<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-40617
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 JUNE 5, 1998
PROSPECTUS
1,200,000 SHARES
(HLM logo appears here with the following information: HLM Design.)
COMMON STOCK
------------------------
All of the 1,200,000 shares (the "Shares") of common stock, par value $.001
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 $6.00 and $7.50 per share. See "Underwriting" for information relating
to factors to be considered in determining the initial public offering price.
HLM Design has been approved for quotation of the Common Stock on the
Nasdaq SmallCap Market under the symbol "HLMD."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS. THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION.
------------------------
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.
------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT (1) COMPANY(2)
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 $558,280.
(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 180,000
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 SECURITIES CORPORATION
------------------------
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."
<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 EFFECT TO AN
EFFECTIVE 12.75-TO-1 STOCK SPLIT (EFFECTED IN A SERIES OF TRANSACTIONS) OF HLM
DESIGN'S COMMON STOCK TO BE COMPLETED PRIOR TO THE CONSUMMATION OF THE OFFERING
(THE "STOCK SPLIT"), (B) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
NOT EXERCISED, AND (C) GIVES EFFECT TO THE EXERCISE OF THE WARRANTS, INCLUDING
THE WARRANTS HELD BY PACIFIC (AS DEFINED HEREIN) TO BE EXERCISED IMMEDIATELY
PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART. SEE "DESCRIPTION OF CAPITAL STOCK -- WARRANTS" AND
"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. is a management company that enters into management and
services relationships with full service AEP Firms. It 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 in order 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 conducted by AEP Firms requiring operating and cost
efficiencies, and (2) AEP Firms' 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.
3
<PAGE>
HLM Design's principal executive office is located at 121 West Trade
Street, Suite 2950, Charlotte, North Carolina and its telephone number is (704)
358-0779.
OPERATING STRATEGY
The Company provides, primarily through HLMI, a complement of
architectural, engineering and planning services to a variety of clients in
several industries. These services include, in addition to the provision of
architectural and engineering services, all phases of a construction project
starting with assistance in the funding process, development of a master plan,
and construction oversight. 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 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. Management believes it is 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 its growth strategy 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:
(Bullet) 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;
(Bullet) 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;
4
<PAGE>
(Bullet) 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;
(Bullet) 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 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;
(Bullet) 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 or 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;
(Bullet) 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;
(Bullet) The Company's success depends to a significant degree upon the
continued contributions of Messrs. Harris and Brannon; and
(Bullet) There is no existing market for the Common Stock and no assurance
can be given that one will develop following the Offering.
PROSPECTIVE INVESTORS SHOULD ALSO BE AWARE THAT AS OF THE DATE HEREOF, HLM
DESIGN HAS ENTERED INTO MANAGEMENT AND SERVICES AGREEMENTS ONLY 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.................... 1,200,000 shares (1)
Common Stock to be outstanding after the Offering..... 2,075,087 shares (1)(2)(3)
Total............................................ 2,075,087 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 entering
into new Management and Services Agreements. See "Use of Proceeds."
Trading............................................... The Company has been approved for quotation of the Common Stock on
the Nasdaq SmallCap Market ("Nasdaq"), under the symbol "HLMD."
</TABLE>
- ---------------
(1) Does not include up to an aggregate of 180,000 shares that may be sold by
HLM Design upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
(2) Excludes (i) 159,955 shares of Common Stock reserved for future issuance
under HLM Design's Stock Option Plan (as defined herein), including options
to purchase an aggregate of 115,908 shares of Common Stock that have been
granted and are currently effective or will become effective immediately
before the completion of the Offering, and (ii) up to 57,954 shares of
Common Stock reserved for future issuance under HLM Design's ESPP (as
defined herein).
(3) Gives effect to the Stock Split.
All broker-dealers effecting transactions in the Common Stock in the State
of Oklahoma must comply with the requirements of Section 660: 10-9-31 of the
Rules of the Oklahoma Securities Commission and the Administrator of the
Department of Securities to deliver a prospectus prior to or concurrently with
any transaction in the Common Stock until 90 days after the effective date of
the registration of the Common Stock in Oklahoma.
California investors are subject to certain investor suitability standards.
See "Underwriting."
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 nine months ended January 24, 1997 are derived from the unaudited
financial statements of HLMI, which are included elsewhere in this Prospectus.
The selected financial data for the nine months ended January 30, 1998 are
derived from the unaudited combined financial statements of HLM Design and, for
the eight months ended January 30, 1998, of 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.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1)
-----------------------------------------------------------------------
NINE
FOR THE YEAR ENDED MONTHS ONE MONTH
----------------------------------------- ENDED ENDED
APRIL 30, APRIL 26, APRIL 25, JANUARY 24, MAY 30,
1995 1996 1997 1997 1997
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenue........................................ $29,122,557 $28,554,424 $26,754,710 $19,442,280 $2,233,036
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Direct cost of revenue......................... 15,685,671 14,261,952 13,376,251 9,917,627 898,979
Operating costs................................ 14,098,729 13,104,278 12,414,739 9,359,733 1,163,141
ESOP expenses.................................. 573,837 584,202 408,765 406,652
Amortization on intangible assets.............. 5,952 99,145 107,670 81,807 9,571
----------- ----------- ----------- ----------- -----------
Total costs and expenses....................... 30,364,189 28,049,577 26,307,425 19,765,819 2,071,691
----------- ----------- ----------- ----------- -----------
Income (loss) from operations.................. (1,241,632) 504,847 447,285 (323,539) 161,345
----------- ----------- ----------- ----------- -----------
Other income (expense):
Net interest................................... (142,744) (383,552) (396,007) (280,027) (36,951)
Non-operating income........................... 428,475 850,273 285,635
----------- ----------- ----------- ----------- -----------
Total other income (expense)............... 285,731 466,721 (110,372) (280,027) (36,951)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes.............. (955,901) 971,568 336,913 (603,566) 124,394
Income tax expense (benefit)................... (360,080) 435,459 219,799 (143,517) 43,000
----------- ----------- ----------- ----------- -----------
Net income (loss) (3).......................... $ (595,821) $ 536,109 $ 117,114 $ (460,049) $ 81,394
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Working capital(deficiency).................... $(1,029,547) $(1,620,488) $(1,902,363) $ (686,632) $(2,238,531)
Total assets................................... 10,519,859 12,577,992 12,874,503 13,402,269 17,639,673
Long-term debt................................. 840,302 564,577 103,792 769,742 2,476,008
Total liabilities.............................. 10,690,072 11,819,796 11,670,962 12,803,938 16,354,738
Warrants outstanding (4).......................
Stockholders' equity (deficiency) (5).......... (170,213) 758,196 1,203,541 598,331 1,284,935
<CAPTION>
HLM DESIGN
(COMBINED)
NINE
MONTHS
ENDED
JANUARY 30,
1998 (2)
-----------
INCOME STATEMENT DATA:
<S> <C>
Revenue........................................ $21,543,416
-----------
Costs and Expenses:
Direct cost of revenue......................... 9,979,581
Operating costs................................ 9,629,991
ESOP expenses..................................
Amortization on intangible assets.............. 114,549
-----------
Total costs and expenses....................... 19,724,121
-----------
Income (loss) from operations.................. 1,819,295
-----------
Other income (expense):
Net interest................................... (748,621)
Non-operating income...........................
-----------
Total other income (expense)............... (748,621)
-----------
Income (Loss) Before Income Taxes.............. 1,070,674
Income tax expense (benefit)................... 514,063
-----------
Net income (loss) (3).......................... $ 556,611
===========
BALANCE SHEET DATA:
Working capital(deficiency).................... $ (432,870)
Total assets................................... 18,043,555
Long-term debt................................. 4,357,057
Total liabilities.............................. 17,194,658
Warrants outstanding (4)....................... 200,068
Stockholders' equity (deficiency) (5).......... 648,829
</TABLE>
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(1) The "Predecessor Company" is HLMI.
(2) Includes information for HLM Design and for the Managed Firms for the eight
months from May 31, 1997 to January 30, 1998 on a combined basis. HLM
Design's operations for the month ended May 30, 1997 reflected herein
include no revenues or expenses.
(3) Historical net income per share is not presented, as the historical capital
structure prior to the Offering is not comparable with the capital structure
of the Company that will exist after the Offering.
(4) Reflects Warrants held by Pacific and Equitas as of January 30, 1998.
