution and performance of this Guaranty will not cause a default under any
other contract or agreement to which Guarantor or any property of Guarantor is
subject.
27. Legal and Binding Agreement. Guarantor warrants that the
execution and performance of this Guaranty will not violate any judicial or
administrative order or governmental law or regulation, and that this Guaranty
is valid and binding in every respect according to its terms.
28. No Consent Required. Guarantor warrants that Guarantor's
execution and performance of this Guaranty do not require the consent of or the
giving of notice to any third party including, but not limited to, any other
lender, governmental body or regulatory authority.
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<PAGE>
29. Consent to Jurisdiction and Venue. Guarantor hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Lender
may be a party and which concerns this Guaranty or the Guaranteed Obligations.
It is further agreed that venue for any such action shall lie exclusively with
courts sitting in Davidson County, Tennessee, unless Lender agrees to the
contrary in writing.
30. Not Partners; No Third Party Beneficiaries. Nothing
contained herein or in any related document shall be deemed to render Lender a
partner of Borrower or Guarantor for any purpose. This Guaranty and any
documents securing the Guaranteed Obligations has been executed for the sole
benefit of Lender as an inducement to cause it to extend credit to Borrower, and
neither Guarantor nor any other third party is authorized to rely upon Lender's
rights hereunder or to rely upon an assumption that Lender has or will exercise
its rights under any document.
31. Costs of Collection Against Guarantor. Guarantor agrees to
pay all costs of collection, including, without limitation, court costs,
attorney's fees and compensation for time spent by Lender employees, that Lender
may incur in enforcing the terms of this Guaranty against Guarantor.
32. Notices. Any communications concerning this Guaranty or
the credit described herein shall be addressed as follows:
As to Guarantor:
Joe Harris
Suite 2950
121 West Trade Street
Charlotte, North Carolina 28202
With a copy to:
Underwood Kinsey Warren & Tucker, P.A.
Charlotte Plaza Building
Suite 2020
201 South College Street
Charlotte, NC 28244-2020
Attention: Shirley Linn
As to Lender:
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Clay R. Caroland III
Equitas, L.P.
2000 Glen Echo Road
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<PAGE>
Suite 101
Nashville, Tennessee 37215
Attn: Shannon LeRoy
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
Communications to be given to Lender shall only be effective when set forth in
writing and actually received by an officer of Lender at the address indicated
above. Communications to be given to Guarantor shall be effective when actually
or constructively received by Guarantor or when set forth in writing and mailed
or delivered to Guarantor's address stated above. Any party may change its
address for receipt of notices by submitting the change in writing to the other
party.
33. Indulgence Not Waiver. Lender's indulgence in the
existence of a default under the Guaranteed Obligations or any departure from
the terms of this Guaranty or any other document shall not prejudice Lender's
rights to make demand and recover from Guarantor in accordance with this
Guaranty.
34. Cumulative Remedies. The remedies provided Lender in this
Guaranty are not exclusive of any other remedies that may be available to Lender
under any other document or at law or equity.
35. Amendment and Waiver in Writing. No provision of this
Guaranty can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.
36. Assignment. This Guaranty shall be binding upon heirs,
successors and assigns of Guarantor and Lender, except that Guarantor shall not
assign any rights or delegate any obligations arising hereunder without the
prior written consent of Lender. Any attempted assignment or delegation by
Guarantor without the required prior consent shall be void.
37. Severability. Should any provision of this Guaranty be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
38. Applicable Law. The validity, construction and enforcement
of this Guaranty and all other documents executed with respect to the Guaranteed
Obligations shall be determined according to the laws of Tennessee, in which
state this Guaranty has been executed and delivered.
39. Gender and Number. Words used herein indicating gender or
number shall be read as context may require.
40. Captions Not Controlling. Captions and headings have been
included in this Guaranty for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
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<PAGE>
41. Commercial Obligations. Guarantor acknowledges that this
Guaranty secures commercial, rather than personal, obligations.
42. Entire Agreement; No Oral Representations Limiting
Enforcement. This Guaranty represents the entire agreement between the parties
concerning the liability of Guarantor for the Guaranteed Obligations, and any
oral statements regarding Guarantor's liability for the Guaranteed Obligations
are merged herein. Without limiting the foregoing, Guarantor acknowledges
Lender's intention to enforce this Guaranty to the fullest extent possible and
Guarantor acknowledges that Lender has made no oral statements to Guarantor that
could be construed as a waiver of Lender's right to enforce this Guaranty by all
available legal means.
Executed the date first written above.
THE UNDERSIGNED ACKNOWLEDGES A THOROUGH
UNDERSTANDING OF THE TERMS OF THIS GUARANTY
AND AGREES TO BE BOUND THEREBY:
/s/ Joseph M. Harris
- ---------------------------- --------------------------------------------
Witness JOE HARRIS
###-##-####
Guarantor's Social Security or Taxpayer I.D. No. _______________________________
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<PAGE>
STATE OF NORTH CAROLINA)
COUNTY OF GASTON)
Personally appeared before me, the undersigned, a Notary
Public in and for said County and State, the within named Joe Harris, the
bargainor, with whom I am personally acquainted (or proved to me on the basis of
satisfactory evidence), and who upon oath acknowledged that he executed the
within instrument for the purposes therein contained.
Witness my hand and seal, at office in Charlotte,
North Carolina, this the 30th day of May, 1997.
/s/ Doris F. Pearson
---------------------------------------
NOTARY PUBLIC
My Commission Expires: 7-4-99
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<PAGE>
GUARANTY
THIS GUARANTY ("Guaranty") is executed as of the 30th day of
May, 1997, by VERNON BRANNON ("Guarantor"), resident of the state of North
Carolina, in favor of PACIFIC CAPITAL, L.P. ("Pacific"), a Delaware limited
partnership, and EQUITAS, L.P. ("Equitas"), a Delaware limited partnership
(Pacific and Equitas being sometimes referred to herein collectively as
"Lender").
W I T N E S S E T H:
WHEREAS, Lender has agreed to extend credit to HLM Design,
Inc. ("Borrower"), a Delaware corporation, on certain terms and conditions; and
WHEREAS, one condition to Lender's agreement to extend credit
to Borrower is that Guarantor must unconditionally guarantee the obligations of
Borrower to Lender;
NOW, THEREFORE, as an inducement to cause Lender to extend
credit to Borrower, and for other valuable consideration, the receipt and
sufficiency of which are acknowledged, it is agreed as follows:
1. Definition of Guaranteed Obligations. As used herein, the
"Guaranteed Obligations" shall mean all obligations of Guarantor under this
Guaranty and all obligations and indebtedness of Borrower, BBH Corp. and/or
Hansen Lind Meyer Inc. under that certain Note Purchase Agreement of even date
herewith by and between Borrower, BBH Corp., Hansen Lind Meyer Inc. ("HLM"), and
Lender (the "Note Purchase Agreement") and under those certain Promissory Notes
of even date herewith in the aggregate original principal amount of
$2,000,000.00 made by Borrower payable to the order of Lender, or each of them
as the case may be, together with all modifications, extensions and renewals
thereof.
2. Guaranty of Payment. Guarantor hereby guarantees to Lender
the timely payment and performance of the Guaranteed Obligations.
3. Solvency of Guarantor. Guarantor warrants to Lender that
Guarantor is not insolvent and that Guarantor's execution hereof does not render
Guarantor insolvent, either before or after the consummation of the Merger, for
the purpose of state or federal fraudulent transfer laws, other avoidance laws
or any other law.
4. Guaranty Unconditional. Guarantor's guarantee of the
Guaranteed Obligations is absolute and unconditional, provided that this
Guaranty shall only become effective in the event that Guarantor ceases to be
employed by Borrower or HLM, whether voluntarily or involuntarily, except if
such cessation of employment is due to death, continued disability for a period
of at least six (6) months or involuntary termination by the Borrower or HLM
without "cause". For purposes of this Agreement, "cause" shall include (i)
commission of a fraud or other act of dishonesty by the Guarantor that is likely
to have a material adverse effect on the Borrower or HLM, (ii) instigation of a
criminal charge against the Guarantor that is likely to have a material adverse
effect on the Borrower or HLM, (iii) the failure of Guarantor to faithfully
perform the duties and responsibilities assigned to him from time to time by the
boards of directors of the Borrower and HLM, after notice and failure of
Guarantor to cure within twenty (20) days, (iv) the commission of any acts, or
failure to perform any acts, by the Guarantor that cause material disruption to
the Borrower's or HLM's business, after notice and failure of Guarantor to cure
within twenty (20) days, (v) the failure of Guarantor to adhere
<PAGE>
to any written employee policies or procedures of Borrower or HLM in any
material respect, after notice and failure of Guarantor to cure within twenty
(20) days, (vi) the appropriation (or attempted appropriation) by Guarantor of a
material business opportunity of the Borrower, including attempting to secure or
securing any material personal profit in connection with any transaction entered
into on behalf of the Borrower without the prior consent of Borrower's board of
directors, or (vii) the occurrence of an event of default under that certain
Noncompetition Agreement of even date herewith between Guarantor and Borrower.
Except as otherwise provided herein, the validity of this Guaranty shall not be
impaired by any event whatsoever, including, but not limited to, the death,
disability, or incompetence of Borrower, if Borrower is an individual; the
merger, consolidation, dissolution, cessation of business or liquidation of
Borrower, if Borrower is a business entity; the financial decline or bankruptcy
of Borrower; the failure of any other party to guarantee the Guaranteed
Obligations or to provide collateral therefor; Lender's compromise or settlement
with or without release of any other party liable for the Guaranteed
Obligations; Lender's release of any collateral for the Guaranteed Obligations;
Lender's failure to file suit against Borrower (regardless of whether Borrower
is becoming insolvent, is believed to be about to leave the state or any other
circumstance); Lender's failure to give Guarantor notice of default by Borrower;
the unenforceability of the Guaranteed Obligations against Borrower, due to
bankruptcy discharge or otherwise; the availability to Borrower of any setoff,
counterclaim or defense against Lender; Lender's acceleration of the Guaranteed
Obligations at any time; the extension, modification or renewal of the
Guaranteed Obligations; Lender's failure to exercise diligence in collection;
the termination of any relationship of Guarantor with Borrower, including, but
not limited to, any relationship of employment, ownership, commerce, or
marriage; Borrower's change of name or use of any name other than the name used
to identify Borrower in this Guaranty; or Borrower's use of the credit extended
for any purpose whatsoever. Each advance of credit by Lender to Borrower
following the execution hereof shall be deemed made in reliance upon the
continued operation of this Guaranty and shall constitute additional
consideration for Guarantor's execution of this Guaranty. Guarantor agrees that
this Guaranty shall be valid and binding upon Guarantor upon the delivery of
this executed Guaranty to Lender by any party whomsoever.
5. Guaranty Irrevocable. Guarantor's guarantee of the
Guaranteed Obligations is irrevocable; provided, however, Guarantor may at any
time by written notice to Lender prospectively terminate Guarantor's liability
for any advances made by Lender subsequent to Lender's receipt of the
termination notice, except for any advance that Lender had previously committed
to make. After the delivery of such notice to Lender, Guarantor shall remain
fully liable for all principal, interest and expenses outstanding as of the time
of Lender's receipt of the cancellation hereof; for all interest subsequently
accruing thereon and for all expenses subsequently incurred by Lender with
respect thereto; and for all subsequent principal advances that Lender may have
previously committed to make (regardless of whether Lender waived any default or
condition precedent in actually making the advance(s)), together with all
interest thereon and expenses related thereto. The renewal or extension of the
maturity of obligations covered by this paragraph shall not relieve Guarantor of
continuing liability therefor.
6. Primary Liability of Guarantor. This Guaranty constitutes a
guarantee of payment and performance and not of collection. Accordingly, Lender
may enforce this Guaranty against Guarantor without first making demand upon or
instituting collection proceedings against Borrower. Guarantor's liability for
the Guaranteed Obligations is hereby declared to be primary, and not secondary,
and Guarantor may be called upon hereunder to make any payment when due under
the Guaranteed Obligations irrespective of the existence of any default
thereunder. Each document presently or hereafter executed by Borrower to
evidence or secure an obligation to Lender is incorporated herein by reference
and shall be fully enforceable against Guarantor.
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<PAGE>
7. No Marshalling of Assets. Lender may proceed against any
collateral securing the Guaranteed Obligations and against parties liable
therefor in such order as it may elect, and Guarantor shall not be entitled to
require Lender to marshall assets. The benefit of any rule of law or equity to
the contrary is hereby expressly waived.
8. Impairment of Collateral; Release of Liable Parties. Lender
may, in its sole discretion and with or without consideration, release any
collateral securing the Guaranteed Obligations or release any party liable
therefor. The defenses of impairment of collateral and impairment of recourse
and any requirement of diligence on Lender's part in collecting the Guaranteed
Obligations are hereby waived.
9. Amendment of Guaranteed Obligations. Lender may, without
notice to or the joinder of Guarantor and without affecting Guarantor's
liability hereunder, modify, extend, accelerate, reinstate, refinance, or renew
the Guaranteed Obligations (with or without the execution of new Promissory
Notes) and grant any consent or indulgence with respect thereto.
10. Waivers of Notice. Guarantor hereby waives any requirement
of presentment, protest, notice of dishonor, notice of default, demand, and all
other actions or notices that may be required on Lender's part in connection
with the Guaranteed Obligations.
11. Subordination. Guarantor agrees that any existing or
future loan made by Guarantor to Borrower and any other existing or future
obligation of Borrower to Guarantor shall be subordinate to the Guaranteed
Obligations as to both payment and collection. Accordingly, Guarantor agrees not
to accept any payment whatsoever from Borrower (except for reasonable salary,
bonus approved by the board of directors of Borrower, and reimbursement of
necessary and reasonable business expenses, unless Lender notifies Guarantor to
the contrary) or to allow any payment by Borrower on Guarantor's behalf until
this Guaranty has been terminated in full. Guarantor hereby grants Lender a
security interest in all accounts owed Guarantor by Borrower and in all
instruments, chattel paper and other property now or hereafter evidencing
obligations of Borrower to Guarantor, together with all collateral therefor.
Lender may file this Guaranty (or a copy hereof) as a financing statement with
respect thereto, or Lender may require Guarantor to execute a separate financing
statement with respect thereto, or Lender may require Guarantor to take any
other action necessary to perfect Lender's security interest therein, at
Guarantor's expense. Without limiting the foregoing, all such property owned by
Guarantor in which a security interest may be perfected by possession shall be
delivered to Lender immediately as made available to Guarantor. Guarantor agrees
that, in the event of a bankruptcy or other insolvency proceeding involving
Borrower, Guarantor will timely file a claim for the amount of the subordinated
debt, in form approved by Lender. Guarantor agrees to pursue said claim with
diligence and to comply with any instructions from Lender pertaining to the
pursuit of the claim. The proceeds of any such claim shall be delivered to
Lender.
12. Subrogation of Guarantor. Guarantor shall not be
subrogated to any rights of Lender against Borrower until the Guaranteed
Obligations have been paid in full.