Equitas exercised its Warrants in February 1998 and Pacific has undertaken
that it will exercise its Warrants immediately prior to the effective date
of the Registration Statement of which this Prospectus is a part.
(5) Neither HLM Design nor the Predecessor Company has paid cash dividends from
May 1, 1994 to January 30, 1998.
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. Messrs. Harris and Brannon and Berthel
Fisher & Company Leasing, Inc. ("Berthel Leasing") have, however, agreed to
escrow Common Stock owned by each of them pursuant to the requirements of the
various state securities commissions. For a description of restrictions on
current stockholders' 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 have entered into Employment Agreements with HLM Design
whereby each will receive compensation and other benefits as well as options to
purchase 57,954 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 (for whom, as indicated below, HLM Design will also
provide required financing). Currently, HLM Design has Management and Services
Agreements with three firms, only one (HLMI) of which had active operations at
January 30, 1998. 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.
UNCERTAINTIES CONCERNING ABILITY TO RECEIVE PAYMENTS FROM MANAGED FIRMS
HLM Design earns, for services provided to the Managed Firms, 99% of the
net income of the Managed Firms as determined in accordance with generally
accepted accounting principles. However, for cash management purposes, HLM
Design is to receive 99% of the positive cash flows of the Managed Firms
(calculated for any period as the change in the cash balances from the beginning
of the period to the end of the period). HLM Design's ability actually to
receive payments in respect thereof during the period will be subject to the
cash requirements of the Managed Firms for the period. Through January 30, 1998,
HLM Design had earned aggregate management fees under Management and Services
Agreements with
7
<PAGE>
Managed Firms of $1,034,008 since its inception in March 1997. As of January 30,
1998, $450 in management fees had actually been paid by the Managed Firms to HLM
Design and $1,033,558 continued to be carried by HLM Design as an account
receivable. Such receivable balance is to be paid with future positive cash
flows. To the extent, however, the cash requirements of the Managed Firms
continue to exceed 1% of positive cash flows, HLM Design will be unable to
receive payments against such receivable and such payments will continue to be
delayed. HLM Design's ability to pay dividends on the Common Stock will depend
on the ability of HLM Design to collect such receivables.
UNCERTAINTIES CONCERNING ADDITIONAL FINANCINGS AND COMPANY'S ABILITY TO OBTAIN
NEW LINE OF CREDIT
HLM Design's operating and growth strategies require substantial capital
resources, particularly since HLM Design, as the management company, will be
responsible for the financing of working capital growth, capital growth and
other cash needs of the Managed Firms. See "Business -- HLM Design
Operating -- Management and Services Agreements." These requirements will result
in HLM Design incurring long-term 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. As
further discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources," HLM
Design has already incurred borrowings under its existing revolving line of
credit equal to the full amount of its borrowing capacity thereunder.
Furthermore, such line of credit, as extended, matures as of July 30, 1998,
unless it is renewed by the lender. Although HLM Design has received both verbal
and written indications of the willingness of the lender to renew and increase
HLM Design's line of credit following a successful completion of this Offering,
the lender has not entered into any commitment to do so. If HLM Design is unable
to obtain a new revolving line of credit following the Offering, its ability to
implement its growth strategy will be adversely affected.
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 no assurance that such
financings will not cause dilution in the book value per share of the Common
Stock.
EFFECT OF BANKRUPTCY
AEP Firms that have entered into Management and Services Agreements with
HLM Design have the right to terminate such agreements upon the filing by HLM
Design of a petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or upon other action taken voluntarily or involuntarily under any
federal or state law for the benefit of debtors. Because the substantial
majority of the assets of the Company are owned by the Managed Firms, if such
agreements are terminated, HLM Design would proceed through bankruptcy without
any meaningful assets. In such circumstances, it is likely that no significant
assets would be available for distribution to stockholders upon a liquidation.
GOVERNMENT REGULATION
The architectural and engineering industries are regulated at the state
level. The Company believes its operations are in material compliance with
applicable law. Nevertheless, because of the unique structure of the
relationships between HLM Design and its Managed Firms, many aspects of these
relationships have not been the subject of prior regulatory interpretation. The
Company has not discussed its structure with or received approvals from any
regulatory authorities, and is unaware of its business being reviewed by any
such regulatory authorities. 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 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. As of the date hereof, the Company has not determined which
jurisdictions would require structural or organizational modifications of HLM
Design's relationships with the Managed Firms. Although the Company believes its
operations are in material compliance with existing applicable law, there can be
no assurance that the Company's existing Management and Services Agreements
could not be successfully challenged as, for example, constituting the
unlicensed practice of architecture, or that the enforceability of the
provisions thereof, including non-disclosure agreements therein, will not be
limited.
8
<PAGE>
DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES
The Company's success depends to a significant degree upon the continued
contributions of its management team (particularly its senior management) and
professional personnel. The loss of the services of one or more of these key
employees could have a material adverse effect on the Company. The Company
carries key employee insurance on each of Joseph M. Harris (and has agreed with
the Underwriters to maintain such coverage) 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 key 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 agreements or, in some
cases, refuse to enforce any provisions thereof. If courts refuse to enforce the
noncompetition agreements of HLM Design or the Managed Firms, such refusals
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 and the professionals employed by its Managed Firms. Successful
malpractice claims asserted against the Managed Firms, their employees or HLM
Design could have an adverse effect on the Company's profitability.
DEPENDENCE ON MANAGED FIRMS
HLM Design's revenues depend on fees and revenues generated by various AEP
Firms managed by HLM Design. Any material loss of revenue by such firms, whether
as a result of the loss of professionals or otherwise, could have a material
adverse effect on HLM Design. HLM Design 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
9
<PAGE>
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, unless
otherwise prescribed by law or its Certificate of Incorporation, may be called
only by the President 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 has been approved for quotation of its Common Stock on the
Nasdaq SmallCap Market. 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.
POSSIBLE INABILITY TO MEET CONTINUED NASDAQ SMALLCAP LISTING REQUIREMENTS
While the Company has been approved for Nasdaq SmallCap listing and expects
its Common Stock to be initially included on the Nasdaq SmallCap, there can be
no assurance that the Company will at all times meet the criteria for continued
listing. If the Company is unable to satisfy the Nasdaq SmallCap's maintenance
requirements, its Common Stock may be delisted from the Nasdaq SmallCap. In
addition, Nasdaq has the right to review and reverse a decision to list a
security on the Nasdaq SmallCap Market before or after the completion of an
offering. In the event of any such delisting, trading, if any, in the Common
Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink-sheets" or the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. ("NASD") and it could be more difficult
to obtain quotations of the market price of the Company's Common Stock.
Consequently, the liquidity of the Company's Common Stock could be impaired, not
only in the number of securities which could be bought and sold, but also
through delays in the timing of transactions, reduction in security analysts'
and the news media's coverage of the Company. The Company expects to meet the
Nasdaq SmallCap continued listing requirements immediately following this
Offering.
POTENTIAL ADVERSE EFFECTS OF DELISTING; "PENNY STOCK" RULES
If the Company's Common Stock were delisted from the Nasdaq SmallCap, it
could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers that sell such Common
Stock to persons other than established customers and "accredited investors"
(generally, individuals with a net worth in excess of $1,000,000 or annual
incomes exceeding $200,000 or $300,000 together with their spouses), among
others. For transactions covered by such a rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently such
rule may adversely affect the ability of broker-dealers to sell the Company's
Common Stock and may adversely affect the ability of purchasers in the Offering
to sell in the secondary market any of the Common Stock acquired.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule relating to the penny stock market. Disclosure is also
required to be made about commissions
10
<PAGE>
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's Common Stock if the Common Stock is listed on the Nasdaq SmallCap and
has certain price and volume information provided on a current and continuing
basis or meets certain minimum net tangible assets or average revenue criteria.
There can be no assurance that the Company's Common Stock will qualify for
exemption from these restrictions. In any event, even if the Company's Common
Stock was exempt from such restrictions, it would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while participating in a
distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's Common
Stock were subject to the rules on penny stocks, the market liquidity for the
Company's Common Stock could be severely adversely affected.
LACK OF INDEPENDENT DIRECTORS
Upon completion of the Offering, the majority of the members of HLM
Design's Board of Directors will be employees of HLM Design or representatives
of holders of Common Stock. HLM Design intends to maintain at least two
independent directors on its Board following completion of the Offering and to
establish audit and compensation committees which will consist entirely of
outside directors. Such directors will not, however, constitute a majority of
the Board, and HLM Design's Board may not have a majority of independent
directors at any time in the future. In the absence of a majority of independent
directors, HLM Design's executive officers, who also are principal stockholders
and directors, could establish policies and enter into transactions without
independent review and approval thereof, subject to certain restrictions under
HLM Design's Certificate of Incorporation and other undertakings by HLM Design.
HLM Design has undertaken that all transactions between the Company and any of
its officers, directors and employees will be approved by the outside directors.
See "Management."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the amount of $3.53 per share, or 59% of the initial
public offering price ($3.74 per share, or 62% of the initial public offering
price, giving effect to the Common Stock issuance and exercise of Warrants
subsequent to January 30, 1998), in net tangible book value per share from the
initial offering price, assuming an initial offering price of $6.00 per share
(the low point of the range of the initial offering price set forth on the cover
page of this Prospectus). See "Dilution."
POTENTIAL ADVERSE MARKET PRICE EFFECT OF ADDITIONAL SHARES ELIGIBLE FOR FUTURE
SALE
The 875,087 shares of Common Stock owned beneficially by existing
stockholders of HLM Design and the 159,955 shares of Common Stock reserved for
future issuance under the Stock Option Plan will be "restricted securities" as
defined in, or will be otherwise subject to the provisions of, Rule 144 under
the Securities Act of 1933, as amended (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 relating to the execution of new Management and Services
Agreements, not to offer, sell or otherwise dispose of and Messrs. Harris and
Brannon have agreed not to offer or sell 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 Berthel Fisher & Company Financial
Services, Inc. ("Berthel Fisher"). See "Shares Eligible for Future Sale" and
"Underwriting." Additionally, Messrs. Harris and Brannon and Berthel Leasing
have agreed to escrow all Common Stock owned by each of them for a period of
three years from the date of acquisition thereof, subject to prior release if
(i) the market price of the Common Stock exceeds 175% of the initial public
offering price for at least 90 consecutive trading days after at least one year
from the date of effectiveness of this Registration Statement, or (ii) the
Company achieves certain earnings results for two consecutive fiscal years.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to HLM Design from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $5.92 million ($6.89 million if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $6.00 per share (the low point of the range of
the initial public offering price set forth on the cover page of this
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 (bearing interest at a nominal rate of 13.5% per annum and
maturing June 1, 2002, with monthly principal payments commencing June 1, 2000),
(ii) a $0.75 million term loan from Berthel Leasing, an affiliate of one of the
Underwriters (payable July 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 23%. (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 incurred indebtedness in the aggregate principal
amount of $2 million to Pacific Capital, L.P. ("Pacific") and Equitas, L.P.
("Equitas") (the "Pacific/Equitas Loan") and assumed the above-referenced notes
payable to employee stockholders. The Berthel Leasing proceeds were used for
working capital.) See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
HLM Design intends to use the remaining expected net proceeds of the
Offering for the development of new business, including payments made by HLM
Design in connection with the execution of new Management and Services
Agreements, and, to the extent not required in that regard, up to 15% of the net
proceeds of the Offering for working capital and other general corporate
purposes. Until utilized, the Company will invest the net proceeds in
short-term, interest bearing, investment grade instruments. The following table
illustrates HLM Design's intended use of proceeds in order of priority:
<TABLE>
<CAPTION>
DOLLARS PERCENTAGE OF
USE OF PROCEEDS ($) PROCEEDS (%)
- ------------------------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Underwriting Discount............................................................................ $ 720,000 10.00%
Payment of Expenses.............................................................................. 558,280 7.75%
Repayment of Pacific/Equitas Loan................................................................ 2,000,000 27.78%
Repayment of Berthel Leasing Loan................................................................ 750,000 10.42%
Repayment of notes payable to employee stockholders.............................................. 200,000 2.78%
New Business Development......................................................................... 2,971,720 41.27%
---------- -------------
Estimated Net Proceeds to HLM Design........................................................... $7,200,000 100.00%
========== =============
</TABLE>
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 through 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."
12
<PAGE>
CAPITALIZATION
The following table sets forth, as of January 30, 1998, the combined
capitalization of HLM Design and Affiliates (a) on an actual basis (giving
effect to the Stock Split), 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, and the Common Stock issuance and exercise of Warrants
subsequent to January 30, 1998. See "Use of Proceeds", "Dilution" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." 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>
JANUARY 30, 1998
-------------------------------
PRO FORMA FOR THE
COMMON STOCK
ISSUANCE AND
EXERCISE OF
WARRANTS
SUBSEQUENT TO
JANUARY 30, 1998
AND FOR THE
ACTUAL OFFERING(1)
---------- -----------------
<S> <C> <C>
Short-term debt:
Notes payable.............................................................................. $2,250,000 $ 1,500,000
Current maturities of long-term debt....................................................... 743,311 743,311
---------- -----------------
Total short-term debt................................................................... $2,993,311 $ 2,243,311
========== =================
Long-term debt, excluding current maturities................................................. $4,357,057 $ 2,194,749
---------- -----------------
Warrants outstanding......................................................................... 200,068 0
---------- -----------------
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, $.001 par value, 9,000,000 shares authorized; 702,834 shares
issued and outstanding, actual; 2,075,087 shares issued and outstanding, as adjusted
(2)..................................................................................... 703 2,075
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 (3)............................................................. 101,031 6,221,533
Retained earnings.......................................................................... 556,611 556,611
Stock subscription receivable -- HLM Design, HLMNC, HLMO (4)............................... (9,524) (9,524)
---------- -----------------
Total stockholders' equity.............................................................. 648,829 6,770,703
---------- -----------------
Total capitalization.................................................................. $5,205,954 $ 8,965,452
========== =================
</TABLE>
- ---------------
(1) Adjusted to give effect to the Offering and the application of the net
proceeds thereof, the exercise by Equitas of Warrants to purchase 5,749
shares of Common Stock (73,300 shares after giving effect to the Stock
Split) and the exercise by Pacific of Warrants to purchase 7,761 shares of
Common Stock (98,953 shares after giving effect to the Stock Split). See
"Use of Proceeds", "Dilution", "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Transactions."
(2) 2,255,087 shares if the Underwriters' over-allotment option is exercised in
full. See "Underwriting" and "Principal Stockholders." Excludes (i) 159,955
shares of Common Stock reserved for future issuance under HLM Design's Stock
Option Plan (including up to 115,908 shares of Common Stock reserved for
issuance upon exercise of options prior to consummation of the Offering
pursuant to the Stock Option Plan), and (ii) up to 57,954 shares of Common
Stock reserved for issuance under HLM Design's ESPP. 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) Includes additional consideration received in connection with the exercise
of Warrants after the time of the initial exercise in the case of Equitas,
Berthel Leasing and Mr. Caroland. See "Dilution."
(4) Common Stock had not been funded as of January 30, 1998.
13
<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
January 30, 1998 was $1,618,616, or $2.30 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 1,200,000 shares of Common Stock
offered hereby and the receipt of an assumed $5.92 million of net proceeds from
the Offering (based on an assumed initial public offering price of $6.00 per
share and net of underwriting discounts and estimated offering expenses), net
tangible book value of the Company at January 30, 1998 would have been $2.47 per
share. This represents an immediate increase in the net tangible book value of
$4.77 per share to existing stockholders and an immediate dilution of $3.53 per
share to new investors purchasing Common Stock in the Offering. The following
table illustrates this per share dilution (as of January 30, 1998 and without
giving effect to the Common Stock issuance or exercise of Warrants subsequent to
January 30, 1998):
<TABLE>
<S> <C>
Assumed initial public offering price per share...................................................................... $ 6.00
Net tangible book value per share (deficit) before giving effect to the Offering................................... (2.30)
Increase in net tangible book value per share attributable to the Offering......................................... 4.77
Pro forma net tangible book value per share after giving effect to the Offering...................................... 2.47
Dilution per share to new investors(1)(2)............................................................................ $ 3.53
Dilution per share as a percentage of the assumed initial public offering price(2)................................. 59%
</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.
(2) Giving effect to the Common Stock issuance and exercise of Warrants
subsequent to January 30, 1998 the dilution per share to new investors would
be $3.74 and the dilution per share as a percentage of the assumed initial
public offering price would be 62%.