13. Statute of Limitations. Guarantor acknowledges that the
statute of limitation applicable to this Guaranty shall begin to run only upon
Lender's accrual of a cause of action against Guarantor hereunder caused by
Guarantor's refusal to honor a demand for performance hereunder made by Lender
in writing; provided, however, if, subsequent to the demand upon Guarantor,
Lender reaches an agreement with Borrower on any terms causing Lender to forbear
in the enforcement of its demand upon Guarantor, the statute of limitation shall
be reinstated for its full duration until Lender subsequently again makes demand
upon Guarantor.
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<PAGE>
14. Death of Guarantor. In the event of the death of Guarantor
and provided that this Guaranty has become effective in accordance with section
4 hereof prior to the date of death, the obligation of Guarantor shall continue
in full force and effect against Guarantor's estate, and the executor or
administrator of such estate shall be obligated and authorized to pay such debt
and otherwise honor this Guaranty, and, if acceptable to Lender, to execute
renewal Guaranties or endorsements or notes or other evidences of indebtedness,
from time to time, with respect to any unpaid obligations hereunder. In the
event of the death of Guarantor and provided that this Guaranty has not become
effective in accordance with section 4 hereof prior to the date of death,
Guarantor's obligations pursuant to this Guaranty shall be cancelled.
15. Cancellation by Lender. Lender may evidence its
cancellation of this Guaranty and the release of Guarantor from liability
hereunder by delivering to Guarantor an instrument of release, or by delivering
this Guaranty to Guarantor, or both. Unless Lender delivers this original
Guaranty to Guarantor with a notation on its face signed and dated by an
authorized officer of Lender stating "Cancelled in Full As To All Guaranteed
Obligations," however, the purported cancellation hereof and release of
Guarantor shall not impair Guarantor's continuing liability for (a) any amount
of principal, interest, or expenses that was mistakenly omitted by Lender in
calculating the final payment due under the Guaranteed Obligations, if the
release of Guarantor was based upon Lender's belief that it had been paid in
full; (b) any surviving liability of Borrower to reimburse Lender for expenses
or to indemnify Lender provided for in any document executed prior to the
purported cancellation hereof evidencing or securing the Guaranteed Obligations;
and (c) liability for avoided payments and expenses related thereto (as provided
in detail below). Lender shall not be obligated to release any collateral
securing this Guaranty until after all applicable time periods have expired
regarding bankruptcy preferences or other avoidance actions that may be
applicable to the circumstances of payment of any or all of the Guaranteed
Obligations.
16. Recovery of Avoided Payments. If any amount applied by
Lender to the Guaranteed Obligations is subsequently challenged by a bankruptcy
trustee or debtor-in-possession as an avoidable transfer on the grounds that the
payment constituted a preferential payment or a fraudulent conveyance under
state law or the Bankruptcy Code or any successor statute thereto or on any
other grounds, Lender may, at its option and in its sole discretion, elect
whether to contest such challenge. If Lender contests the avoidance action, all
costs of the proceeding, including Lender's attorneys fees, will become part of
the Guaranteed Obligations. If the contested amount is successfully avoided, the
avoided amount will become part of the Guaranteed Obligations hereunder. If
Lender elects not to contest the avoidance action, Lender may tender the amount
subject to the avoidance action to the bankruptcy court, trustee or
debtor-in-possession and the amount so advanced shall become part of the
Guaranteed Obligations hereunder. Guarantor's obligation to reimburse Lender for
amounts due under this paragraph shall survive the purported cancellation hereof
except as otherwise provided above.
17. Disclosure of Litigation. Guarantor warrants that, except
as disclosed to Lender in writing, Guarantor is not presently a defendant in any
pending litigation, arbitration or administrative proceeding or the subject of
any investigation; that there is no arbitration, administrative proceeding or
investigation threatened against Guarantor; and that Guarantor is not subject to
any outstanding court or administrative order. Guarantor covenants to give
Lender prompt written notice of any litigation, administrative proceeding or
investigation that may hereafter be instituted or threatened against Guarantor,
whether or not Guarantor's liability under such proceeding would be covered by
insurance.
18. Financial Statements. Guarantor warrants that, except as
disclosed to Lender in writing, Guarantor's financial statements delivered to
Lender in connection with the Guaranteed Obligations have been prepared in
accordance with generally accepted accounting principles, consistently applied,
and are true, accurate and complete in every respect. Guarantor acknowledges
that Lender has advanced (or committed
- 4 -
<PAGE>
to advance) the Guaranteed Obligations in reliance upon such financial
statements, and Guarantor warrants that no material change has occurred in
Guarantor's financial condition as set forth in such financial statements.
Guarantor covenants to furnish to Lender, upon demand, copies of Guarantor's tax
returns and additional financial statements in form and substance acceptable to
Lender.
19. Changes in Financial Condition. Guarantor covenants to
give Lender prompt written notice of the creation or discovery of any additional
contingent liability or the occurrence of any other material adverse change in
the financial condition of Guarantor.
20. No Unpaid Taxes. Guarantor warrants that Guarantor is not
presently delinquent in the payment of any taxes imposed by any governmental
authority or in the filing of any tax return and that Guarantor is not involved
in a dispute with any taxing authority over tax amounts due. Guarantor covenants
that all future taxes assessed against Guarantor shall be timely paid and that
all tax returns required of Guarantor shall be timely filed.
21. Compliance with Law. Guarantor warrants that Guarantor's
business activities are conducted in accordance with all applicable laws and
regulations, and Guarantor covenants that such activities shall continue to be
so conducted.
22. Assistance in Litigation. Guarantor covenants to, upon
request, cooperatively participate in any proceeding in which Guarantor is not
an adverse party to Lender and which concerns Lender's rights regarding the
Guaranteed Obligations or any collateral securing its payment.
23. Solvency of Guarantor. Guarantor warrants to Lender that
Guarantor is not insolvent and that Guarantor's execution hereof does not render
Guarantor insolvent.
24. Security Interest; Setoff. In order to further secure the
payment of the Guaranteed Obligations, Guarantor hereby grants to Lender a
security interest and right of setoff against all of Guarantor's presently owned
or hereafter acquired monies, items, credits, deposits and instruments
(including certificates of deposit) presently or hereafter in the possession of
Lender. By maintaining any such accounts or other property at Lender, Guarantor
acknowledges that Guarantor voluntarily subjects the property to Lender's rights
hereunder.
25. Recitals. Guarantor warrants and agrees that the recitals
set forth at the beginning of this Guaranty are true.
26. No Burdensome Agreements. Guarantor warrants that the
execution and performance of this Guaranty will not cause a default under any
other contract or agreement to which Guarantor or any property of Guarantor is
subject.
27. Legal and Binding Agreement. Guarantor warrants that the
execution and performance of this Guaranty will not violate any judicial or
administrative order or governmental law or regulation, and that this Guaranty
is valid and binding in every respect according to its terms.
28. No Consent Required. Guarantor warrants that Guarantor's
execution and performance of this Guaranty do not require the consent of or the
giving of notice to any third party including, but not limited to, any other
lender, governmental body or regulatory authority.
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<PAGE>
29. Consent to Jurisdiction and Venue. Guarantor hereby
irrevocably consents to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which Lender
may be a party and which concerns this Guaranty or the Guaranteed Obligations.
It is further agreed that venue for any such action shall lie exclusively with
courts sitting in Davidson County, Tennessee, unless Lender agrees to the
contrary in writing.
30. Not Partners; No Third Party Beneficiaries. Nothing
contained herein or in any related document shall be deemed to render Lender a
partner of Borrower or Guarantor for any purpose. This Guaranty and any
documents securing the Guaranteed Obligations has been executed for the sole
benefit of Lender as an inducement to cause it to extend credit to Borrower, and
neither Guarantor nor any other third party is authorized to rely upon Lender's
rights hereunder or to rely upon an assumption that Lender has or will exercise
its rights under any document.
31. Costs of Collection Against Guarantor. Guarantor agrees to
pay all costs of collection, including, without limitation, court costs,
attorney's fees and compensation for time spent by Lender employees, that Lender
may incur in enforcing the terms of this Guaranty against Guarantor.
32. Notices. Any communications concerning this Guaranty or
the credit described herein shall be addressed as follows:
As to Guarantor:
Vernon Brannon
Suite 2950
121 West Trade Street
Charlotte, North Carolina 28202
With a copy to:
Underwood Kinsey Warren & Tucker, P.A.
Charlotte Plaza Building
Suite 2020
201 South College Street
Charlotte, NC 28244-2020
Attention: Shirley Linn
As to Lender:
Pacific Capital, L.P.
Suite 1070
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Clay R. Caroland III
Equitas, L.P.
2000 Glen Echo Road
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<PAGE>
Suite 101
Nashville, Tennessee 37215
Attn: Shannon LeRoy
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
Communications to be given to Lender shall only be effective when set forth in
writing and actually received by an officer of Lender at the address indicated
above. Communications to be given to Guarantor shall be effective when actually
or constructively received by Guarantor or when set forth in writing and mailed
or delivered to Guarantor's address stated above. Any party may change its
address for receipt of notices by submitting the change in writing to the other
party.
33. Indulgence Not Waiver. Lender's indulgence in the
existence of a default under the Guaranteed Obligations or any departure from
the terms of this Guaranty or any other document shall not prejudice Lender's
rights to make demand and recover from Guarantor in accordance with this
Guaranty.
34. Cumulative Remedies. The remedies provided Lender in this
Guaranty are not exclusive of any other remedies that may be available to Lender
under any other document or at law or equity.
35. Amendment and Waiver in Writing. No provision of this
Guaranty can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.
36. Assignment. This Guaranty shall be binding upon heirs,
successors and assigns of Guarantor and Lender, except that Guarantor shall not
assign any rights or delegate any obligations arising hereunder without the
prior written consent of Lender. Any attempted assignment or delegation by
Guarantor without the required prior consent shall be void.
37. Severability. Should any provision of this Guaranty be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
38. Applicable Law. The validity, construction and enforcement
of this Guaranty and all other documents executed with respect to the Guaranteed
Obligations shall be determined according to the laws of Tennessee, in which
state this Guaranty has been executed and delivered.
39. Gender and Number. Words used herein indicating gender or
number shall be read as context may require.
40. Captions Not Controlling. Captions and headings have been
included in this Guaranty for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
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<PAGE>
41. Commercial Obligations. Guarantor acknowledges that this
Guaranty secures commercial, rather than personal, obligations.
42. Entire Agreement; No Oral Representations Limiting
Enforcement. This Guaranty represents the entire agreement between the parties
concerning the liability of Guarantor for the Guaranteed Obligations, and any
oral statements regarding Guarantor's liability for the Guaranteed Obligations
are merged herein. Without limiting the foregoing, Guarantor acknowledges
Lender's intention to enforce this Guaranty to the fullest extent possible and
Guarantor acknowledges that Lender has made no oral statements to Guarantor that
could be construed as a waiver of Lender's right to enforce this Guaranty by all
available legal means.
Executed the date first written above.
THE UNDERSIGNED ACKNOWLEDGES A THOROUGH
UNDERSTANDING OF THE TERMS OF THIS GUARANTY
AND AGREES TO BE BOUND THEREBY:
/s/ Vernon B. Brannon
- ---------------------------- --------------------------------------------
Witness VERNON BRANNON
###-##-####
Guarantor's Social Security or Taxpayer I.D. No. _______________________________
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<PAGE>
STATE OF NORTH CAROLINA)
COUNTY OF GASTON)
Personally appeared before me, the undersigned, a Notary
Public in and for said County and State, the within named Vernon Brannon, the
bargainor, with whom I am personally acquainted (or proved to me on the basis of
satisfactory evidence), and who upon oath acknowledged that he executed the
within instrument for the purposes therein contained.
Witness my hand and seal, at office in Charlotte,
North Carolina, this the 30th day of May, 1997.
/s/ Doris F. Pearson
--------------------------
NOTARY PUBLIC
My Commission Expires: 7-4-99
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<PAGE>
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of May
30, 1997, by and between, HLM Design, Inc., a Delaware corporation (the
"Company"), Hansen Lind Meyer, Inc., an Iowa corporation ("HLM") and Joe Harris,
an individual residing at _____________________________________ ("Harris").
WITNESSETH:
WHEREAS, Harris is an employee of the Company and HLM and as such
has access to confidential information about the Company and HLM and their
businesses; and
WHEREAS, the Company has negotiated with Pacific Capital, L.P. and
Equitas, L.P. (the "Lenders") to borrow the sum of $2,000,000, all or a portion
of which will be lent by the Company to BBH Corp., a company that has entered
into a Merger Agreement to merge with and into HLM, and such Lenders have
required as a condition to such loan that Harris enter into a Noncompetition
Agreement with the Company and HLM; and
WHEREAS, in order to protect the Company, HLM, their shareholders
and creditors, Harris has agreed not to compete with the Company or HLM pursuant
to and in accordance with the terms of this Noncompetition Agreement.
NOW, THEREFORE, for and in consideration of the premises set forth
above and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. ACKNOWLEDGMENTS BY Harris
Harris acknowledges that (a) Harris has occupied a position of
trust and confidence with the Company and HLM prior to the date hereof and has
become familiar with the following, any and all of which constitute confidential
information of the Company and HLM, (collectively the "Confidential
Information"): (i) any and all trade secrets concerning the business and affairs
of the Company and HLM, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current and planned research and
development, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures and architectures (and related processes, formulae,
compositions, improvements, devices, know-how, inventions, discoveries,
concepts, ideas,
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<PAGE>
designs, methods and any other information, however documented, of the Company
or HLM that is a trade secret under any applicable law; (ii) any and all
information concerning the business and affairs of the Company or HLM (which
includes historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel, personnel training and techniques and
materials) however documented; and (iii) any and all notes, analysis,
compilations, studies, summaries, and other material prepared by or for the
Company or HLM containing or based, in whole or in part, on any information
included in the foregoing, (b) the business of the Company and HLM is national
in scope, (c) their products and services are marketed throughout the United
States; (d) the Company and HLM compete with other businesses that are or could
be located in any part of the United States; (e) the Company and HLM have
required that Harris make the covenants set forth in Sections 3 and 4 of this
Agreement as a condition to Harris's continued employment with the Company and
HLM and the Lenders have required that Harris make the covenants set forth in
Sections 3 and 4 of this Agreement as a condition to making the loan to the
Company; (f) the provisions of Sections 3 and 4 of this Agreement are reasonable
and necessary to protect and preserve the business of the Company and HLM, and
(g) the Company and HLM would be irreparably damaged if Harris were to breach
the covenants set forth in Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Harris acknowledges and agrees that all Confidential Information
known or obtained by Harris, whether before or after the date hereof, is the
property of the Company and HLM. Therefore, Harris agrees that Harris will not,
at any time, disclose to any unauthorized Persons or use for his own account or
for the benefit of any third party any Confidential Information, whether Harris
has such information in Harris's memory or embodied in writing or other physical
form, without written consent from the Company or HLM, as applicable, unless and
to the extent that the Confidential Information is or becomes generally known to
and available for use by the public other than as a result of Harris's fault or
the fault of any other person bound by a duty of confidentiality to the Company
or HLM.