The following table sets forth the issuance of Common Stock to current
stockholders of HLM Design (giving effect to the Stock Split):
<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDER(4) DATE ISSUED SHARES ISSUED PRICE
- -------------------------------- ---------------------------------- ------------- ----------------------------
<S> <C> <C> <C>
Joseph Harris March 20, 1997 261,375 an aggregate of $1,000
March 2, 1998 47,813 $2.09 per share (1)
Vernon Brannon March 20, 1997 261,375 an aggregate of $1,000
March 2, 1998 47,812 $2.09 per share (1)
Equitas February 12, 1998 73,300 an aggregate of $110.67 (2)
Pacific (4) 98,953 an aggregate of $98.96 (2)
Berthel Leasing December 26, 1997 43,631 an aggregate of $43.64 (2)
Clay R. Caroland November 10, 1997 10,991 an aggregate of $11.00 (2)
Other employee stockholders (3) May 16, 1997-November 1, 1997 29,837 an aggregate of $34,655.40
</TABLE>
- ---------------
(1) Represents price paid by Messrs. Harris and Brannon in purchase of shares
from a former director.
(2) Represents price paid in connection with exercise of Warrants, including in
the case of Equitas, Berthel Leasing and Mr. Caroland, a portion received
after the time of the initial exercise. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Equitas (and/or a representative thereof), Pacific,
Bethel Leasing and Mr. Caroland originally paid $8,000, $10,800, $4,757 and
$1,200, respectively, as consideration for the purchase of the Warrants.
(3) Each of such employees owns less than 1% of the Common Stock outstanding.
(4) Warrants to be exercised and shares issued immediately prior to the
effective date of the Registration Statement of which this Prospectus is a
part.
14
<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 nine
months ended January 24, 1997 are derived from the unaudited financial
statements of HLMI, which are included elsewhere in this Prospectus. The
selected financial data for the nine months ended January 30, 1998 are derived
from the unaudited combined financial statements of HLM Design and, for the
eight months ended January 30, 1998, of 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)
-------------------------------------------------------------------------------------------------
NINE
FOR THE YEAR ENDED MONTHS ONE MONTH
------------------------------------------------------------------- ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 26, APRIL 25, JANUARY 24, MAY 30,
1993 1994 1995 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ------------ ------------
Revenue.......................... $33,464,656 $27,841,902 $29,122,557 $28,554,424 $26,754,710 $19,442,280 $ 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 9,917,627 898,979
Operating costs.................. 15,376,045 13,516,392 14,098,729 13,104,278 12,414,739 9,359,733 1,163,141
ESOP expenses.................... 474,403 564,918 573,837 584,202 408,765 406,652
Amortization on intangible
assets......................... 4,464 5,952 5,952 99,145 107,670 81,807 9,571
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total costs and expenses......... 34,226,788 30,012,696 30,364,189 28,049,577 26,307,425 19,765,819 2,071,691
----------- ----------- ----------- ----------- ----------- ------------ ------------
Income (loss) from operations.... (762,132) (2,170,794) (1,241,632) 504,847 447,285 (323,539) 161,345
----------- ----------- ----------- ----------- ----------- ------------ ------------
Other income (expense):
Net interest..................... (18,438) (43,058) (142,744) (383,552) (396,007) (280,027) (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) (280,027) (36,951)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Income (loss) before income
taxes.......................... (780,570) (2,213,852) (955,901) 971,568 336,913 (603,566) 124,394
Income tax expense (benefit)..... (260,000) (779,000) (360,080) 435,459 219,799 (143,517) 43,000
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net income (loss) (3)............ $ (520,570) $(1,434,852) $ (595,821) $ 536,109 $ 117,114 $ (460,049) $ 81,394
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
BALANCE SHEET DATA:
Working capital(deficiency)...... $2,059,840 $1,229,211 $(1,029,547) $(1,620,488) $(1,902,363) (686,632) (2,238,531)
Total assets..................... 11,586,309 10,147,420 10,519,859 12,577,992 12,874,503 13,402,269 17,639,673
Long-term debt................... 1,598,727 1,050,330 840,302 564,577 103,792 769,742 2,476,008
Total liabilities................ 10,020,182 9,713,789 10,690,072 11,819,796 11,670,962 12,803,938 16,354,738
Warrants outstanding (4).........
Stockholders' equity (deficiency)
(5)............................ 1,566,127 433,631 (170,213) 758,196 1,203,541 598,331 1,284,935
<CAPTION>
HLM DESIGN
(COMBINED)
NINE
MONTHS
ENDED
JANUARY 30,
1998 (2)
-----------
Revenue.......................... $21,543,416
<S> <C>
-----------
Costs and Expenses:
Direct cost of revenue........... 9,979,581
Operating costs.................. 9,629,991
ESOP expenses....................
Amortization on intangible
assets......................... 114,549
-----------
Total costs and expenses......... 19,724,121
-----------
Income (loss) from operations.... 1,819,295
-----------
Other income (expense):
Net interest..................... (748,621)
Non-operating income.............
-----------
Total other income
(expense)................... (748,621)
-----------
Income (loss) before income
taxes.......................... 1,070,674
Income tax expense (benefit)..... 514,063
-----------
Net income (loss) (3)............ $ 556,611
===========
BALANCE SHEET DATA:
Working capital(deficiency)...... (432,870)
Total assets..................... 18,043,555
Long-term debt................... 4,357,057
Total liabilities................ 17,194,658
Warrants outstanding (4)......... 200,068
Stockholders' equity (deficiency)
(5)............................ 648,829
</TABLE>
- ---------------
(1) The "Predecessor Company" is HLMI.
(2) Includes information for HLM Design and for the Managed Firms for the eight
months from May 31, 1997 to January 30, 1998 on a combined basis. HLM
Design's operations for the month ended May 30, 1997 reflected herein
include no revenues or expenses.
(3) Historical net income per share is not presented, as the historical capital
structure prior to the Offering is not comparable with the capital structure
of the Company that will exist after the Offering.
(4) Reflects Warrants held by Pacific and Equitas as of January 30, 1998.
Equitas exercised its Warrants in February 1998 and Pacific has undertaken
that it will exercise its Warrants immediately prior to the effective date
of the Registration Statement of which this Prospectus in a part.
(5) Neither HLM Design nor the Predecessor Company has paid cash dividends from
May 1, 1992 to January 30, 1998.
15
<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 that 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 that 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 pro forma 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>
(PREDECESSOR HLM DESIGN (COMBINED)
COMPANY) (COMBINED) PRO FORMA
ONE MONTH NINE MONTHS PRO FORMA FOR THE NINE
ENDED ENDED ADJUSTMENTS MONTHS ENDED
MAY 30, JANUARY 30, PRO FORMA FOR THE JANUARY 30,
1997 1998 ADJUSTMENTS(1) OFFERING 1998
----------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 2,233,036 $21,543,416 $23,776,452
Costs and expenses:
Direct cost of revenue.................... 898,979 9,979,581 10,878,560
Operating costs........................... 1,163,141 9,629,991 $ (3,800)(7) 10,761,332
(28,000)(3)
Amortization of intangible assets......... 9,571 114,549 4,800 (2) 128,920
----------- ----------- ------------- ------------- ------------
Total costs and expenses.................. 2,071,691 19,724,121 (27,000) 21,768,812
----------- ----------- ------------- ------------- ------------
Income from operations.................... 161,345 1,819,295 27,000 2,007,640
Other income (expense)
Interest expense.......................... (36,951) (748,621) 26,000 (4) $ (298,000) (6) (994,572)
(35,000)(4) 355,000 (6)
(48,000)(5) (209,000)(12)
----------- ----------- ------------- ------------- ------------
Total other expense..................... (36,951) (748,621) (57,000) (152,000) (994,572)
----------- ----------- ------------- ------------- ------------
Income before income taxes................ 124,394 1,070,674 (30,000) (152,000) 1,013,068
Income tax expense........................ 43,000 514,063 (9,650)(9) (58,140)(8) 489,273
----------- ----------- ------------- ------------- ------------
Net income................................ $ 81,394 $ 556,611 $ (20,350) $ (93,860) $ 523,795
=========== =========== ============= ============= ============
Pro forma net income per share (11)(14)... $ .25
------------
Weighted average shares outstanding
(000s).................................. 2,060
============
------------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
16
<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....................................... 219,799 78,579(9) (8,415)(8) 289,963
-------------- ----------- ----------- --------------
Net income............................................... $ 117,114 $ (41,144) $ (13,585) $ 62,385
============== =========== =========== ==============
Pro forma net income per share (13)(14).................. $ .03
--------------
Weighted average shares outstanding (000s)............... 2,033
==============
</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 a total of $64 a share. As a result,
there was a 90% change in voting control of HLMI. The assets and
liabilities of HLMI were restated to fair value as of May 31, 1997.
Purchase accounting was effected May 31, 1997 because (i) it was not
materially different than May 23, 1997, (ii) May 30, 1997 was the normal
accounting close for HLMI and (iii) a portion of the acquisition funding
commitment for the transaction 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 Corp. 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 for the HLMI acquisition, 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 through the proceeds of the Offering which is offset
by an increase in deferred fee expense associated with the pay off of such
indebtedness. See "Use of Proceeds".
17
<PAGE>
(7) Reflects the adjustment necessary to record decreased depreciation expense
due to the reduction to fair value of certain leasehold improvements in
connection with the HLMI transaction.
(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 2,075,087
shares of Common Stock are outstanding after the Offering. This amount
represents 1,200,000 shares of Common Stock to be issued in the Offering,
702,834 shares of Common Stock owned by the Company's stockholders prior to
the Offering, and the inclusion of Common Stock equivalents of 172,253
related to Warrants.
(12) Reflects the increase in interest expense resulting from the write-off of
deferred loan costs relating to 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 2,033,685
shares of Common Stock are outstanding after the Offering. This amount
represents 1,200,000 shares of Common Stock to be issued in the Offering,
618,375 shares of Common Stock owned by the Company's stockholders prior to
the Offering, and the inclusion of Common Stock equivalents of 215,310
related to Warrants.
(14) Fully diluted earnings per share are not materially different.
18
<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 the Predecessor Company'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 for 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 earns 99% of the net income of the Managed Firms
and, for cash management purposes, receives 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 nine months ended January 30, 1998 compared to nine months ended January
24, 1997 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.
NINE MONTHS ENDED JANUARY 30, 1998 COMPARED WITH NINE MONTHS ENDED JANUARY 24,
1997 -- PRO FORMA
This pro forma financial data does not give effect to the Offering.
<TABLE>
<CAPTION>
COMBINED COMBINED
PRO FORMA PRO FORMA
JANUARY 24, JANUARY 30,
1997 1998
----------- -----------
<S> <C> <C>
Revenue........................................................................................ $19,442,280 $23,776,452
Costs and expenses:
Direct cost of revenue......................................................................... 9,917,627 10,878,560
Operating costs................................................................................ 9,072,733 10,761,332
Amortization of intangible assets.............................................................. 126,000 128,920
----------- -----------
Total costs and expenses....................................................................... 19,116,360 21,768,812
----------- -----------
Income from operations......................................................................... 325,920 2,007,640
Other income (expense)
Interest expense............................................................................... (801,027) (842,572)
----------- -----------
Total other expense.......................................................................... (801,027) (842,572)
----------- -----------
Income (loss) before income taxes.............................................................. (475,107) 1,165,068
Income tax expense (benefit)................................................................... (77,517) 547,413
----------- -----------
Net income (loss).............................................................................. $ (397,590) $ 617,655
=========== ===========
</TABLE>
Revenues were $23.8 million for the nine months ended January 30, 1998
compared to $19.4 million for the nine months ended January 24, 1997, which is
an increase of 22.3%. The increase in revenues is attributable to management's
stronger focus on marketing efforts during the nine months ended January 30,
1998.
19
<PAGE>
Direct costs primarily include, direct labor, subconsultant costs, and
reimbursable expenses. Direct costs were $10.9 million, or 45.8% of revenues,
for the nine months ended January 30, 1998, as compared to $9.9 million, or
51.0% of revenues, for the nine months ended January 24, 1997. 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 $10.8 million, or 45.3% of revenues, for the nine
months ended January 30, 1998 as compared to $9.1 million, or 46.7% of revenues,
for the nine months ended January 24, 1997. This decrease as a percentage of net
sales was due principally to increased sales.
Amortization of intangible assets were $0.1 million for both the nine
months ended January 30, 1998 and January 24, 1997. 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 $0.8 million for the nine months ended January 30,
1998 as compared to $0.8 million for the nine months ended January 24, 1997.
Income tax expense for the nine months ended January 30, 1998 was $0.5
million as compared to an income tax benefit of $0.1 million for the nine months
ended January 24, 1997. The effective income tax rate was 48% for the nine
months ended January 30, 1998 as compared to 16.3% for the nine months ended
January 24, 1997. 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 and analysis and results of operations for the
fiscal years ended April 25, 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, a 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 were related to health care projects and approximately 30% were 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 due to an
increase in the use of subconsultants to meet project requirements (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 fiscal 1997 and
1996. The amortization relates to the goodwill arising from the acquisition of
MPB Architects, Inc. in April 1995. See Note 2 to HLMI Financial Statements
included elsewhere in this Prospectus.
Interest expense was $0.4 million for both fiscal 1997 and fiscal 1996.
20
<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 (17.4% 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 due to a
decrease in the use of subconsultants to meet project requirements (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 ongoing basis. This was
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 MPB 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
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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 January 30, 1998, the Company's current liabilities of $12.8 million
exceeded current assets of $12.4 million resulting in a working capital
deficiency of $.4 million. During the nine months ended January 30, 1998, the
Company provided $0.2 million in cash for operating activities. The Company used
$0.5 million for investing activities, primarily the purchase of equipment. The
Company generated $0.4 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 60 month, triple net 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 (which carries a rental payment of $64,501 per month and a $1 purchase
option at the end of the lease term), HLMI granted a security interest in all of
its personal property to Berthel Leasing, and Joseph Harris, Vernon Brannon and
a former director of HLM Design, partially guaranteed the amount due to Berthel
Leasing. HLM Design also entered into a $0.75 million term loan, in September
1997, with Berthel Leasing for working capital purposes. Such loan, which
matures as of July 1, 1998, is also secured by a pledge of HLM Design assets and
guaranties by HLMI, Joseph Harris and Vernon Brannon. In consideration for this
borrowing, HLM Design sold Warrants to purchase 3,422 shares of Common Stock
(43,631 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 (43,631 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
(together with a $0.5 million line of credit with First Charter National Bank
previously in effect with HLMI, the "First Charter Loan") (under which the
Company currently has borrowings outstanding of $1.5 million) 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 the HLMI Note (as defined below)
and a security interest in HLM Design's personal property and fixtures.
Additionally, HLMI, and under certain circumstances, Joseph Harris and Vernon
Brannon have guaranteed the Pacific/Equitas Loan. HLM Design also sold Warrants
to purchase 14,372 shares of Common Stock (183,242 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 (10,991 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 (10,991 shares
after giving effect to the Stock Split) to Equitas. In February 1998, Equitas
exercised its Warrants and purchased 5,749 shares of Common Stock (73,300 shares
after giving effect to the Stock Split) at an exercise price of $.01 per share.
Pacific has undertaken that it will exercise its Warrants immediately prior to
the effective date of the Registration Statement of which this Prospectus is a
part. The First Charter Loan is secured by an unconditional guaranty from HLMI,
and is secured by a security interest in all of HLMI's accounts receivable.
Joseph Harris, Vernon Brannon and a former director have also guaranteed the
First Charter Loan. For additional information concerning the First Charter
Loan, see Note 4 to the accompanying combined financial statements of HLM
Design.
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. (As the management company,
HLM Design will be responsible for the financing of working capital growth,
capital growth and other cash needs of the Managed Firms. See "Business -- HLM
Design Operations -- Management and Services Agreements"). As indicated above,
HLM Design has already maximized its borrowings under its existing revolving
line of credit in the form of the First Charter Loan. Furthermore, such line of
credit, as extended, matures as of July 30, 1998, unless it is renewed by First
Charter. Although HLM Design has received both verbal and written indications
from First Charter of its willingness to renew and increase HLM Design's line of
credit following a successful completion of this Offering, First Charter has not
entered into any commitment to do so. The Company believes that the net proceeds
from the Offering, the new revolving line of credit and anticipated funds from
future operations will be sufficient to meet its working capital needs for at
least the next twelve months. If HLM
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Design is unable to obtain a new revolving line of credit following the
Offering, however, its ability to implement its growth strategy will be
adversely affected.
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 Firm
affiliations with proceeds from the Offering and future offerings.
SEASONALITY
The Company's operations are not seasonal in nature.