4. NONCOMPETITION
As an inducement for the Company and HLM to continue to employee
Harris and as an inducement for the Lenders to extend credit to the Company,
Harris agrees that:
(a) During the period of Harris's continued employment by the
Company and HLM or any company that the Company owns or manages, and for a
period of three years thereafter (or until his death if the earlier to occur):
(i) Harris will not, directly or indirectly, engage
or invest in, own, manage, operate, finance, control, or participate in the
ownership, management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend Harris's name or
2
<PAGE>
any similar name to, lend Harris's credit to, or render services or advice to,
any business which provides architectural or engineering services to persons who
were clients of, or directly identified as prospective clients of, the Company
or HLM at any time during the twelve (12) month period immediately prior to such
business providing such architectural or engineering services, anywhere within
the United States; provided, however, that Harris may purchase or otherwise
acquire up to (but not more than) one percent of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934. Harris agrees that this covenant is reasonable with respect to its
duration, geographical area, and scope.
(ii) Harris will not, directly or indirectly, either
for himself or any other Person, (A) induce or attempt to induce any employee of
the Company of HLM to leave the employ of the Company or HLM, as applicable, (B)
in any way interfere with the relationship between the Company or HLM and any of
their respective employees, (C) employ, or otherwise engage as an employee,
independent contractor, or otherwise, any employee of the Company or HLM, or (D)
induce or attempt to induce any customer, supplier, licensee, or business
relation of the Company or HLM to cease doing business with the Company or HLM,
as applicable, or in any way interfere with the relationship between any
customer, supplier, licensee, or business relation of the Company or HLM.
(iii) Harris will not, directly or indirectly, either
for himself or any other person, solicit the business of any person known to
Harris to be a customer of the Company or HLM, whether or not Harris had
personal contact with such person, with respect to products, services or
activities which compete in whole or in part with the products, services or
activities of the Company or HLM;
(b) In the event of a breach by Harris of any covenant set forth in
Subsection 4(a) of this Agreement, the term of such covenant will be extended by
the period of the duration of such breach;
(c) Harris will not, at any time during or after the period of the
noncompetition provided in Subsection 4(a) of this Agreement, disparage the
Company or HLM, or any of their shareholders, directors, officers, employees, or
agents; and
(d) Harris will, for a period of three years after Harris's
termination as an employee of the Company and any company that the Company owns
or manages, within ten days after accepting any employment, advise the Company
of the identity of any employer of Harris. The Company may serve notice upon
each such employer that Harris is bound by this Agreement and furnish each such
employer with a copy of this Agreement or relevant portions thereof.
5. REMEDIES
3
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Harris shall be considered to be in "default" and an "event of
default" shall be considered to have occurred hereunder if a period of thirty
(30) days has passed since Harris has been notified that he has breached his
obligations under this Agreement, and Harris has failed to cure such breach
within such period of time.
If Harris breaches the covenants set forth in Sections 3 or 4 of
this Agreement and the applicable cure period as set forth above has expired,
the Company and HLM will be entitled to the following remedies:
(a) Damages from Harris; and
(b) In addition to its right to damages and any other rights it may
have, the right to obtain injunctive or other equitable relief to restrain any
breach or threatened breach or otherwise to specifically enforce the provisions
of Sections 3 and 4 of this Agreement, it being agreed that money damages alone
would be inadequate to compensate the Buyer and the Company and would be an
inadequate remedy for such breach.
(c) The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
In addition to the remedies set forth above, if Harris breaches the
covenants set forth in Sections 3 or 4 of this Agreement and the applicable cure
period as set forth above has expired, the Lenders may assert their rights
pursuant to that certain Guaranty Agreement of even date herewith executed by
Harris.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon the Company and HLM and Harris
and will inure to the benefit of the Company and HLM and their affiliates,
successors and assigns and Harris and Harris's assigns, heirs and legal
representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement will operate
as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a
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<PAGE>
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of North
Carolina without regard to conflicts of laws principles.
9. SEVERABILITY
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or term
of this Agreement is held to be prohibited by or invalid, then such provision or
term will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Sections 3 or 4 of this Agreement are held to be
unreasonable, arbitrary, against public policy or otherwise invalid, such
covenants will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic area, will be
effective, binding and enforceable against Harris.
10. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
11. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
12. NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the
5
<PAGE>
appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers as a party may designate by notice to the other
parties):
Harris:
Joe Harris
__________________
__________________
The Company:
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
HLM:
Hansen Lind Meyer Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
13. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and supersede all prior
written and oral agreements and understandings between the Company, HLM and
Harris with respect to the subject matter of this Agreement. This Agreement may
not be amended except by a written agreement executed by the party to be charged
with the amendment.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Noncompetition Agreement as of the date first above written.
/s/ Joseph Harris
JOE HARRIS
HLM DESIGN, INC.
By: /s/ Vernon B. Brannon
Its: Vice President
HANSEN LIND MEYER INC.
By: /s/ Vernon B. Brannon
Its: Vice President
7
<PAGE>
<PAGE>
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of May
30, 1997, by and between, HLM Design, Inc., a Delaware corporation (the
"Company"), Hansen Lind Meyer, Inc., an Iowa corporation ("HLM") and Vernon
Brannon, an individual residing at 5301 Mirabell Road, Charlotte, North Carolina
("Brannon").
WITNESSETH:
WHEREAS, Brannon is an employee of the Company and HLM and as such
has access to confidential information about the Company and HLM and their
businesses; and
WHEREAS, the Company has negotiated with Pacific Capital, L.P. and
Equitas, L.P. (the "Lenders") to borrow the sum of $2,000,000, all or a portion
of which will be lent by the Company to BBH Corp., a company that has entered
into a Merger Agreement to merge with and into HLM, and such Lenders have
required as a condition to such loan that Brannon enter into a Noncompetition
Agreement with the Company and HLM; and
WHEREAS, in order to protect the Company, HLM, their shareholders
and creditors, Brannon has agreed not to compete with the Company or HLM
pursuant to and in accordance with the terms of this Noncompetition Agreement.
NOW, THEREFORE, for and in consideration of the premises set forth
above and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. ACKNOWLEDGMENTS BY BRANNON
Brannon acknowledges that (a) Brannon has occupied a position of
trust and confidence with the Company and HLM prior to the date hereof and has
become familiar with the following, any and all of which constitute confidential
information of the Company and HLM, (collectively the "Confidential
Information"): (i) any and all trade secrets concerning the business and affairs
of the Company and HLM, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current and planned research and
development, current and planned manufacturing and distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures and architectures (and related processes, formulae,
compositions, improvements, devices, know-how, inventions, discoveries,
concepts, ideas,
1
<PAGE>
designs, methods and any other information, however documented, of the Company
or HLM that is a trade secret under any applicable law; (ii) any and all
information concerning the business and affairs of the Company or HLM (which
includes historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel, personnel training and techniques and
materials) however documented; and (iii) any and all notes, analysis,
compilations, studies, summaries, and other material prepared by or for the
Company or HLM containing or based, in whole or in part, on any information
included in the foregoing, (b) the business of the Company and HLM is national
in scope, (c) their products and services are marketed throughout the United
States; (d) the Company and HLM compete with other businesses that are or could
be located in any part of the United States; (e) the Company and HLM have
required that Brannon make the covenants set forth in Sections 3 and 4 of this
Agreement as a condition to Brannon's continued employment with the Company and
HLM and the Lenders have required that Brannon make the covenants set forth in
Sections 3 and 4 of this Agreement as a condition to making the loan to the
Company; (f) the provisions of Sections 3 and 4 of this Agreement are reasonable
and necessary to protect and preserve the business of the Company and HLM, and
(g) the Company and HLM would be irreparably damaged if Brannon were to breach
the covenants set forth in Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Brannon acknowledges and agrees that all Confidential Information
known or obtained by Brannon, whether before or after the date hereof, is the
property of the Company and HLM. Therefore, Brannon agrees that Brannon will
not, at any time, disclose to any unauthorized Persons or use for his own
account or for the benefit of any third party any Confidential Information,
whether Brannon has such information in Brannon's memory or embodied in writing
or other physical form, without written consent from the Company or HLM, as
applicable, unless and to the extent that the Confidential Information is or
becomes generally known to and available for use by the public other than as a
result of Brannon's fault or the fault of any other person bound by a duty of
confidentiality to the Company or HLM.
4. NONCOMPETITION
As an inducement for the Company and HLM to continue to employee
Brannon and as an inducement for the Lenders to extend credit to the Company,
Brannon agrees that:
(a) During the period of Brannon's continued employment by the
Company and HLM or any company that the Company owns or manages, and for a
period of three years thereafter (or until his death if the earlier to occur):
(i) Brannon will not, directly or indirectly, engage
or invest in, own, manage, operate, finance, control, or participate in the
ownership, management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend Brannon's name
2
<PAGE>
or any similar name to, lend Brannon's credit to, or render services or advice
to, any business which provides architectural or engineering services to persons
who were clients of, or directly identified as prospective clients of, the
Company or HLM at any time during the twelve (12) month period immediately prior
to such business providing such architectural or engineering services, anywhere
within the United States; provided, however, that Brannon may purchase or
otherwise acquire up to (but not more than) one percent of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934. Brannon agrees that this covenant is reasonable
with respect to its duration, geographical area, and scope.
(ii) Brannon will not, directly or indirectly, either
for himself or any other
Person, (A) induce or attempt to induce any employee of the Company of HLM to
leave the employ of the Company or HLM, as applicable, (B) in any way interfere
with the relationship between the Company or HLM and any of their respective
employees, (C) employ, or otherwise engage as an employee, independent
contractor, or otherwise, any employee of the Company or HLM, or (D) induce or
attempt to induce any customer, supplier, licensee, or business relation of the
Company or HLM to cease doing business with the Company or HLM, as applicable,
or in any way interfere with the relationship between any customer, supplier,
licensee, or business relation of the Company or HLM.
(iii) Brannon will not, directly or indirectly,
either for himself or any other
person, solicit the business of any person known to Brannon to be a customer of
the Company or HLM, whether or not Brannon had personal contact with such
person, with respect to products, services or activities which compete in whole
or in part with the products, services or activities of the Company or HLM;
(b) In the event of a breach by Brannon of any covenant set forth
in Subsection 4(a) of this Agreement, the term of such covenant will be extended
by the period of the duration of such breach;
(c) Brannon will not, at any time during or after the period of the
noncompetition provided in Subsection 4(a) of this Agreement, disparage the
Company or HLM, or any of their shareholders, directors, officers, employees, or
agents; and
(d) Brannon will, for a period of three years after Brannon's
termination as an employee of the Company and any company that the Company owns
or manages, within ten days after accepting any employment, advise the Company
of the identity of any employer of Brannon. The Company may serve notice upon
each such employer that Brannon is bound by this Agreement and furnish each such
employer with a copy of this Agreement or relevant portions thereof.
5. REMEDIES
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Brannon shall be considered to be in "default" and an "event of
default" shall be considered to have occurred hereunder if a period of thirty
(30) days has passed since Brannon has been notified that he has breached his
obligations under this Agreement, and Brannon has failed to cure such breach
within such period of time.
If Brannon breaches the covenants set forth in Sections 3 or 4 of
this Agreement and the applicable cure period as set forth above has expired,
the Company and HLM will be entitled to the following remedies:
(a) Damages from Brannon; and
(b) In addition to its right to damages and any other rights it may
have, the right to obtain injunctive or other equitable relief to restrain any
breach or threatened breach or otherwise to specifically enforce the provisions
of Sections 3 and 4 of this Agreement, it being agreed that money damages alone
would be inadequate to compensate the Buyer and the Company and would be an
inadequate remedy for such breach.
(c) The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
In addition to the remedies set forth above, if Brannon breaches
the covenants set forth in Sections 3 or 4 of this Agreement and the applicable
cure period as set forth above has expired, the Lenders may assert their rights
pursuant to that certain Guaranty Agreement of even date herewith executed by
Brannon.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon the Company and HLM and Brannon
and will inure to the benefit of the Company and HLM and their affiliates,
successors and assigns and Brannon and Brannon's assigns, heirs and legal
representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement will operate
as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a
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waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of North
Carolina without regard to conflicts of laws principles.
9. SEVERABILITY
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or term
of this Agreement is held to be prohibited by or invalid, then such provision or
term will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Sections 3 or 4 of this Agreement are held to be
unreasonable, arbitrary, against public policy or otherwise invalid, such
covenants will be considered divisible with respect to scope, time, and
geographic area, and in such lesser scope, time and geographic area, will be
effective, binding and enforceable against Brannon.
10. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
11. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
12. NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the
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appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers as a party may designate by notice to the other
parties):
Brannon:
Vernon Brannon
5301 Mirabell Road
Charlotte, NC 28226
The Company:
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
HLM:
Hansen Lind Meyer Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
13. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and supersede all prior
written and oral agreements and understandings between the Company, HLM and
Brannon with respect to the subject matter of this Agreement. This Agreement may
not be amended except by a written agreement executed by the party to be charged
with the amendment.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Noncompetition Agreement as of the date first above written.
/s/ Vernon B. Brannon
---------------------
VERNON BRANNON
HLM DESIGN, INC.
By: /s/ Joseph Harris
Its: President
HANSEN LIND MEYER INC.
By: /s/ Joseph Harris
Its: President
7
HLM DESIGN, INC.
1998 STOCK OPTION PLAN
-----------------------
1. PURPOSES OF PLAN. The purposes of the Plan, which shall be known as
the HLM Design, Inc. 1998 Stock Option Plan and is hereinafter referred to as
the "Plan", are (i) to provide incentives for key employees, directors,
consultants and other individuals providing services to HLM Design, Inc. (the
"Company") and its subsidiaries (within the meaning of Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), each of which is
referred to herein as a "Subsidiary") by encouraging their ownership of the
Common Stock, $.01 par value, of the Company (the "Stock") and (ii) to aid the
Company in retaining such key employees, directors, consultants and other
individuals upon whose efforts the Company's success and future growth depends,
and attracting other such employees, directors, consultants and other
individuals.
2. ADMINISTRATION. The Plan shall be administered by a committee of the
Board of Directors of the Company (the "Committee"). The Committee shall be
appointed from time to time by the Board of Directors of the Company (the "Board
of Directors") and shall consist of not fewer than two of its members. Each
Committee member shall be a "non-employee director" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Act"). In the event that no such Committee exists or is appointed, the powers
to be exercised by the Committee hereunder shall be exercised by the Board of
Directors.
For purposes of administration, the Committee, subject to the terms of
the Plan, shall have plenary authority to establish such rules and procedures,
to make such determinations and interpretations, and to take such other
administrative actions, as it deems necessary or advisable. All determinations
and interpretations made by the Committee shall be final, conclusive and binding
on all persons, including those granted options hereunder ("Optionees") and
their legal representatives and beneficiaries.
Notwithstanding any other provisions of the Plan, the Committee may
impose such conditions on any options as may be required to satisfy the
requirements of Rule 16b-3 of the Act or Section 162(m) of the Code.
The Committee shall hold its meetings at such times and places as it
may determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to such member's service on the Committee, if such member acts in
good faith and in a manner he or she reasonably believes to be in or not opposed
to the best interests of the Company.
3. STOCK AVAILABLE FOR OPTIONS. There shall be available for options
under the Plan a total of 138,000 shares of Stock, subject to any adjustments
which may be made pursuant to Section 5(f) hereof. Shares of Stock used for
purposes of the Plan may be either authorized and unissued shares, or previously
issued shares held in the treasury of the Company, or both. Shares of Stock
covered by options which have
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terminated or expired prior to exercise or which have been tendered as payment
upon exercise of other options pursuant to Section 5(c) shall be available for
further option grants hereunder.