EFFECTS OF INFLATION
Due to the relatively low levels of inflation in fiscal years 1995, 1996
and 1997, inflation did not have a significant effect on the Company's results
of operations for those periods.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 128, "Earnings Per Share." This Statement specifies
the computation, presentation and disclosure requirements for earnings per
share. 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 HLM Design'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 those between 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 nine months
ended January 30, 1998, the effect would have been a reduction to stockholder's
equity by approximately $10,511, an increase in minority interest by
approximately $10,511 and a decrease in net income of approximately $10,509.
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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 service and geographic diversification
for its 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 and billing and collections. In
connection with 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
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 Managed Firm and (iv) a voting agreement among
the stockholders and the 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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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 it is positioned
to pursue larger, well established AEP Firms as a result of the depth of HLM
Design's management team, its capital structure and the reputation of the
management team in the design
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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. Although these agreements are terminable by HLM Design,
with or without cause, upon 60 days' notice to the Managed Firms, they cannot be
terminated by the Managed Firms 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, billing and collections and
marketing support. 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 earns 99% of the net income of the Managed Firms,
as determined in accordance with generally accepted accounting principles.
However, for cash management purposes, the Management and Services Agreements
state that HLM Design is to receive all but 1% of the positive cash flow
(calculated as the change in the cash balances from the beginning of the period
to the end of the period for the Managed Firms). As the management company, HLM
Design will be responsible for the financing of working capital growth, capital
growth and other cash needs. The Management and Services Agreements are
structured so as not to force the Managed Firms to borrow money to satisfy their
inter-company obligations for the management fee (defined as 99% of the net
income of the Managed Firm). For the nine months ended January 30, 1998, HLM
Design earned $1,034,008; however, due to cash requirements of the Managed
Firms, the management fee required to be paid at January 30, 1998 was $450. The
remaining balance of $1,033,558 has been recorded as a receivable by HLM Design,
which will be paid with future positive cash flows. All significant balances and
transactions between HLM Design and the Managed Firms have been eliminated in
the combined financial statements included elsewhere herein.
Effective January 1, 1998, all HLMI employees were transferred to HLM
Design and now provide services to HLMI as HLM Design employees. From May 30,
1997 (the date of inception of the Management and Services Agreement), until
December 31, 1997, HLMI accrued no compensation bonuses for HLMI stockholder
officers.
STOCKHOLDERS' AGREEMENTS
Stockholders of Managed Firms have entered into a Stockholders' Agreement
which generally restricts the ability of these stockholders to exercise certain
rights commonly associated with ownership of common stock and effectively
provides stockholders of such entities with nominee stockholder status.
Generally, such Stockholders' Agreements 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;
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(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 Managed Firm's written approval
of such transfer, provided, that if the Managed Firm denies such approval,
it shall purchase such stock;
(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 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, with respect to all matters pertaining to the initiation
of stock "calls" and the approval or denial of proposed stock transfers, the
Managed Firm will in all cases act in accordance with the written recommendation
of HLM Design. The Stockholders' Agreements 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.
It is anticipated that Stockholders' Agreements among stockholders of the
AEP Firms 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. Its lease of such offices
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. Although HLM Design is not aware of any other company
actively pursuing a strategy of consolidating firms' administrative and
management functions, it believes 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.
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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 stockholders 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. For additional
information regarding uncertainties concerning governmental regulations relating
to the practice of architecture and engineering in light of the relationship
between HLM Design and the Managed Firms, see "Risk Factors -- Governmental
Regulation."
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.
EMPLOYEES
Prior to January 1, 1998, all employees were employed with HLMI; however,
under HLMI's 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 92 were registered professionals (engineers, architects and
others), approximately 102 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.
28
<PAGE>
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 of HLMI
Bradley A. Earl 50 Vice President of HLMI
Viktor A. Lituczy 44 Vice President of HLMI
Frank E. Talbert 41 Vice President of HLMI
Robert P. Ludden 42 Vice President of HLMI
</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. It is expected that Mr. Harris' initial term as a
director of HLM Design will expire at the third annual meeting of stockholders
of HLM Design following classification of the Board of Directors pursuant to the
Bylaws.
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. It is
expected that Mr. Brannon's initial term as a director of HLM Design will expire
at the third annual meeting of stockholders of HLM Design following Board
classification.
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. It is expected that
Mr. Caroland's initial term as a director of HLM Design will expire at the
second annual meeting of stockholders of HLM Design following Board
classification.
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. It is expected that Mr. LeRoy's
initial term as a director of HLM Design will expire at the first annual meeting
of stockholders of HLM Design following Board classification.
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. LITUCZY rejoined HLMI in 1996 as Vice President managing HLMI'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.
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<PAGE>
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 HLMI. 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 HLMI.
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.
After the Offering, HLM Design intends to maintain 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 maintain two independent directors who will
thereafter comprise its Compensation Committee.
LIMITATIONS OF DIRECTORS' LIABILITY
HLM Design's Certificate of Incorporation includes a provision that
effectively eliminates the liability of directors to HLM Design or to HLM
Design's stockholders for monetary damages for breach of the fiduciary duties of
a director, except for breaches of the duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or a knowing 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 (as approved to become
effective upon completion of this Offering) 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. The
Compensation Committee will review and unanimously 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
30
<PAGE>
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.
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 February 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 (consistent with base salaries in effect since March 1997). Messrs.
Harris and Brannon will also receive a monthly automobile allowance of $1,000
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 have received options pursuant to the Stock
Option Plan (that are currently effective or will become effective immediately
before completion of the Offering), for 57,954 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 $5.50
per share (but not less than 85% of the initial public offering price). See
" -- Stock Option Plan."
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 (with a corresponding severance arrangement tied to the foregoing base
salaries upon a termination or non-renewal without cause) following the
expiration or termination of an Employment Agreement.
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<PAGE>
STOCK OPTION PLAN
In February 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
159,955 shares of Common Stock may be granted to key employees of HLM Design and
its Managed Firms and to officers, directors, consultants and other individuals
providing services to the Company. Unless designated as "incentive stock
options" ("ISOs") intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), options granted under the Stock Option
Plan are intended to be "nonstatutory stock options" ("NSOs").
The Compensation Committee of the Board of Directors of HLM Design will
administer the Stock Option Plan and will determine, among other things, the
persons who are to receive options, the number of shares to be subject to each
option, and the vesting schedule of options; provided, that the Board of
Directors of HLM Design will make such determinations with respect to the
initial grants made under the Stock Option Plan. Members of the Board of
Directors who serve on the Compensation Committee must qualify as "non-employee
directors," as that term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. The Board of Directors of HLM
Design will determine the terms and conditions upon which HLM Design may make
loans to enable an optionee to pay the exercise price of an option. In selecting
individuals for options and determining the terms thereof, the Compensation
Committee may consider any factors it considers relevant, including present and
potential contributions to the success of the Company. Options granted under the
Stock Option Plan must be exercised within a period fixed by the Compensation
Committee, which period, subject to early termination upon the occurrence of
certain events, 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. However, the aggregate market value of
the Common Stock with respect to which ISOs are exercisable for the first time
by the holder during any calendar year may not exceed the limitation set forth
in Section 422(d) of the Code (currently $100,000). For this purpose, the market
value shall be determined as of the time the ISOs are granted.
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 discretion, subject to certain limitations, may grant transferable
options if such options are not ISOs. The exercise price of options that are
NSOs will be determined at the discretion of the Compensation Committee, but
will not be less than 85% of the market value of the Common Stock on the date of
grant of the NSOs. 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
NSOs 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 HLM Design 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 and option price
thereof 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 has approved the grant, effective on
or before the consummation of the Offering, of NSOs to purchase 40,568 shares of
Common Stock and ISOs to purchase 17,386 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.
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<PAGE>
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 long-term capital
gain or loss to the holder for federal income tax purposes equal to the
difference between the amount realized on disposition of the Common Stock and
the option exercise price. If the holding period requirements described above
are not met, the holder will recognize ordinary income for federal income tax
purposes upon disposition of the Common Stock in an amount equal to the lesser
of (i) the excess of the Common Stock's fair market value on the date of
exercise over the option exercise price, and (ii) the excess of the amount
realized on disposition of the Common Stock over the option exercise price. Any
additional gain upon the disposition will be taxed as capital gains. 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 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.
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.
If the option exercise price under any NSO is paid for by surrendering
shares of Common Stock previously acquired, then the optionee will recognize
ordinary income on the exercise as described above with respect to any shares
acquired under the NSO in excess of the number of shares surrendered (such
shares being treated as having been acquired without consideration), but will
not recognize any taxable gain or loss on the difference between the optionee's
basis in the surrendered shares and their current fair market value. For federal
income tax purposes, the number of newly acquired shares equal to the number of
shares surrendered will have the same basis and holding period as the
surrendered shares. Any newly acquired shares in excess of the number of shares
surrendered will have a tax basis equal to the amount of ordinary income
recognized on such exercise (i.e., fair market value at exercise) and a holding
period which begins on the date the optionee recognizes ordinary income for tax
purposes.
HLM Design intends to register the shares underlying the Stock Option Plan
if 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.
Following the effective date of the Registration Statement of which this
Prospectus is a part, the Company will not permit the total number of shares
subject to outstanding warrants (exclusive of the Underwriters' Warrants (as
defined herein)) and options granted or authorized to be granted to exceed 10%
of all shares of Common Stock outstanding.
EMPLOYEE STOCK PURCHASE PLAN
In February 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 57,954
shares of Common Stock has been reserved for purchase under the ESPP, provided
that the number of shares issued or issuable under the ESPP and under the Stock
Option Plan shall not at any time exceed in the aggregate 10% of the total
number of shares of Common Stock outstanding.
On January 1 of each year during the term of the ESPP (and also as soon as
administratively practicable following 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 and its subsidiaries at a rate which
exceeds $25,000 of the
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<PAGE>
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 March, June, September and December, on which the
principal trading market for the Common Stock is open for trading and on any
other interim dates during the year which the Compensation Committee designates
for such purpose (the "Exercise Date"). Contributions which are not enough to
purchase a whole share of Common Stock will be carried forward and applied on
the next Exercise Date in that calendar year.
The purchase price at which Common Stock will be purchased through the ESPP
shall be eighty-five percent of the lesser of (i) the fair market value of the
Common Stock on the applicable Grant Date, and (ii) the fair market value of the
Common Stock on the applicable Exercise Date. Any option granted to a
Participating Employee will be exercised automatically on each Exercise Date
during the calendar year of the option's Grant Date in whole or in part such
that the Participating Employee's accumulated contributions as of such Exercise
Date will be applied to the purchase of the maximum number of whole shares of
Common Stock that such contribution will permit at the applicable option price,
limited to the number of shares available for purchase under the option.
Any option granted to a Participating Employee will expire on the last
Exercise Date of the calendar year in which granted. However, if a Participating
Employee withdraws from the ESPP or terminates employment prior to such Exercise
Date, the option may expire earlier.
Upon termination of a Participating Employee's employment for any reason
other than cause or death, 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 amount by which the fair market value of the shares on the date of
exercise exceeds the option exercise price for the shares, 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 additional gain
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 if 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.
34
<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.
For information concerning certain advances from Messrs. Harris and Brannon
to HLMI, with respect to which there is a current aggregate outstanding balance
due from the Company of $27,000, see Note 4 to the accompanying combined
financial statements of HLM Design.
HLMI is the tenant under a triple net lease of certain warehouse space in
Charlotte, North Carolina entered into in December 1995 with a partnership of
which Messrs. Harris and Brannon (and family members) are the partners, as
landlord. Rental payments under such lease, which expires in 2005, are $3,500
per month.
Future material transactions between HLM Design or any of the Managed Firms
and any of the Company's officers, directors or controlling persons will be made
or entered into on terms that are no less favorable to HLM Design than those
that can be obtained from unaffiliated third parties. Additionally, any future
material transactions between HLM Design and any of the Company's officers,
directors or controlling persons will be approved by a majority of HLM Design's
directors and by a majority of its independent directors who do not have an
interest in the transactions.
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. merged, 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 HLMI with the proceeds of a $3.2 million loan from HLM Design (the note
evidencing such loan, bearing interest at a nominal rate of 13.5% per annum and
maturing June 1, 2002, with monthly principal payments commencing June 1, 2000,
referred to herein as the "HLMI Note")) was converted into the right to receive
$64.00 in cash (the "Merger Consideration") and each share of BBH Corp. then
outstanding was 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 and
granted certain registration rights which begin in 2000, with respect to the
Common Stock which underlies the Pacific/Equitas Warrants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Description of Common Stock -- Warrants."
The Company intends to repay the outstanding balance 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, and agreements relating to the Pacific/Equitas Loan, subjecting the
Company to certain affirmative and negative covenants and providing rights to
each of Pacific and Equitas to have a representative on the HLM Design board and
to each of Pacific and Equitas (and their representatives) to participate in any
proposed sale of HLM Design stock by Messrs. Harris and Brannon, shall
terminate.
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 a $0.75 million term
loan for working capital purposes. In addition, Berthel Leasing received the
Berthel Warrants and received certain registration rights
35
<PAGE>
which begin in 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" and
"Description of Common Stock -- Warrants." A portion of the proceeds of the
Offering will be used to repay the $0.75 million term loan. The Company has also
agreed, in connection with the Offering, to sell to the Underwriters, including
Berthel Fisher & Company Financial Services, Inc., certain warrants. See
"Underwriting."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of HLM Design's Common Stock as of March 27, 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) 367,142 39.3% 17.2%
Vernon B. Brannon(4)(5) 367,141 39.3% 17.2%
Clay R. Caroland III(4) 10,991 1.3% *
D. Shannon LeRoy(4)(9) -- -- --
Berthel Leasing(6) 43,631 5.0% 2.1%
Pacific(7)(8) 98,953 10.2% 4.6%
Equitas(9) 73,300 8.4% 3.5%
All directors and executive officers as a group (4 persons) 745,274 85.2% 35.9%
</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.
(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, 15.9%; Vernon Brannon, 15.9%; Clay Caroland III, less than
1%; Berthel Leasing, 1.9%; Pacific, 4.2%; Equitas, 3.3%; and all directors
and executive officers as a group, 33.0%.
(4) The address of such person is care of HLM Design at 121 West Trade Street,
Suite 2950, Charlotte, North Carolina 28202.
(5) Gives effect to options granted under HLM Design's Stock Option Plan which
will be exercisable upon consummation of the Offering. See
"Management -- 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 to be exercised immediately prior to the
effective date of the Registration Statement of which this Prospectus is a
part.
(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. Although he serves as president of its general partner,
Mr. LeRoy disclaims beneficial ownership of shares held by Equitas.
DESCRIPTION OF CAPITAL STOCK
HLM Design's authorized capital stock consists of (i) 9,000,000 shares of
Common Stock, $.001 par value, and (ii) 1,000,000 shares of Preferred Stock,
$.10 par value. Upon completion of this Offering, HLM Design will have 2,075,087
outstanding shares of Common Stock (giving effect to the Stock Split and the
exercise by Pacific of its Warrants and not including Common Stock which
underlies the options granted pursuant to the Stock Option Plan) and no shares
of preferred stock.
36
<PAGE>
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, distribution, sale of assets, 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 226,875 shares of Common Stock at an exercise price
of $.01 per share to Pacific, Equitas and Berthel Leasing and Messrs. Caroland
and Leroy 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 expire in July 2002 and the Berthel Warrants 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
increase and further increase on each May 30 thereafter until such indebtedness
is repaid in full. The Common Stock underlying the Berthel Warrants and the
Pacific/Equitas Warrants are subject to certain registration rights which begin
in 2000. Pursuant to the applicable registration rights agreement, upon the
request of holders of at least 50% of Registrable Securities (as defined
therein) HLM Design will, at its expense, within 90 days, effect registration
under the Securities Act. Such holders may require that HLM Design effect two
such requested registrations (which may be underwritten or non-underwritten).
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.
As of the date hereof, (i) all of the Warrants issued to Berthel Leasing,
Equitas and Messrs. Caroland and Leroy have been exercised and the shares
underlying such Warrants are included in the currently outstanding shares
reflected elsewhere in this Prospectus, and (ii) Pacific has undertaken that it
will exercise all of its Warrants immediately prior to the effective
37
<PAGE>
date of the Registration Statement of which this Prospectus is a part. Except as
the context otherwise requires, the shares underlying the Warrants held by
Pacific are included in the outstanding shares reflected elsewhere in this
Prospectus.
Following the effective date of the Registration Statement of which this
Prospectus is a part, the Company will not permit the total number of shares
subject to outstanding warrants (exclusive of the Underwriters' Warrants (as
defined herein)) and options granted or authorized to be granted to exceed 10%
of all shares of Common Stock outstanding.