4. ELIGIBILITY. Options under the Plan may be granted to key employees
of the Company or any Subsidiary, including officers or directors of the Company
or any Subsidiary, and to directors, consultants and other individuals providing
services to the Company or any Subsidiary. Options may be granted to eligible
employees whether or not they hold or have held options previously granted under
the Plan or otherwise granted or assumed by the Company. In selecting employees
for options, the Committee may take into consideration any factors it may deem
relevant, including its estimate of the employee's present and potential
contributions to the success of the Company and its Subsidiaries. Service as a
director, officer or consultant of or to the Company or any Subsidiary shall be
considered employment for purposes of the Plan (and the period of such service
shall be considered the period of employment for purposes of Section 5(d) of the
Plan); provided, however, that incentive stock options may be granted under the
Plan only to an individual who is an "employee" (as such term is used in Section
422 of the Code) of the Company or any Subsidiary.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall, in its
discretion, prescribe the terms and conditions of the options to be granted
hereunder, which terms and conditions need not be the same in each case, subject
to the following:
(a) OPTION PRICE. The price at which each share of Stock
covered by an incentive stock option granted under the Plan may be
purchased shall not be less than the market value per share of Stock on
the date of grant of the option. In the case of any option intended to
be an incentive stock option granted to an individual owning (directly
or by attribution as provided in Section 424(d) of the Code), on the
date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary
(which individual shall hereinafter be referred to as a "10%
Stockholder"), the price at which each share of Stock covered by the
option may be purchased shall not be less than 110% of the market value
per share of Stock on the date of grant of the option. The date of the
grant of an option shall be the date specified by the Committee in its
grant of the option. The price at which each share of Stock covered by
an option granted under the Plan (but not as an incentive stock option)
may be purchased shall be the price determined by the Committee, in its
absolute discretion, to be suitable to attain the purposes of this
Plan.
(b) OPTION PERIOD. The period for exercise of an option shall
in no event be more than ten years from the date of grant, or in the
case of an option intended to be an incentive stock option granted to a
10% Stockholder, more than five years from the date of grant. Options
may, in the discretion of the Committee, be made exercisable in
installments during the option period. Any shares not purchased on any
applicable installment date may be purchased thereafter at any time
before the expiration of the option period.
(c) EXERCISE OF OPTIONS. In order to exercise an option, the
Optionee shall deliver to the Company written notice specifying the
number of shares of Stock to be purchased, together with cash or a
certified or bank cashier's check payable to the order of the Company
in the full amount of the purchase price therefor; provided that, for
the purpose of assisting an Optionee to exercise an option, the Company
may make loans to the Optionee or guarantee loans made by third parties
to the Optionee, on such terms and conditions as the Board of Directors
may authorize; and provided further that such purchase price may be
paid in shares of Stock, or in nonstatutory options granted under the
Plan (provided, however, that the purchase price of Stock acquired
under an incentive
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stock option may not be paid in options), in either case owned by the Optionee
and having a market value on the date of exercise not less than the aggregate
purchase price, or in any combination of cash, Stock and such options. For
purposes of this Section 5(c), the market value per share of Stock shall be the
last sale price regular way on the date of reference, or, in case no sales take
place on such date, the average of the closing high bid and low asked prices
regular way, in either case on the principal national securities exchange on
which the Stock is listed or admitted to trading, or if the Stock is not listed
or admitted to trading on any national securities exchange, the last sale price
reported on the National Market System of the National Association of Securities
Dealers Automated Quotation system ("NASDAQ") on such date, or the average of
the closing high bid and low asked prices of the Stock in the over-the-counter
market reported on NASDAQ on such date, as furnished to the Committee by any New
York Stock Exchange member selected from time to time by the Committee for such
purpose. If there is no bid or asked price reported on any such date, the market
value shall be determined by the Committee in accordance with the regulations
promulgated under Section 2031 of the Code, or by any other appropriate method
selected by the Committee. For purposes of this Section 5(c), the market value
of an option granted under the Plan shall be the market value of the underlying
Stock, determined as aforesaid, less the exercise price of the option. If the
Optionee so requests, shares of Stock purchased upon exercise of an option may
be issued in the name of the Optionee or another person. An Optionee shall have
none of the rights of a stockholder until the shares of Stock are issued to him.
(d) EFFECT OF TERMINATION OF EMPLOYMENT.
(i) An option may not be exercised after the Optionee
has ceased to be in the employ of the Company or any
Subsidiary for any reason other than the Optionee's death,
Disability or Involuntary Termination Without Cause. Any
cessation of employment, for purposes of incentive stock
options only, shall include any leave of absence in excess of
90 days unless the Optionee's reemployment rights are
guaranteed by law or by contract. "CAUSE" shall mean any act,
action or series of acts or actions or any omission,
omissions, or series of omissions which result in, or which
have the effect of resulting in, (i) the commission of a crime
by the Optionee involving moral turpitude, which crime has a
material adverse impact on the Company or any Subsidiary, (ii)
gross negligence or willful misconduct which is continuous and
results in material damage to the Company or any Subsidiary,
or (iii) the continuous, willful failure of the person in
question to follow the reasonable directives of the Board of
Directors. "DISABILITY" shall mean the inability or failure of
a person to perform those duties for the Company or any
Subsidiary traditionally assigned to and performed by such
person because of the person's then-existing physical or
mental condition, impairment or incapacity. The fact of
disability shall be determined by the Committee, which may
consider such evidence as it considers desirable under the
circumstances, the determination of which shall be final and
binding upon all parties. "INVOLUNTARY TERMINATION WITHOUT
CAUSE" shall mean either (i) the dismissal of, or the request
for the resignation of, a person, by court order, order of any
court-appointed liquidator or trustee of the Company, or the
order or request of any creditors' committee of the Company
constituted under the federal bankruptcy laws, provided that
such order or request contains no specific reference to Cause;
or (ii) the dismissal of, or the request for the resignation
of, a person, by a duly constituted corporate officer of the
Company or any Subsidiary, or by the Board, for any reason
other than for Cause.
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(ii) During the three months after the date of the
Optionee's Involuntary Termination Without Cause, the Optionee
shall have the right to exercise the options granted under the
Plan, but only to the extent the options were exercisable on
the date of the cessation of the Optionee's employment.
(iii) During the twelve months after termination of
the Optionee's employment with the Company or any Subsidiary
as a result of the Optionee's Disability, the Optionee shall
have the right to exercise the options granted under the Plan,
but only to the extent the options were exercisable on the
date of the cessation of the Optionee's employment.
(iv) In the event of the death of the Optionee while
employed or, in the event of the death of the Optionee after
cessation of employment described in subparagraph (ii) or
(iii) above, but within the three-month or twelve-month period
described in subparagraph (ii) or (iii) above, the option
shall thereupon become exercisable in full until the
expiration of twelve months following the Optionee's death.
During such extended period, the option may be exercised by
the person or persons to whom the deceased Optionee's rights
under the option agreement shall pass by will or by the laws
of descent and distribution, but only to the extent the option
was exercisable on the date of the cessation of the Optionee's
employment. The provisions of the foregoing sentence shall
apply to any outstanding options which are incentive stock
options to the extent permitted by Section 422(d) of the Code
and such outstanding options in excess thereof shall,
immediately upon the occurrence of the event described in the
preceding sentence, be treated for all purposes of the Plan as
nonstatutory stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
In no event shall any option be exercisable beyond the
applicable exercise period provided in Section 5(b) of the Plan.
Nothing in the Plan or in any option granted pursuant to the Plan (in
the absence of an express provision to the contrary) shall confer on
any individual any right to continue in the employ of the Company or
any Subsidiary or interfere in any way with the right of the Company or
Subsidiary to terminate the individual's employment at any time.
(e) NONTRANSFERABILITY OF OPTIONS. Except as otherwise set
forth herein, during the lifetime of an Optionee, options held by the
Optionee shall be exercisable only by the Optionee, and no option shall
be transferable other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Committee may, in its
absolute discretion, grant nonstatutory stock options that are
transferable, subject to applicable law and the terms and restrictions
imposed by the option agreement or otherwise by the Committee.
(f) ADJUSTMENTS FOR CHANGE IN STOCK SUBJECT TO PLAN. In the
event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights offering
or any other change in the corporate structure or shares of the
Company, corresponding adjustments automatically shall be made to the
number and kind of shares available for issuance under this Plan and
the number and kind of shares and option price thereof covered by
outstanding options under this Plan.
(g) ACCELERATION OF EXERCISABILITY OF OPTIONS UPON OCCURRENCE
OF CERTAIN EVENTS. In connection with any merger or consolidation in
which the Company is not the surviving corporation and which results in
the holders of the outstanding voting securities of the Company
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(determined immediately prior to such merger or consolidation) owning
less than a majority of the outstanding voting securities of the
surviving corporation (determined immediately following such merger or
consolidation), or any sale or transfer by the Company of all or
substantially all of 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 the
Company, all outstanding options under the Plan shall become
exercisable in full, notwithstanding any other provision of the Plan or
of any outstanding options granted thereunder, on and after (i) the
fifteenth 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 provisions of the foregoing sentence shall apply to any
outstanding options which are incentive stock options to the extent
permitted by Section 422(d) of the Code and such outstanding options in
excess thereof shall, immediately upon the occurrence of the event
described in clause (i) or (ii) of the foregoing sentence, be treated
for all purposes of the Plan as nonstatutory stock options and shall be
immediately exercisable as such as provided in the foregoing sentence.
Notwithstanding the foregoing, in no event shall any option be
exercisable beyond the applicable period of such option specified in
Sections 5(b) and 5(d).
(h) REGISTRATION, LISTING AND QUALIFICATION OF SHARES OF
STOCK. Each option shall be subject to the requirement that if at any
time the Board of Directors shall determine that the registration,
listing or qualification of shares of Stock covered thereby upon any
securities exchange or under any federal or state law, or the consent
or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of
such option or the purchase of shares of Stock thereunder, no such
option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board of Directors. The
Company may require that any person exercising an option shall make
such representations and agreements and furnish such information as it
deems appropriate to assure compliance with the foregoing or any other
applicable legal requirement.
(i) OTHER TERMS AND CONDITIONS. The Committee may impose such
other terms and conditions, not inconsistent with the terms hereof, on
the grant or exercise of options, as it deems advisable.
(j) RELOAD OPTIONS. If upon the exercise of an option granted
under the Plan (the "Original Option") the Optionee pays the purchase
price for the Original Option pursuant to Section 5(c) in whole or in
part in shares of Stock owned by the Optionee for at least six months,
the Company shall grant to the Optionee on the date of such exercise an
additional option under the Plan (the "Reload Option") to purchase that
number of shares of Stock equal to the number of shares of Stock so
held for at least six months transferred to the Company in payment of
the purchase price in the exercise of the Original Option. The price at
which each share of Stock covered by the Reload Option may be purchased
shall be the market value per share of Stock (as specified in Section
5(c)) on the date of exercise of the Original Option. The Reload Option
shall not be exercisable until one year after the date the Reload
Option is granted or after the expiration date of the Original Option.
Upon the payment of the purchase price for a Reload Option granted
hereunder in whole or in part in shares of Stock held for more than six
months pursuant to Section 5(c), the Optionee is entitled to receive a
further Reload Option in accordance with this Section 5(j). Shares of
Stock covered by a Reload Option shall not reduce the number of shares
of Stock available under the Plan pursuant to Section 3.
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6. ADDITIONAL PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The
Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute "incentive stock options" within the meaning of
Section 422 of the Code, provided, however, that (a) the aggregate market value
of the Stock with respect to which incentive stock options are exercisable for
the first time by the Optionee during any calendar year shall not exceed the
limitation set forth in Section 422(d) of the Code and (b) Section 5(d)(ii)
hereof shall not apply to any incentive stock option.
7. EFFECTIVENESS OF PLAN. The Plan shall be effective when it is
adopted and approved by the Board of Directors, provided that the Plan is
approved within twelve months before or after such adoption by a majority of the
votes cast thereon by the stockholders of the Company at a meeting of
stockholders duly called and held for such purpose or by unanimous written
consent of such stockholders, and no option granted hereunder shall be
exercisable prior to such approval.
8. AMENDMENT AND TERMINATION. The Board of Directors may at any time
amend the Plan or the term of any option outstanding under the Plan; provided,
however, that, except as contemplated in Section 5(f), the Board of Directors
shall not, without approval by a majority of the votes cast by the stockholders
of the Company at a meeting of stockholders at which a proposal to amend the
Plan is voted upon, (i) increase the maximum number of shares of Stock for which
options may be granted under the Plan, or (ii) except as otherwise provided in
the Plan, amend the requirements as to the class of employees eligible to
receive options. Unless the Plan shall theretofore have been terminated as
hereinafter provided, the Plan shall terminate, and no option shall be granted
hereunder, after ten years from the date the Plan is adopted by the Board of
Directors or approved by the stockholders as described in Section 7, whichever
first occurs; provided, however, that the Board of Directors may at any time
prior to that date terminate the Plan. No amendment or termination of the Plan
or any option outstanding under the Plan may, without the consent of an
Optionee, adversely affect the rights of such Optionee under any option held by
such Optionee.
9. WITHHOLDING. It shall be a condition to the obligation of the
Company to issue shares of Stock upon exercise of an option that the Optionee
(or any beneficiary or person entitled to act under Section 5(d) hereof) pay to
the Company, upon its demand, such amount as may be requested by the Company for
the purpose of satisfying any taxes. If the amount requested is not paid, the
Company may refuse to issue such shares of Stock.
10. OTHER ACTIONS. Nothing contained in the Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and powers,
including, but not by way of limitation, the right of the Company to grant or
assume options for proper corporate purposes other than under the Plan with
respect to any employee or other person, firm, corporation or association.
6
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HLM DESIGN, INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
HLM DESIGN, INC.
EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
Page
ARTICLE I PURPOSE; DEFINITIONS; CONSTRUCTION...........1
1.1 Purpose of Plan.......................1
1.2 Definitions...........................1
(a) "Account"..................1
(b) "Base Pay".................1
(c) "Board of Directors".......1
(d) "Business Day".............1
(e) "Cause"....................1
(f) "Code".....................1
(g) "Committee"................1
(h) "Company"..................2
(i) "Company Stock"............2
(j) "Contributions"............2
(k) "Employee".................2
(l) "Employer".................2
(m) "Exercise Date"............2
(n) "Grant Date"...............2
(o) "Option"...................2
(p) "Participant"..............2
(q) "Plan".....................2
1.3 Construction.............................2
ARTICLE II ADMINISTRATION...............................3
2.1 Appointment and Procedures of Committee..3
2.2 Authority of Committee...................3
ARTICLE III PARTICIPATION..............................3
3.1 Eligibility to Participat................3
3.2 Restrictions on Participation............3
3.3 Leave of Absence.........................4
ARTICLE IV CONTRIBUTIONS...............................4
4.1 Payroll Deductions........................4
4.2 Contributions to Accounts.................4
4.3 Leave of Absence..........................4
4.4 Withdrawal of Contributions from Plan.....5
4.5 Termination of Employment.................5
<PAGE>
ii
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ARTICLE V OPTIONS.......................................5
5.1 Company Stock Available for Options.........5
5.2 Granting of Options.........................5
5.3 Option Price................................5
5.4 Option Period...............................6
5.5 Exercise of Options.........................6
(a) Automatic Exercise...............6
(b) Nontransferability of Options....6
(c) Effect of Termination of
Employment.......................6
(i) Termination of Employment
Related to Cause........6
(ii) Termination of
Employment Due to Death...6
(iii) Other Termination
of Employment............7
(d) Leave of Absence..................7
(e) Delivery of Stock.................8
(f) Acceleration of Exercisability
of Options Upon Occurrence
of Certain Events.............8
(g) Registration, Listing
and Qualification of
Shares of Stock...............8
ARTICLE VI MISCELLANEOUS................................8
6.1 Adjustments Upon Changes
in Capitalization.........................8
6.2 Approval of Shareholders...................8
6.3 Amendment, Suspension and Termination......9
6.4 Intent to Comply With Code Section 423.....9
6.5 Equal Rights and Privileges................9
6.6 Use of Funds...............................9
6.7 Withholding................................9
6.8 Effect of Plan.............................9
6.9 No Employment Rights.......................9
6.10 Governing Law.............................10
6.11 Other Actions.............................10
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HLM DESIGN, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE; DEFINITIONS; CONSTRUCTION
1.1 Purpose of Plan. The purpose of the Plan, which shall be known as
the HLM Design, Inc. Employee Stock Purchase Plan (the "Plan"), is to provide
employees of HLM Design, Inc. (the "Company") and its participating subsidiaries
(which hereinafter shall be referred to collectively with the Company as the
"Employer") an opportunity to acquire a proprietary interest in the Company
through the purchase of the Common Stock, $.01 par value, of the Company. This
Plan is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").
1.2 Definitions. Throughout this Plan, the following terms shall have
the meanings indicated:
(a) "Account" shall mean a memorandum account maintained to
record each Participant's Contributions pending purchase of Company Stock.
(b) "Base Pay" shall mean the Participant's regular base
salary (excluding overtime pay, bonuses, shift premiums, commissions, fringe
benefits, other special payments and imputed income) determined without
reduction for Contributions made under this Plan or contributions to any Code
Section 401(k) or Section 125 Plan. The Committee may establish additional rules
for determining a Participant's Base Pay for purposes of this Plan.
(c) "Board of Directors" shall mean the Board of Directors of
the Company.
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or holiday.
(e) "Cause" shall mean any act, action or series of acts or
actions or any omission, omissions or series of omissions which, in the opinion
of the Committee, result in, or which have the effect of resulting in, (i) the
commission of a crime by the Participant involving moral turpitude, which crime
has a material adverse impact on the Employer, (ii) gross negligence or willful
misconduct which is continuous and results in material damage to the Employer,
or (iii) the continuous, willful failure of the person in question to follow the
reasonable directives of the Employer.
(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended, any successor revenue laws of the United States, and the rules and
regulations promulgated thereunder.
(g) "Committee" shall mean the committee of directors of the
Company appointed by the Board of Directors in accordance with Section 2.1 to
administer this Plan, or in the event that no such committee exists or is
appointed, "Committee" shall mean the Board of Directors.
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(h) "Company" shall mean HLM Design, Inc., a company organized
and existing under the laws of the State of Delaware.
(i) "Company Stock" shall mean the Common Stock, $.01 par
value, of the Company.
(j) "Contributions" shall mean the after-tax payroll
deductions contributed to the Plan by Participants pursuant to Article IV.
(k) "Effective Date" shall mean the date of the closing of the
Company's initial public offering.
(l) "Employee" shall mean any person who (i) is employed on a
full-time or part-time basis by a participating Employer, (ii) is regularly
scheduled to work more than twenty hours per week, and (iii) is customarily
employed more than five months in any calendar year. Independent contractors and
outside directors shall not be included in the definition of Employee for
purposes of this Plan.
(m) "Employer" shall mean the Company and any of its present
or future subsidiaries (within the meaning of Section 424(f) of the Code) which
the Committee may designate from time to time as participating Employers under
this Plan.
(n) "Exercise Date" shall mean the last Business Day of March,
June, September and December on which the principal trading market for Company
Stock is open for trading, plus any other interim dates during the year which
the Committee designates as Exercise Dates.
(o) "Grant Date" shall mean (i) the date initial grants are
made pursuant to this Plan, which date shall be as soon as administratively
practicable following the Effective Date; and (ii) on or about each January 1
thereafter.
(p) "Option" shall mean an option to purchase shares of
Company Stock granted by the Committee to a Participant pursuant to this Plan.
(q) "Participant" shall mean an Employee participating in this
Plan in accordance with Article III.
(r) "Plan" shall mean this HLM Design, Inc. Employee Stock
Purchase Plan, as amended from time to time.
1.3 Construction. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. The words "hereof," "herein," "hereunder" and other
similar compounds of the word "here" shall mean and refer to the entire Plan and
not to any particular provision or Section.
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ARTICLE II
ADMINISTRATION
2.1 Appointment and Procedures of Committee. The Plan shall be
administered by the Committee as appointed from time to time by the Board of
Directors. The Committee shall consist of not fewer than two members of the
Board of Directors. Each Committee member shall be a "non- employee director"
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended. No member of the Board of Directors who serves on the
Committee shall be eligible to participate in the Plan. The Committee shall hold
its meetings at such times and places as it may determine. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. Any decision or determination reduced to
writing and signed by all members shall be as effective as if it had been made
by a majority vote at a meeting duly called and held. The Committee may appoint
a secretary (who need not be a member of the Committee).
2.2 Authority of Committee. The Committee, subject to the terms of the
Plan, shall have plenary authority in its discretion to interpret and construe
the Plan (including, without limitation, any of its terms which are uncertain,
doubtful or disputed); to decide all questions of Employee eligibility
hereunder; to determine the amount, manner and timing of all Options and
purchases of Company Stock hereunder; to establish, amend and rescind rules and
regulations pertaining to the administration of the Plan; and to make
determinations and interpretations and take such other administrative actions as
it deems necessary or advisable for the administration of this Plan. The express
grant in the Plan of any specific power to the Committee shall not be construed
as limiting any power or authority of the Committee. No member of the Committee
shall be liable for any act, determination or omission with respect to his
service on the Committee, if he acts in good faith and in a manner he reasonably
believes to be in or not opposed to the best interest of the Employer. All
expenses of administering this Plan shall be borne by the Employer.
ARTICLE III
PARTICIPATION
3.1 Eligibility to Participate. Subject to the restrictions of Section
3.2 below, any Employee employed on the Effective Date shall be eligible to
participate in this Plan as of the initial Grant Date under the Plan (provided
that the Employee is still employed on such Grant Date). Each other Employee
shall be eligible to participate in the Plan as of the Grant Date coincident
with or next following his date of employment with the Employer (provided that
the Employee is still employed on such Grant Date).
3.2 Restrictions on Participation. Notwithstanding the foregoing
Section 3.1, no Employee shall be eligible to participate in the Plan if such
Employee owns or holds options to purchase (or upon participation in this Plan
would own or hold options to purchase) stock possessing an aggregate of 5% or
more of the total combined voting power or value of all classes of stock of the
Company or any other Employer (as determined in accordance with the rules of
Section 424(d) of the Code relating to attribution of stock ownership).
3
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3.3 Leave of Absence. For purposes of becoming a participant in the
Plan, a person on a leave of absence shall be deemed to be an Employee for the
first ninety days of such leave of absence and such Employee's employment shall
be deemed to have terminated at the close of business on the ninetieth day of
such leave of absence unless such Employee shall have returned to regular full-
time or part-time employment prior to the close of business on such ninetieth
day. Termination by the Company of any Employee's leave of absence, other than
termination of such leave of absence on return to regular full-time or part-time
employment, shall terminate an Employee's employment for all purposes of the
Plan.
ARTICLE IV
CONTRIBUTIONS
4.1 Payroll Deductions. By written election, made and filed with the
Committee pursuant to the Committee's rules and procedures, a Participant may
elect to designate a whole percentage between one percent and ten percent (or
such higher or lower percentage as may be allowed by the Committee's rules and
procedures) of his Base Pay to be deferred by payroll deduction as a
Contribution to the Plan. Payroll deductions shall commence as soon as
administratively practicable following the filing of such written election with
the Committee. The Committee in its discretion may develop additional rules and
procedures regarding payroll deduction elections.
A Participant may change or revoke his payroll deduction amount by
filing, on such forms and in accordance with such rules and procedures as the
Committee in its discretion may prescribe, a revised written election with the
Committee. Such modification or revocation shall take effect as soon as
administratively practicable after the Committee's receipt of such revised
election. Notwithstanding the foregoing, a Participant may change his payroll
deduction election only once each calendar quarter, or as otherwise specifically
allowed by the Committee's rules and procedures. If payroll deductions are
discontinued, payroll deductions may not be resumed by the Participant until the
payroll period which begins on or after the next Exercise Date, or as otherwise
specifically allowed by the Committee's rules and procedures. Under no
circumstances may a Participant's payroll deduction election be made, modified
or revoked retroactively.
4.2 Contributions to Accounts. A memorandum Account shall be
established by the Committee for each Participant for the purpose of accounting
for Contributions. Contributions shall be credited to Accounts as soon as
administratively practicable following payroll withholding. Amounts credited to
Accounts will not accrue interest.
4.3 Leave of Absence. If a Participant is on a leave of absence, such
Participant shall have the right to elect to (a) withdraw from the Plan and
receive a distribution of the balance in his Account pursuant to Section 4.4,
(b) discontinue Contributions to the Plan but remain a Participant in the Plan,
or (c) remain a Participant in the Plan during such leave of absence,
authorizing deductions to be made from payments by the Company to the
Participant during such leave of absence.
4
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4.4 Withdrawal of Contributions from Plan. Prior to the end of a
calendar quarter, a Participant may elect to withdraw the Contributions credited
to his Account for that quarter by filing written notice thereof with the
Committee on such forms and in accordance with such procedures as the Committee
may prescribe. The Participant's Contributions shall be distributed to him as
soon as administratively practicable after the Committee's receipt of his notice
of withdrawal and no further payroll deductions shall be made from his Base Pay.
4.5 Termination of Employment. Upon termination of a Participant's
employment for any reason, such Participant may no longer make Contributions to
the Plan or be granted Options under the Plan. A Participant's right, if any, to
exercise any unexpired Option he holds as of his termination of employment shall
be determined in accordance with Section 5.5(c).
ARTICLE V
OPTIONS
5.1 Company Stock Available for Options. There shall be available for
Options under the Plan an aggregate maximum of 50,000 shares of Company Stock,
subject to any adjustments which may be made pursuant to Section 6.1 of the Plan
in connection with changes in capitalization of the Company. Shares of Company
Stock used for purposes of the Plan may be either authorized and unissued
shares, or previously issued shares held in the treasury of the Company, or
both. Shares of Company Stock covered by Options which have expired prior to
exercise shall be available for further Options granted hereunder.
5.2 Granting of Options. The Plan shall be implemented by annual
offerings of approximately twelve months duration (except for the initial
offering or as otherwise provided in Section 5.4). On each Grant Date, each
eligible Participant shall be deemed to have been granted an Option to purchase
that number of shares of Company Stock that equals: (i) the Participant's Base
Pay as of the Grant Date divided by 1000, with fractional amounts of .50 or more
rounded up to the next dollar and fractional amounts of less than .50
disregarded, multiplied by (ii) two. Notwithstanding the foregoing, no
Participant may be granted an Option which permits his rights to purchase stock
under this Plan and all other employee stock purchase plans of the Company or
Employer to accrue 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.
5.3 Option Price. The purchase price at which shares of Company Stock
may be acquired pursuant to the exercise of all or any portion of an Option
granted under this Plan shall be eighty-five percent of the lesser of (i) the
fair market value of the Company Stock on the applicable Grant Date, and (ii)
the fair market value of the Company Stock on the applicable Exercise Date. For
purposes of this Section 5.3, the fair market value per share of Company Stock
shall be the closing price on the last Business Day prior to the date of
reference, or in the event that no sales take place on such date, the average of
the closing high bid and low asked prices, in either case on the principal
national securities exchange on which the Company Stock is listed or admitted to
trading, or if the Company Stock is not listed or admitted to trading on any
national securities exchange, the last sale price reported on the National
Market System of the National Association of Securities Dealers Automated
5
<PAGE>
Quotation system ("NASDAQ") on such date, or the average of the closing high bid
and low asked prices of the Company Stock in the over-the-counter market
reported on NASDAQ on such date, as furnished to the Committee by any New York
Stock Exchange member selected from time to time by the Committee for such
purposes. If there is no bid or asked price reported on any such date, the
market value shall be determined by the Committee in accordance with the
regulations promulgated under Section 2031 of the Code, or by any other
appropriate method selected by the Committee.
5.4 Option Period. Each Option granted to a Participant under the Plan
shall expire on the earliest of (a) the last Exercise Date of the calendar year
in which the Option was granted, (b) the Participant's voluntary withdrawal from
the Plan following termination of employment, and (c) the date of the
Participant's termination of employment related to Cause, or the Exercise Date
immediately following the Participant's termination of employment for any reason
unrelated to Cause. In no event will the duration of an Option period exceed
twenty-seven months (or such other applicable period permitted under Section
423(b)(7) of the Code) from the date on which such Option is granted.
5.5 Exercise of Options.
(a) Automatic Exercise. Any Option granted to a Participant
shall 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 Participant's
accumulated Contributions as of such Exercise Date shall be applied to the
purchase of the maximum number of whole shares of Company Stock that his
Contributions will allow at the applicable Option price (determined in
accordance with Section 5.3), limited to the number of shares subject to such
Option. In the event that the number of shares of Company Stock that may be
purchased by all Participants in the Plan exceeds the number of shares then
available for issuance under the Plan, the Committee shall make a pro rata
allocation of the available shares in as uniform a manner as it determines to be
practicable and equitable. Any remaining Contributions in the Participant's
Account amounting to less than the Option price of a whole share of Company
Stock shall be carried forward and applied on the next Exercise Date; provided
that, Contributions remaining after the last Exercise Date of the calendar year
may be distributed to the Participant at his election.
(b) Nontransferability of Options. During a Participant's
lifetime, Options held by such Participant shall be exercisable only by that
Participant. No Option shall be transferable other than by will or by the laws
of descent and distribution.
(c) Effect of Termination of Employment.
(i) Termination of Employment Related to Cause. Upon
termination of a Participant's employment related to Cause, the Participant's
participation in the Plan also shall terminate. Any unexpired Option he holds
will expire as of the date of his termination of employment. Remaining
contributions credited to his Account shall be distributed to the Participant as
soon as administratively practicable following termination of employment.
(ii) Termination of Employment Due to Death. In the event of
the death of the Participant while employed, or during the period following his
termination of employment for
6
<PAGE>
any reason unrelated to Cause but prior to the next Exercise Date, the
Participant's estate shall have the right to elect by written notice to the
Committee prior to the earlier of the expiration of sixty days commencing with
the date of the Participant's death and the Exercise Date next following the
date of the Participant's death:
(A) To withdraw all of the Contributions
credited to the Participant's Account under the Plan, or
(B) To exercise any unexercised Option held
by the Participant as of the date of his death for the purchase of Company Stock
on the Exercise Date next following the date of the Participant's death in
accordance with Section 5.5(a) but only to the extent such Option was
exercisable on the date of the Participant's death, with any remaining
Contributions credited to the Participant's Account being distributed to the
Participant's estate as soon as administratively practicable after such Exercise
Date.
In the event that no such written election is timely and properly received by
the Committee, all Contributions credited to the Participant's Account shall be
distributed to the Participant's estate. In no event shall any Option be
exercisable beyond the applicable exercise period specified in Section 5.4 of
the Plan.
(iii) Other Termination of Employment. Upon
termination of a Participant's employment for any reason unrelated to Cause or
death, the Participant may at his election:
(A) Withdraw from the Plan pursuant to
Section 4.4 and request the return of the remaining Contributions then credited
to his Account, or
(B) Continue participation in the Plan until
the Exercise Date next following his date of termination of employment for the
limited purpose of allowing any unexpired Option he holds as of his termination
of employment to be exercised automatically in accordance with Section 5.5(a) on
the Exercise Date next following his termination of employment but only to the
extent such Option was exercisable on the date of the Participant's termination
of employment, with any remaining Contributions credited to the Participant's
Account being distributed to the Participant as soon as administratively
practicable after such Exercise Date.
(d) Leave of Absence. A Participant on a leave of absence
shall, subject to the election made by such Participant pursuant to Section 4.3,
continue to be a Participant in the Plan so long as such Participant is on
continuous leave of absence. A Participant who has been on leave of absence for
more than ninety days and who therefore is not an Employee for the purpose of
the Plan shall not be entitled to participate in any offering commencing on any
Grant Date following the ninetieth day of such leave of absence. Notwithstanding
any other provisions of the Plan, unless a Participant on a leave of absence
returns to eligible regular full-time or part-time employment with the Employer
at the earlier of (i) the termination of such leave of absence, or (ii) three
months from the ninetieth day of such leave of absence, such Participant's
participation in the Plan shall terminate on whichever of such dates first
occurs.
7
<PAGE>
(e) Delivery of Stock. As soon as administratively practicable
after each Exercise Date, the Company or the Committee will deliver to each
Participant, as applicable, certificates evidencing shares of Company Stock
purchased under this Plan.
(f) Acceleration of Exercisability of Options Upon Occurrence
of Certain Events. In connection with any merger or consolidation in which the
Company is not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all of 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 the Company, all outstanding
Options under the Plan shall become exercisable in full, notwithstanding any
other provision of the Plan or of any outstanding Options granted hereunder, on
and after (i) the fifteenth 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. Notwithstanding the
foregoing, in no event shall any Option be exercisable beyond the applicable
exercise period of such Option specified in Section 5.4.
(g) Registration, Listing and Qualification of Shares of
Stock. Each Option shall be subject to the requirement that if at any time the
Board of Directors shall determine that the registration, listing or
qualification of shares of Company Stock covered thereby upon any securities
exchange or under any federal or state law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such option or the purchase of shares of
Company Stock thereunder, no such Option may be exercised unless and until such
registration, listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Employer may require that any person exercising an Option shall
make such representations and agreements and furnish such information as it
deems appropriate to assure compliance with the foregoing or any other
applicable legal requirement.
ARTICLE VI
MISCELLANEOUS
6.1 Adjustments Upon Changes in Capitalization. In the event of a
reorganization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering or any other change in the corporate structure of
shares of the Company, corresponding adjustments shall be made to the number and
kind of shares of Company Stock available for issuance under this Plan and the
number and kind of shares of Company Stock covered by outstanding Options under
this Plan. Any adjustments made pursuant to this Section 6.1 remain subject to
the limitations of Section 423 of the Code (including its $25,000 annual
limitation).
6.2 Approval of Shareholders. Within twelve months before or after the
Plan is adopted by the Board of Directors, this Plan must be approved by a
majority of the votes cast thereon by the stockholders of the Company at a
meeting of stockholders duly called and held for such purpose or
8
<PAGE>
by unanimous written consent of such stockholders, and no Option granted
hereunder shall be exercisable prior to such approval.
6.3 Amendment, Suspension and Termination. The Board of Directors may
at any time amend, suspend or terminate this Plan; provided, however, that the
Board of Directors shall not increase the maximum number of shares of Company
Stock for which Options may be granted under the Plan, except as provided in
Section 6.1, without obtaining approval of the stockholders in the manner
described in Section 6.2. The Plan will continue until terminated by the Board
of Directors or until all of the shares of Company Stock reserved for issuance
under the Plan have been issued, whichever first occurs. No amendment,
suspension or termination of the Plan may, without the consent of the
Participants then holding Options to purchase Company Stock, adversely affect
the rights of such Participants under such Options.
6.4 Intent to Comply With Code Section 423. It is intended that this
Plan qualify as an "employee stock purchase plan" under Section 423 of the Code.
The provisions of this Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that Section of
the Code. In the event of an inconsistency between the Plan and Section 423 of
the Code, the Plan shall be interpreted in a manner which complies with the
requirements of Section 423 of the Code and the regulations thereunder, without
further act or amendment by the Company or the Board of Directors unless
otherwise required pursuant to Section 6.3 of this Plan.
6.5 Equal Rights and Privileges. All Participants granted Options under
this Plan shall have equal rights and privileges within the meaning of Section
423(b)(5) of the Code and the regulations thereunder.
6.6 Use of Funds. All Contributions received and held by the Employer
under this Plan may be used by the Employer for any corporate purpose and the
Employer shall not be obligated to segregate such Contributions.
6.7 Withholding. It shall be a condition to the obligation of the
Company to issue shares of Company Stock upon exercise of an Option that the
Participant (or his estate pursuant to Section 5.5(c)(ii)) pay to the Company,
upon its demand, such amount as may be requested by the Company for the purpose
of satisfying taxes, including taxes owed by the Participant due to the
disposition of Company Stock by the Participant prior to the expiration of the
holding periods described in Section 423(a) of the Code.
6.8 Effect of Plan. This Plan shall be binding upon each Participant
and his successors, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
6.9 No Employment Rights. Nothing in this Plan or in any Option granted
pursuant to the Plan shall be construed as a contract of employment between the
Employer and any employee, or as a right of any employee to continue in the
employ of the Employer, or as a limitation of the right of the Employer to
discharge any of its employees, with or without cause.
9
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6.10 Governing Law. This Plan and all rights and obligations hereunder
shall be construed in accordance with and governed by the laws of the State of
North Carolina, except to the extent such laws are preempted by the laws of the
United States.
6.11 Other Actions. Nothing contained in the Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and powers,
including, but not by way of limitation, the right of the Company to grant or
assume options for proper corporate purposes other than under the Plan with
respect to any employee or other person, firm, corporation or association.
10
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EMPLOYMENT AGREEMENT
HLM DESIGN, INC.
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by
and between HLM DESIGN, INC. (the "Company") and JOSEPH M. HARRIS, an individual
residing at 21120 Blakely Shores Drive, Cornelius, North Carolina, 28031 (the
"Employee").
In consideration of the grant of options for the purchase of 50,000
shares of the Company's capital stock and the acceptance thereof by the Employee
(the "Stock Options"), and in further consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Employee agree as
follows:
1. Employment. The Employee shall perform such duties and
responsibilities and shall serve in such capacities as may be assigned to him
from time to time by the Company's Board of Directors. The Employee agrees to
perform his duties and discharge his responsibilities, as assigned to him from
time to time, faithfully, diligently and in a timely manner.
2. Compensation. All component parts and aspects of the
Employee's compensation, including any salary, bonuses and any other form of
compensation, shall be determined by the Board of Directors from time to time,
and shall be paid to the Employee in accordance with the Company's standard
policies and procedures. The Employee shall be paid an annual base salary in an
amount no less than Three Hundred Thousand Dollars ($300,000) for each year that
he remains an employee of the Company (the Employee's "Minimum Annual Salary").
3. Benefits. The Company shall pay the Employee a monthly
automobile allowance of $2,500 per month, from which the Employee shall pay all
expenses of providing his own automobile for business purposes, including but
not limited to, fuel, maintenance, repairs, taxes and insurance. The Company
agrees to reimburse the Employee for other reasonable business expenses which
are incurred by the Employee, in compliance with the Company's policies with
respect to incurring business expenses, in the performance of his duties
hereunder. The Employee shall submit expense reports to the Company as required
by Section 274 of the Internal Revenue Code. In addition, subject to and
contingent upon the Employee meeting and complying with, and continuing to
comply with, all eligibility and participation conditions and requirements, the
Employee shall receive all hospitalization, major medical, and disability
insurance benefits, as well as all other fringe benefits provided
<PAGE>
to or made available by the Company for its employees generally, in accordance
with the terms and provisions of such insurance and benefit programs as they may
exist from time to time.
4. Term. The initial term of the Employee's employment shall
be for a period of three (3) years, which term shall commence on the effective
date of this Agreement. Thereafter, the term of the Employee's employment shall
automatically renew for successive periods of one (1) year. Each party reserves
the right to terminate the relationship for any reason upon the giving of
written notice to the other party at least six (6) months prior to the
expiration of the then applicable term of this Agreement. In the event the Board
of Directors of the Company at any time elects to not renew this Agreement or
terminates this Agreement without cause, then the Employee's termination
compensation shall include the payment by the Company to the Employee of an
amount equal to three (3) times the amount of the Employee's Minimum Annual
Salary ("Termination Compensation"), payable to the Employee in the same manner
and at the same times as he would have received payment of his regular annual
salary payments.
5. Termination for Cause. The Board of Directors of the
Company may terminate the Employee's employment hereunder immediately for cause
only for following causes:
(a) Failure of the Employee to be and remain duly and
fully licensed and qualified as a practicing architect under the
applicable laws, rules and regulations in the State of North Carolina
or in another State so as to permit the Employee to perform his duties
hereunder; or
(b) Conviction of the Employee, including a plea of
nolo contendere by the Employee, of a crime involving an act of moral
turpitude.
In the event the Board of Directors of the Company terminates the
Employee's employment for cause, ninety (90) days' advance written notice shall
be required to be given to the Employee and no Termination Compensation shall be
due or owing to the Employee. In lieu of such advance written notice, the Board
of Directors of the Company may terminate the Agreement immediately; provided,
however, in that event, the Company shall pay to the Employee an amount equal to
three (3) times the amount of the Employee's compensation then in effect as of
the date of his termination. The Employee's employment shall continue until the
effective date of termination set forth in the Company's written notice of
termination, unless terminated prior thereto by the Company as provided above.
In such event the Employee shall remain bound by the provisions of paragraphs 6
through 10 below.
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<PAGE>
6. Nonpiracy of Clients and Covenant Not to Compete.
(a) The Employee agrees that, during the term of the
Employee's employment hereunder and for a period of three (3) years
after the date of the termination of his employment hereunder for any
or no reason, the Employee will not, directly or indirectly, as an
individual or as an owner, agent, employee, independent contractor,
consultant, officer, director, stockholder or partner of any
architectural or engineering business or company, or of any
partnership, corporation, association, or any other business
organization or entity engaged in the business of providing
architectural or engineering services:
(i) sell, service, solicit, divert, take
away, or attempt to sell, service, solicit, divert or take
away the business of any person known to the Employee to be a
client of the Company and for whom the Company has provided
architectural or engineering services within three (3) years
prior to the date of the termination of the Employee's
employment; or
(ii) refer or direct to or accept for
himself or for any architectural or engineering company or
business or to or for any partnership, corporation,
association or any other business organization or entity
engaged in the business of providing architectural or
engineering services or to or for any person employed by or in
any way affiliated with any of them, any inquiries or
communications whatsoever about any business or services being
provided by the Company at the date of any such inquiry or
communication or which the Company had provided at any time
during the one (1) year period immediately prior to the date
of the termination of the Employee's employment (including,
but not limited to, any requests for bids or proposals) from
or by (a) any client of the Company during the one (1) year
period immediately prior to the date of the termination of the
Employee's employment or (b) any client which had been a
client of the Company and for which the Company had provided
services at any time during the one (1) year period
immediately prior to the date of the termination of his
employment (even though the Employee may have had a
relationship with such client or may have considered such
client to have been a potential or prospective client prior to
the date of his employment by the Company; or
(iii) lend his name to any business which
provides architectural or engineering services to persons who
were clients of the Company, or persons who were prospective
clients of the Company for whom the
- 3 -
<PAGE>
Company had prepared proposals or with whom the Company had
entered into negotiations to provide architectural or
engineering services, within the one (1) year period
immediately prior to the termination of the Employee's
employment with the Company.
(b) The Employee acknowledges that the Company's
clients are located throughout the United States and that the Company's
business in this regard is typical of the nature of the architectural
and engineering business in general. The Employee accordingly agrees
that the geographic territory or scope of the nonpiracy provisions and
restrictive covenants contained in paragraphs 6(a)(i), (ii) and (iii)
above are reasonable in that they are limited to the specific locations
(or addresses) of each of the Company's clients protected by such
nonpiracy provisions and restrictive covenants. The Employee likewise
acknowledges and agrees that the time period or duration of such
nonpiracy provisions and restrictive covenants are reasonable and that
the three (3) year period following the termination of the Employee's
employment and the three (3) year period in subparagraph 6(a)(i) and
the one (1) year period in subparagraphs 6(a)(ii) and 6(a)(iii) prior
to the date of the termination of his employment are reasonably
necessary for the Company to protect its continuing business
relationship with regard to each of its clients protected by such
nonpiracy provisions and restrictive covenants. The Employee further
acknowledges and agrees that all of the Company's clients are the sole
and exclusive property of the Company and that such nonpiracy
provisions and restrictive covenants are necessary to protect the
Company's property and its business relationships with its clients. The
Employee also acknowledges that he has sufficient training and skills
to obtain similar and comparable employment to that provided him by the
Company with another business or company and that the enforcement of
the nonpiracy provisions and restrictive covenants contained herein
against him by way of injunctive relief would not prevent him from
earning a satisfactory living.
7. Nonpiracy of Proprietary Information and Trade Secrets. The
Employee acknowledges that, during his employment, he will continue to acquire,
be exposed to, or have access to, material, data and information that constitute
valuable, confidential and proprietary information and trade secrets of the
Company, which may include, without limitation, client lists, prospect lists,
client needs, client contacts, methods of pricing, costs and sales data,
financial statements and data, Company policies and procedures, Company business
plans, processes, market studies, methods of marketing, business opportunities,
customized computer software and other aspects of the Company's business
operations. During and after the termination of his employment with the Company,
the
- 4 -
<PAGE>
Employee shall not, directly or indirectly, use, misuse, misappropriate,
disclose, divulge or make known to any architectural or engineering business or
to any partnership, corporation, association, or any other business organization
or entity engaged in the business of providing architectural or engineering
services or to any person employed by or in any way affiliated with any of them,
for any reason or purpose whatsoever, any of the Company's confidential and
proprietary information and trade secrets, except as may be permitted by the
Company in the course of the Employee's employment with the Company. In
consideration of the unique nature of the confidential and proprietary
information and trade secrets, all of the Employee's obligations pertaining to
the confidentiality and non-disclosure thereof shall remain in effect in
perpetuity or until the Company has released any such information into the
public domain, in which case the Employee's obligations hereunder shall cease
with respect only to such information so released. Provided, further, the
Employee's obligations hereunder shall cease with respect to the Company's
information relating to the identity of its clients (and their contacts, needs
and projects) protected by the nonpiracy provisions and restrictive covenants
contained in paragraphs 6(a)(i), (ii) and (iii) upon the expiration of the three
(3) year restricted period following the date of the termination of the
Employee's employment with the Company.
8. Nonpiracy of Employees. The Employee agrees that for a
period of one (1) year after the termination of his employment with the Company
he will not, either directly or indirectly, in any manner or by any guise,
recruit, solicit, divert, or take away nor attempt to recruit, solicit, divert,
or take away any employee(s) of the Company.
9. Remedies. The Employee hereby acknowledges that each and
every violation by him of the provisions of paragraphs 6, 7 and 8 hereof will
cause the Company irreparable harm and damage and agrees that the Company shall
be entitled to injunctive relief, by way of a temporary restraining order and
preliminary and permanent injunctions, to restrain the Employee from each and
every violation then occurring and from each and every future violation or
threatened violation of such provisions during the time then remaining in either
the three (3) year restricted period set forth in paragraphs 6 and 7 or the one
(1) year period set forth in paragraph 8, in addition to all other equitable and
legal remedies available to the Company against him.
10. Miscellaneous.
(a) For purposes of this Agreement, the following
terms shall be defined as follows:
- 5 -
<PAGE>
(i) The term "client" shall be defined to
mean and shall include each individual, corporation,
partnership, association, limited liability company or limited
liability partnership or any other business organization or
entity for which the Company has provided architectural or
engineering services, consultation or assistance at any time
during the term of the Employee's employment or at any time
during the three (3) year restricted period provided for in
paragraph 6 hereof.
(ii) The term "business" shall include, but
shall not be limited to, any and all kinds of architectural
and engineering services and any other services or assistance
provided by the Company to its clients at any time during the
term of Employee's employment hereunder or at any time during
the three (3) year restricted period provided for in paragraph
6 hereof.
(iii) The terms "solicit" or "soliciting" or
"solicited" or "solicitation" shall be defined to mean to
endeavor to obtain the business of a client of the Company
either by asking, requesting, persuading, imploring, courting,
importuning or wooing the client orally or in writing in any
manner whatsoever or by responding in any manner whatsoever to
any inquiry or other communication whatsoever initiated by or
on behalf of a client in any way relating to the architectural
or engineering needs of the client (including, but not limited
to, the submission of a formal bid or proposal for the
business of the client).
(iv) The term "Company," for purposes of
paragraphs 6, 7 and 8 hereof, shall be defined to mean and
include HLM Design, Inc. and any and all affiliated entities,
whether owned by, controlled by or under common control with
HLM Design, Inc., or for which HLM Design, Inc. performs
managerial and/or administrative services pursuant to a
written agreement.
(b) The Employee acknowledges that prior to or as a
part of receiving the Stock Options he was informed fully by the
Company and he understood and agreed that he would be required to enter
into this Agreement containing the nonpiracy provisions and restrictive
covenants set forth herein in consideration of and as a condition
precedent thereto. The Employee acknowledges he has executed this
Agreement freely and voluntarily and that it is fully binding and
enforceable and effective as of the effective date of the grant of the
Stock Options, even though it may have been signed by him and/or the
Company subsequent to such date.
- 6 -
<PAGE>
(c) This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina. Any
litigation under this Agreement must be brought in the State of North
Carolina notwithstanding that the Employee may not at that time be a
resident of North Carolina and cannot be served with process within the
State of North Carolina. The Employee hereby irrevocably consents to
the jurisdiction of the courts of North Carolina (whether state or
federal) over his person.
(d) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
(e) This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective representatives,
successors and assigns; provided, however, this is an Agreement for the
personal services of the Employee and these services may only be
provided by the Employee.
(f) The provisions of this Agreement shall be
separable and a determination that any provision of this Agreement is
either unenforceable or void shall not affect the validity of any other
provision of this Agreement. 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 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, or for a shorter period of time,
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.
(g) This Agreement sets forth the entire
understanding between the parties and all prior or contemporaneous
written or oral agreements with respect to the subject matter hereof
are merged herein. This Agreement cannot be amended except by a writing
signed by both parties hereto. No waiver of any term or provision shall
be deemed to be a waiver of any subsequent breach of any term or
provision hereof.
(h) All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be
deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt); or (b) when received by the addressee if sent
by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses set forth below
(or to such other
- 7 -
<PAGE>
addresses as a party may designate by notice to the other party):
Joseph M. Harris
21120 Blakely Shores Drive
Cornelius, NC 28031
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as by law provided, effective as of the day of January, 1998.
HLM DESIGN, INC.
By:
Title:_____________________________
(SEAL)
-------------------------------
JOSEPH M. HARRIS, Employee
- 8 -
<PAGE>
EMPLOYMENT AGREEMENT
HLM DESIGN, INC.
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by
and between HLM DESIGN, INC. (the "Company") and VERNON B. BRANNON, an
individual residing at 5301 Mirabell Road, Charlotte, North Carolina, 28226 (the
"Employee").
In consideration of the grant of options for the purchase of 50,000
shares of the Company's capital stock and the acceptance thereof by the Employee
(the "Stock Options"), and in further consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Employee agree as
follows:
1. Employment. The Employee shall perform such duties and
responsibilities and shall serve in such capacities as may be assigned to him
from time to time by the Company's Board of Directors. The Employee agrees to
perform his duties and discharge his responsibilities, as assigned to him from
time to time, faithfully, diligently and in a timely manner.
2. Compensation. All component parts and aspects of the
Employee's compensation, including any salary, bonuses and any other form of
compensation, shall be determined by the Board of Directors from time to time,
and shall be paid to the Employee in accordance with the Company's standard
policies and procedures. The Employee shall be paid an annual base salary in an
amount no less than Two Hundred Fifty Thousand Dollars ($250,000) for each year
that he remains an employee of the Company (the Employee's "Minimum Annual
Salary").
3. Benefits. The Company shall pay the Employee a monthly
automobile allowance of $2,500 per month, from which the Employee shall pay all
expenses of providing his own automobile for business purposes, including but
not limited to, fuel, maintenance, repairs, taxes and insurance. The Company
agrees to reimburse the Employee for other reasonable business expenses which
are incurred by the Employee, in compliance with the Company's policies with
respect to incurring business expenses, in the performance of his duties
hereunder. The Employee shall submit expense reports to the Company as required
by Section 274 of the Internal Revenue Code. In addition, subject to and
contingent upon the Employee meeting and complying with, and continuing to
comply with, all eligibility and participation conditions and requirements, the
Employee shall receive all hospitalization, major medical, and disability
insurance benefits, as well as all other fringe benefits provided
<PAGE>
to or made available by the Company for its employees generally, in accordance
with the terms and provisions of such insurance and benefit programs as they may
exist from time to time.
4. Term. The initial term of the Employee's employment shall
be for a period of three (3) years, which term shall commence on the effective
date of this Agreement. Thereafter, the term of the Employee's employment
automatically shall automatically be renewed for successive periods of one (1)
year. Each party reserves the right to terminate the relationship for any reason
upon the giving of written notice to the other party at least six (6) months
prior to the effective date of termination stated in the notice the expiration
of the then applicable term of this Agreement. In the event the Company at any
time elects not to renew this Agreement or terminates this Agreement the
relationship without cause, then the Employee's termination compensation shall
include the payment by the Company to the Employee of an amount equal to three
(3) times the amount of the Employee's Minimum Annual Salary ("Termination
Compensation"), payable to the Employee in the same manner and at the same times
as he would have received payment of his regular annual salary payments.
5. Termination for Cause. The Company may terminate the
Employee's employment hereunder immediately for cause only for the following
causes:
(a) A material breach of this Agreement arising from
the Employee's material failure to substantially perform his employment
duties and responsibilities, which determination of material breach may
be made by the Company only after the Employee has been given specific
written notice of such nonperformance and a ninety (90) day period in
which to cure or correct or commence to cure or correct such
nonperformance; or
(b) Conviction of the Employee, including a plea of
nolo contendere by the Employee, of a crime involving an act of moral
turpitude.
In the event the Company terminates the Employee's employment for
cause, ninety (90) days' advance written notice shall be required to be given to
the Employee and no Termination Compensation shall be due or owing to the
Employee. In such event the Employee shall remain bound by the provisions of
paragraphs 6 through 10 below. In lieu of such advance written notice, the Board
of Directors of the Company may terminate the Agreement immediately; provided,
however, in that event, the Company shall pay to the Employee an amount equal to
three (3) times the amount of the Employee's compensation then in effect as of
the date of his termination. The Employee's employment shall continue until the
effective date of termination set forth in the Company's written
- 2 -
<PAGE>
notice of termination, unless terminated prior thereto by the Company as
provided above.
6. Nonpiracy of Clients and Covenant Not to Compete.
(a) The Employee agrees that, during the term of the
Employee's employment hereunder and for a period of three (3) years
after the date of the termination of his employment hereunder for any
or no reason, the Employee will not, directly or indirectly, as an
individual or as an owner, agent, employee, independent contractor,
consultant, officer, director, stockholder or partner of any
architectural or engineering business or company, or of any
partnership, corporation, association, or any other business
organization or entity engaged in the business of providing
architectural or engineering services:
(i) sell, service, solicit, divert, take
away, or attempt to sell, service, solicit, divert or take
away the business of any person known to the Employee to be a
client of the Company and for whom the Company has provided
architectural or engineering services within three (3) years
prior to the date of the termination of the Employee's
employment; or
(ii) refer or direct to or accept for
himself or for any architectural or engineering company or
business or to or for any partnership, corporation,
association or any other business organization or entity
engaged in the business of providing architectural or
engineering services or to or for any person employed by or in
any way affiliated with any of them, any inquiries or
communications whatsoever about any business or services being
provided by the Company at the date of any such inquiry or
communication or which the Company had provided at any time
during the one (1) year period immediately prior to the date
of the termination of the Employee's employment (including,
but not limited to, any requests for bids or proposals) from
or by (a) any client of the Company during the one (1) year
period immediately prior to the date of the termination of the
Employee's employment or (b) any client which had been a
client of the Company and for which the Company had provided
services at any time during the one (1) year period
immediately prior to the date of the termination of his
employment (even though the Employee may have had a
relationship with such client or may have considered such
client to have been a potential or prospective client prior to
the date of his employment by the Company.
- 3 -
<PAGE>
(b) The Employee acknowledges that the Company's
clients are located throughout the United States and that the Company's
business in this regard is typical of the nature of the architectural
and engineering business in general. The Employee accordingly agrees
that the geographic territory or scope of the nonpiracy provisions and
restrictive covenants contained in paragraphs 6(a)(i) and (ii) above
are reasonable in that they are limited to the specific locations (or
addresses) of each of the Company's clients protected by such nonpiracy
provisions and restrictive covenants. The Employee likewise
acknowledges and agrees that the time period or duration of such
nonpiracy provisions and restrictive covenants are reasonable and that
the three (3) year period following the termination of the Employee's
employment and the three (3) year period in subparagraph 6(a)(i) and
the one (1) year period in subparagraph 6(a)(ii) prior to the date of
the termination of his employment are reasonably necessary for the
Company to protect its continuing business relationship with regard to
each of its clients protected by such nonpiracy provisions and
restrictive covenants. The Employee further acknowledges and agrees
that all of the Company's clients are the sole and exclusive property
of the Company and that such nonpiracy provisions and restrictive
covenants are necessary to protect the Company's property and its
business relationships with its clients. The Employee also acknowledges
that he has sufficient training and skills to obtain similar and
comparable employment to that provided him by the Company with another
business or company and that the enforcement of the nonpiracy
provisions and restrictive covenants contained herein against him by
way of injunctive relief would not prevent him from earning a
satisfactory living.
7. Nonpiracy of Proprietary Information and Trade Secrets. The
Employee acknowledges that, during his employment, he will continue to acquire,
be exposed to, or have access to, material, data and information that constitute
valuable, confidential and proprietary information and trade secrets of the
Company, which may include, without limitation, client lists, prospect lists,
client needs, client contacts, methods of pricing, costs and sales data,
financial statements and data, Company policies and procedures, Company business
plans, processes, market studies, methods of marketing, business opportunities,
customized computer software and other aspects of the Company's business
operations. During and after the termination of his employment with the Company,
the Employee shall not, directly or indirectly, use, misuse, misappropriate,
disclose, divulge or make known to any architectural or engineering business or
to any partnership, corporation, association, or any other business organization
or entity engaged in the business of providing architectural or engineering
services or to any person employed by or in any way
- 4 -
<PAGE>
affiliated with any of them, for any reason or purpose whatsoever, any of the
Company's confidential and proprietary information and trade secrets, except as
may be permitted by the Company in the course of the Employee's employment with
the Company. In consideration of the unique nature of the confidential and
proprietary information and trade secrets, all of the Employee's obligations
pertaining to the confidentiality and non-disclosure thereof shall remain in
effect in perpetuity or until the Company has released any such information into
the public domain, in which case the Employee's obligations hereunder shall
cease with respect only to such information so released. Provided, further, the
Employee's obligations hereunder shall cease with respect to the Company's
information relating to the identity of its clients (and their contacts, needs
and projects) protected by the nonpiracy provisions and restrictive covenants
contained in paragraphs 6(a)(i), (ii) and (iii) upon the expiration of the three
(3) year restricted period following the date of the termination of the
Employee's employment with the Company.
8. Nonpiracy of Employees. The Employee agrees that for a
period of one (1) year after the termination of his employment with the Company
he will not, either directly or indirectly, in any manner or by any guise,
recruit, solicit, divert, or take away nor attempt to recruit, solicit, divert,
or take away any employee(s) of the Company.
9. Remedies. The Employee hereby acknowledges that each and
every violation by him of the provisions of paragraphs 6, 7 and 8 hereof will
cause the Company irreparable harm and damage and agrees that the Company shall
be entitled to injunctive relief, by way of a temporary restraining order and
preliminary and permanent injunctions, to restrain the Employee from each and
every violation then occurring and from each and every future violation or
threatened violation of such provisions during the time then remaining in either
the three (3) year restricted period set forth in paragraphs 6 and 7 or the one
(1) year period set forth in paragraph 8, in addition to all other equitable and
legal remedies available to the Company against him.
10. Miscellaneous.
(a) For purposes of this Agreement, the following
terms shall be defined as follows:
(i) The term "client" shall be defined to
mean and shall include each individual, corporation,
partnership, association, limited liability company or limited
liability partnership or any other business organization or
entity for which the Company has provided architectural or
engineering services, consultation or assistance at any time
during the term of the Employee's
- 5 -
<PAGE>
employment or at any time during the three (3) year restricted
period provided for in paragraph 6 hereof.
(ii) The term "business" shall include, but
shall not be limited to, any and all kinds of architectural
and engineering services and any other services or assistance
provided by the Company to its clients at any time during the
term of Employee's employment hereunder or at any time during
the three (3) year restricted period provided for in paragraph
6 hereof.
(iii) The terms "solicit" or "soliciting" or
"solicited" or "solicitation" shall be defined to mean to
endeavor to obtain the business of a client of the Company
either by asking, requesting, persuading, imploring, courting,
importuning or wooing the client orally or in writing in any
manner whatsoever or by responding in any manner whatsoever to
any inquiry or other communication whatsoever initiated by or
on behalf of a client in any way relating to the architectural
or engineering needs of the client (including, but not limited
to, the submission of a formal bid or proposal for the
business of the client).
(iv) The term "Company," for purposes of
paragraphs 6, 7 and 8 hereof, shall be defined to mean and
include HLM Design, Inc. and any and all affiliated entities,
whether owned by, controlled by or under common control with
HLM Design, Inc., or for which HLM Design, Inc. performs
managerial and/or administrative services pursuant to a
written agreement.
(b) The Employee acknowledges that prior to or as a
part of receiving the Stock Options he was informed fully by the
Company and he understood and agreed that he would be required to enter
into this Agreement containing the nonpiracy provisions and restrictive
covenants set forth herein in consideration of and as a condition
precedent thereto. The Employee acknowledges he has executed this
Agreement freely and voluntarily and that it is fully binding and
enforceable and effective as of the effective date of the grant of the
Stock Options, even though it may have been signed by him and/or the
Company subsequent to such date.
(c) This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina. Any
litigation under this Agreement must be brought in the State of North
Carolina notwithstanding that the Employee may not at that time be a
resident of North Carolina and cannot be served with process within the
State of North Carolina. The Employee
- 6 -
<PAGE>
hereby irrevocably consents to the jurisdiction of the courts of North
Carolina (whether state or federal) over his person.
(d) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
(e) This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective representatives,
successors and assigns; provided, however, this is an Agreement for the
personal services of the Employee and these services may only be
provided by the Employee.
(f) The provisions of this Agreement shall be
separable and a determination that any provision of this Agreement is
either unenforceable or void shall not affect the validity of any other
provision of this Agreement. 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 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, or for a shorter period of time,
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.
(g) This Agreement sets forth the entire
understanding between the parties and all prior or contemporaneous
written or oral agreements with respect to the subject matter hereof
are merged herein. This Agreement cannot be amended except by a writing
signed by both parties hereto. No waiver of any term or provision shall
be deemed to be a waiver of any subsequent breach of any term or
provision hereof.
(h) All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be
deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt); or (b) when received by the addressee if sent
by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses set forth below
(or to such other addresses as a party may designate by notice to the
other party):
Vernon B. Brannon
5301 Mirabell Road
Charlotte, NC 28226
- 7 -
<PAGE>
HLM Design, Inc.
Suite 2950
121 West Trade Street
Charlotte, NC 28202
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as by law provided, effective as of the day of January, 1998.
HLM DESIGN, INC.
By:
Title:____________________________
(SEAL)
---------------------------------
VERNON B. BRANNON, Employee
- 8 -
<PAGE>
February 17, 1995
Mr. Joseph M. Harris
Mr. Vernon B. Brannon
Hansen Lind Meyer, Inc.
Drawer 310
Plaza Centre One
Iowa City, IA 52244-0310
Re: Engagement
----------
Gentlemen:
This letter is to confirm our understanding that Hansen Lind Meyer, Inc. (the
"Company") has engaged Blalock and Company as the Company's financial advisor
(the "Engagement") in connection with the evaluation and structuring of any one
or more potential transactions, including but not limited to a financing or
financings through the issuance or debt and/or equity, a merger, divestiture or
acquisition, or a joint venture (such a potential transaction being referred to
herein as a "Transaction"). The structuring, negotiating and placing of any
Transaction will be on a best efforts basin.
Blalock and Company's services in connection with any Transaction will include
assisting the Company, to the extent the Company so requests, in: (1) the
preparation and distribution of a summary of materials describing the Company
and, if appropriate, the terms of a proposed Transaction, (2) contacting
potential financing sources, (3) coordinating the due diligence efforts of
potential financing sources, (4) assisting the Company during negotiation of the
financial terms of any Transaction and (5) assisting, where appropriate, in
expediting the documentation for the closing of any Transaction. We understand
that the Company reserves the right to reject any Transaction it deems
unsuitable.
The Company agrees to reimburse Blalock and Company promptly upon request, for
all reasonable, actual out-of-pocket expenses incurred by Blalock and Company
pursuant to its Engagement hereunder. Such reimbursable expenses shall include,
but not be limited to, transportation, lodging, copying and printing costs and
applicable professional fees (including, if necessary, legal, accounting,
auditing, environmental and appraisal services) incurred in connection with the
structuring, presentation to potential financing sources, and closing of any
Transaction. If possible, any necessary transportation and lodging arrangements
shall be made through the Company. Blalock and Company hereby agrees to work
with the Company to establish a reasonable monthly cap on the amount of
reimbursable out-of-pocket expenses.
As compensation for the services to be provided hereunder, the Company agrees to
pay Blalock and Company an initial, non-refundable retainer fee in the amount of
$15,000 upon the execution of this letter agreement, and for an eleven (11)
month period thereafter, additional equal monthly installments of $15,000.
<PAGE>
Messrs. Harris and Brannon
Hansen Lind Meyer, Inc.
Engagement
February 17, 1995
Page 2
In addition to these up-front and on-going retainers, Blalock and Company would
receive at the closing of a Transaction a fee (the "Fee") equal to 10% of the
gross value of the proceeds of any financing provided by sources contacted on
the Company's behalf by Blalock and Company.
The term of the Engagement shall be for a period of twelve months from the date
of this letter agreement, unless extended by mutual consent of Blalock and
Company and the Company. Notwithstanding the expiration of the Engagement, the
expense reimbursement provisions contained herein and the indemnification and
contribution provisions set forth on Schedule I attached hereto and incorporated
herein shall survive and remain in full force and effect. Blalock and Company
will be entitled to the entire FEE referred to above if a transaction of the
type contemplated by this letter agreement is consummated, directly or
indirectly, with a party or parties contacted by Blalock and Company on the
Company's behalf, the Fee being payable upon consummation of such transaction.
In connection with Blalock and Company services, the Company will furnish or
cause to be furnished to Blalock and Company such information and data
(hereinafter referred to as the "Information") relating to the Company and such
access to the Company's officers, directors and employees and independent
contractors, as Blalock and Company deems necessary or as Blalock and Company
reasonably requests. The Company will be solely responsible for the contents of
any and all written or oral communications provided to any prospective financing
source, all of which shall be subject to the approval of the Company. The
Company represents and warrants that any such communications and all
Information, including, but not limited to, financial information, will be
complete and correct in all material respects and will not contain any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in light of the circumstance
under which such statements are or will be made. The Company recognizes and
confirms that in Blalock and Company's performance of its services hereunder,
(a) Blalock and Company may rely upon the accuracy and completeness of the
Information without independent verification and (b) Blalock and Company does
not assume responsibility for the accuracy or completeness thereof whether or
not it makes an independent verification.
Any Information obtained by Blalock and Company pursuant to the Engagement may
not be disclosed publicly in any manner without the Company's prior approval and
will be treated by Blalock and Company as confidential.
As Blalock and Company is acting on behalf of the Company, it is Blalock and
Company's practice to receive indemnification. A copy of such indemnification
(and contribution) provisions are set forth in Schedule I annexed hereto, which
provisions are incorporated by reference herein
<PAGE>
Messrs. Harris and Brannon
Hansen Lind Meyer, Inc.
Engagement
February 17, 1995
Page 3
and made a part hereof. The Company hereby irrevocably agrees to provide such
indemnification as set forth in Schedule I to Blalock and Company and the other
parties specified therein.
This letter agreement shall be governed by, and construed in accordance with,
the laws or the State of North Carolina without regard to principles of conflict
of laws.
This letter agreement may be executed in counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
instrument.
This letter agreement has been and is made solely for the benefit of the Company
and Blalock and Company and its agents, employees, officers, directors,
stockholders and controlling persons and their respective successors and assigns
and heirs, and no other person shall acquire or have any right under or by
virtue of this letter agreement.
Please confirm that the foregoing accurately reflects our understanding by
signing and returning to us the attached copy of this letter agreement,
whereupon this will become a binding agreement between us.
We are enthusiastic about the prospect of working with you towards the
successful completion of a Transaction.
Very truly yours,
BLALOCK AND COMPANY
/s/ William J. Blalock
----------------------
William J. Blalock
Agreed and Accepted as of
the date written above:
HANSEN LIND MEYER
By: /s/ Joseph M. Harris
----------------------
Name: Joseph M. Harris
------------------
Title: President
--------------
cc: Alan S. Hicks, Esq.
<PAGE>
Messrs. Harris and Brannon
Hansen Lind Meyer, Inc.
Engagement
February 17, 1995
Page 4
<PAGE>
SCHEDULE I
TO ENGAGEMENT LETTER
DATED FEBRUARY 17, 1995
BETWEEN BLALOCK AND COMPANY
AND HANSEN LIND MEYER, INC.
(a) The Company agrees to indemnify and hold Blalock and Company, its
affiliates and any affiliated entities of Blalock and Company and their
respective officers, directors, partners, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act of 1934 (Blalock and Company and each
such entity and person being hereinafter called an "Indemnified Person")
harmless from and against any and all claims, liabilities, losses, damages,
costs and expenses incurred (including fees and disbursements of counsel) by
them which are (A) caused by, related to or arise out of (i) actions taken or
omitted to be taken (including any untrue statements made or any statements
omitted to be made) by the Company or (ii) actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
an Indemnified Person with the Company's consent or in conformity with actions
taken or omitted to be taken by the Company or (B) otherwise related to or
arising out of Blalock and Company's activities performed pursuant to the
accompanying letter agreement (including, without limitation, its role as
financial advisor and agent), the transactions contemplated by the accompanying
letter agreement or Blalock & Company's role in connection therewith. The
Company will not, however, be responsible for any such claims, liabilities,
losses, damages, costs or expenses pursuant to clause (B) of the preceding
sentence which have been finally determined by a court of competent jurisdiction
to have primarily and directly resulted from willful misconduct or gross
negligence on the part of the Indemnified Person seeking indemnification
hereunder.
(b) Notwithstanding anything expressed or implied herein to the
contrary, the indemnity provided for herein shall cover the amount of any
settlements entered into by an Indemnified Person in connection with any claim
for which an Indemnified Person may be indemnified hereunder; provided, however,
that an Indemnified Person shall not enter into any such settlement unless the
Company has consented thereto (which consent shall not be unreasonably
withheld). No settlement binding on an Indemnified Person may be made without
the consent of an Indemnified Person (which consent shall not be unreasonably
withheld).
(c) The Company and Blalock and Company agree that if any
indemnification sought by an Indemnified Person pursuant to this paragraph is
held by a court to be unavailable for any reason other than that specified in
the second sentence of paragraph (a) above, then (whether or not Blalock and
Company is the Indemnified Person), in order to provide just and equitable
contribution, the Company and Blalock and Company shall contribute to the
claims, liabilities, losses, damages, costs and expenses for which such
indemnification is held unavailable in such proportion as is appropriate to
reflect the relative benefits of the Company, on the one hand, and Blalock and
Company on the other hand, in connection with the transaction or transactions
contemplated by the accompanying letter agreement, and also relative fault of
the Company, on the one hand, and Blalock and company, on the other hand,
subject to the limitation that in any event Blalock and Company aggregate
contribution to all claims, liabilities, losses, damages, costs and expenses
with respect to which contribution is available hereunder shall not exceed the
<PAGE>
SCHEDULE I
TO ENGAGEMENT LETTER
DATED FEBRUARY 17, 1995
BETWEEN BLALOCK AND COMPANY
AND HANSEN LIND MEYER, INC.
PAGE 2
amount of fees (but not expenses) actually received by Blalock and Company
pursuant to the accompanying letter agreement. No person found liable for a
fraudulent misrepresentation shall be entitled to contribution from any person
who is not also found liable for such fraudulent misrepresentation.
You also agree that no Indemnified Person shall have any liability (whether
direct or indirect in contract or tort or otherwise) to the Company for or in
connection with the accompanying letter agreement, the transactions contemplated
hereby or Blalock and Company's role in connection therewith, except for any
such liability for losses, claims, damages, liabilities or expenses incurred by
the Company that are determined by final judgment or a court of competent
jurisdiction to have resulted primarily from actions taken or omitted to be
taken by such Indemnified Person from willful misconduct or gross negligence.
The provisions in this Schedule I shall remain operative and in full force and
effect regardless of the termination or expiration of the Engagement pursuant to
the accompanying letter agreement.
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -------------------- --------------- -------------- -------------- --------- ------------- ------------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,000,000.00 05-30-1997 05-30-1998 004A 905 GRS
- -------------------- --------------- -------------- -------------- --------- ------------- ------------------- ---------- ---------
References in the shaded area are for Lender's use only and do not
limit the applicability of this document to any particular loan or
item.
- -----------------------------------------------------------------------------------------------------------------------------------
Borrower: HLM DESIGN, INC. (TIN 562018819) Lender: FIRST CHARTER NATIONAL BANK
121 WEST TRADE STREET, SUITE 2950 COMMERCIAL
CHARLOTTE, NC 28202 P.O. BOX 228
CONCORD, NC 28026-0228
- -----------------------------------------------------------------------------------------------------------------------------------
Principal Amount: $1,000,000.00 Initial Rate: 10.000% Date of Note: May 30, 1997
</TABLE>
PROMISE TO PAY. HLM DESIGN, INC. ("Borrower") promises to pay to FIRST CHARTER
NATIONAL BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00) or
so much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on May 30, 1998. In addition, Borrower will pay
regular monthly payments of accrued unpaid interest beginning July 1, 1997, and
all subsequent interest payments are due on the same day of each month after
that. Interest on this Note is computed on a 365/360 simple interest basis; that
is, by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Prime Rate as
published in the Wall Street Journal. When a range of rates has been published,
the higher of the rates will be used (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 8.500% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.500
PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 10.000% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owned earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to make
payments of accrued unpaid interest. Rather, they will reduce the principal
balance due.
LATE CHARGE. If a payment is 15 DAYS OR MORE LATE, Borrower will be charged
4.000% OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender, after Borrower shall have received written notice of such
default and not cured such default within thirty (30) days. (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (d) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This include a garnishment of any of Borrower's accounts with Lender.
(f) Any guarantor dies and a suitable replacement is not approved by Lender
within ninety (90) days or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (g) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (h) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's reasonable attorney's fees and Lender's legal expenses whether or not
there is a lawsuit, including reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF NORTH CAROLINA, OF THERE IS A
LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF
THE COURTS OF CABARRUS COUNTY, THE STATE OF NORTH CAROLINA. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender whether checking, savings, or some other account), including without
limitation ll accounts Borrower may open in the future, excluding however all
IRA and Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorized Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts, and, at Lender's option, to administratively
freeze all such accounts to allow Lender to protect Lender's charge and setoff
rights provided on this paragraph.
COLLATERAL. This Note is secured by Secured by unconditional guaranty from
Hansen, Lind, Meyer, Inc. which is secured by a security agreement on all
accounts receivable of Hansen Lind Meyer, Inc. Personal guaranties of William J.
Blalock, Joseph M. Harris, Vernon B. Brannon.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
HLM DESIGN, INC..
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By:/s/ JOSEPH M. HARRIS (SEAL) By:/s/ KAREN A.KAPLAN (SEAL)
-------------------------------------- --------------------------------
JOSEPH M. HARRIS, PRESIDENT Asst. Secretary
<PAGE>
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
We consent to the use in this Amendment No. 1 to the 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 Amendment No. 1 to the Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
January 21, 1998
<PAGE>