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 (as approved to become effective upon completion of
this Offering), 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, unless otherwise prescribed by law or its Certificate
of Incorporation, may be called only by the President 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
38
<PAGE>
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,
particularly coupled with the provision of the Bylaws authorizing only the Board
of Directors to fill vacant directorships, generally expands the time required
to change the composition of a majority of directors and may tend to discourage
a takeover bid for HLM Design, provided, that under HLM Design's Certificate of
Incorporation and Bylaws, notwithstanding the classified board of directors, the
stockholders may, by the affirmative vote of a majority of the outstanding
shares of Common Stock, remove a director with or without cause.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, HLM Design will have outstanding
2,075,087 shares of Common Stock (excluding shares of Common Stock which
underlie options granted under the Stock Option Plan (115,908 shares) and
assuming no exercise of the Underwriters' over-allotment option). Of such
amount, the 1,200,000 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 745,274 shares of Common Stock currently held
by affiliates of the Company or which underlie options granted to affiliates are
also subject to the resale limitations of Rule 144. The 245,721 shares of Common
Stock, which are held by non-affiliates of the Company are also "restricted
securities" within the meaning of Rule 144. Such "restricted securities" 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, 618,375 of the 875,087 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. The remaining 256,712 (including
10,991 shares held by an affiliate) shares are "restricted securities", and
therefore may not be resold pursuant to Rule 144 upon completion of this
Offering.
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 has agreed, subject to certain exceptions relating to the
execution of new Management and Service Agreements, not to offer, sell or
otherwise dispose of, and Messrs. Harris and Brannon have agreed not to offer or
sell, any shares of Common Stock or other equity securities of HLM Design, for
365 days from the date of this Prospectus without the prior written consent of
Berthel Fisher. Additionally, Messrs. Harris and Brannon and Berthel Leasing
have agreed to escrow all Common Stock owned by each of them for a period of
three years from the date of acquisition thereof, subject to prior release if
(i) the market price of the Common Stock exceeds 175% of the initial public
offering price for at least 90 consecutive trading days after at least one year
from the date of effectiveness of this Registration Statement, or (ii) the
Company achieves certain earnings results for two consecutive fiscal years.
39
<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 Securities Corporation........................................................
---------
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 180,000 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 has agreed, subject to certain exceptions relating to the
execution of new Management and Service Agreements, not to offer, sell or
otherwise dispose of, and Messrs. Harris and Brannon have agreed not to offer or
sell, any shares of Common Stock or other equity securities of HLM Design
without the prior written consent of Berthel Fisher, for a period of 365 days after
the date of this Prospectus. Additionally, Messrs. Harris and Brannon and
Berthel Leasing have agreed to escrow all Common Stock owned by each of them for
a period of three years from the date of acquisition thereof, subject to prior
release if (i) the market price of the Common Stock exceeds 175% of the initial
public offering price for at least 90 consecutive trading days after at least
one year from the date of effectiveness of this Registration Statement, or (ii)
the Company achieves certain earnings results for two consecutive fiscal years.
At the request of HLM Design, the Underwriters have reserved up to 9,273
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 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 untrue statements of material fact contained in the
Registration Statement or any application or other document filed to qualify the
Common Stock under "blue
40
<PAGE>
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.
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 underwriting group 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 reimburse the Underwriters for actual out of
pocket expenses incurred by the Underwriters in connection with the Offering (up
to a maximum of 1.365% of the gross proceeds of the Offering without giving
effect to the Underwriters' over-allotment 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 ($7.20 assuming an
initial public offering price of $6.00 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") subject to
customary terms and conditions including limitations on transfer, provisions
relating to fundamental corporate changes and antidilution protection. HLM
Design has also agreed that Berthel Fisher shall be entitled, for a period of
three (3) years following consummation of the Offering to have a representative
receive notice of, attend and observe, all Board meetings of HLM Design. Such
representative shall not be a Board member and shall have no voting rights at
any such meeting.
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
$0.75 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. In addition, the
$0.75 million term loan constitutes more than 10% of the subordinated debt of
the Company. Accordingly, the Offering will be conducted in accordance with NASD
Conduct Rule 2720, 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,
41
<PAGE>
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.
California investors participating in the Offering must have a minimum net
worth of $250,000, exclusive of home(s), home furnishings and automobiles, and
gross income of $65,000, or, in the alternative, a minimum net worth of
$500,000, exclusive of home(s), home furnishings and automobiles.
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 their 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 Nasdaq at 1735 K Street, NW
Washington, DC 20006-1500. 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.
42
<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 January 30, 1998.......................... F-3
Statements of Operations (unaudited) for the nine months ended January 24, 1997 (Predecessor), the one month ended
May 30, 1997 (Predecessor) and the Combined Statements of Income for the nine months ended January 30, 1998 (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 nine months ended January 30, 1998.................................................. F-5
Statements of Cash Flows (unaudited) for the nine months ended January 24, 1997 (unaudited) (Predecessor), the one
month ended May 30, 1997 (Predecessor) and Combined Statements of Cash Flows for the nine months ended January
30, 1998 (HLM Design Inc.)....................................................................................... F-6
Notes to Financial Statements..................................................................................... F-7
HANSEN LIND MEYER, INC. ("HLMI")
INDEPENDENT AUDITORS' REPORT......................................................................................... F-15
FINANCIAL STATEMENTS:
Balance Sheets at April 26, 1996 and April 25, 1997............................................................... F-16
Statements of Operations for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.................... F-17
Statements of Stockholders' Equity for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.......... F-18
Statements of Cash Flows for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.................... F-19
Notes to Financial Statements..................................................................................... F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
HLM DESIGN, INC.
Charlotte, North Carolina
We have audited the accompanying balance sheet of HLM Design, Inc. (the
"Company") as of April 25, 1997, and the related statements of stockholders'
equity, for the period from inception March 6, 1997 to April 25, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of April 25,
1997, and the changes in stockholders equity for the period from inception March
6, 1997 to April 25, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
November 11, 1997 (January 30, 1998, February 13, 1998 and February 27, 1998 as
to the last paragraph in Note 1)
Charlotte, North Carolina
F-2
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
BALANCE SHEETS
APRIL 25, 1997 AND JANUARY 30, 1998
<TABLE>
<CAPTION>
HLM
DESIGN COMBINED
APRIL 25, JANUARY 30,
1997 1998
--------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash.............................................................................................. $ 2,771
Trade and other receivables, less allowance for doubtful accounts of $150,000 at January 30,
1998........................................................................................... 6,338,342
Costs and estimated earnings in excess of billings on uncompleted projects (Note 3)............... 5,471,799
Prepaid expenses.................................................................................. 591,819
-----------
Total current assets......................................................................... 12,404,731
-----------
OTHER ASSETS:
Deferred income taxes (Note 8).................................................................... 562,821
Goodwill, less amortization of $114,549 at January 30, 1998 (Note 2).............................. 2,467,513
Other noncurrent assets........................................................................... 774,950
-----------
Total other assets........................................................................... 3,805,284
-----------
PROPERTY AND EQUIPMENT:
Leasehold improvements............................................................................ 701,119
Furniture and fixtures............................................................................ 1,560,298
-----------
Total property and equipment................................................................. 2,261,417
-----------
Less accumulated depreciation..................................................................... (427,877)
-----------
Property and equipment, net.................................................................. 1,833,540
-----------
TOTAL ASSETS........................................................................................ $18,043,555
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4)............................................................................ $ 2,250,000
Accounts payable.................................................................................. 3,547,171
Accrued expenses.................................................................................. 1,444,022
Income taxes payable.............................................................................. 19,353
Billings in excess of costs and estimated earnings on uncompleted projects (Note 3)............... 3,188,791
Deferred income taxes (Note 8).................................................................... 1,644,953
Current maturities of long-term debt (Note 4)..................................................... 743,311
-----------
Total current liabilities.................................................................... 12,837,601
-----------
LONG-TERM DEBT (Note 4)............................................................................. 4,357,057
-----------
TOTAL LIABILITIES................................................................................... 17,194,658
-----------
COMMITMENTS AND CONTINGENCIES (Note 5, 6)
WARRANTS OUTSTANDING (Note 4)....................................................................... 200,068
-----------
STOCKHOLDERS' EQUITY:
HLM Design, Inc. Capital Stock
Common, $.001 par value, voting, authorized 9,000,000 shares; issued 618,375 and 702,834,
respectively.................................................................................. 618 703
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:
Class A, voting, authorized 2,000,000 shares; issued 200....................................... 2
Class B, nonvoting, authorized 1,000,000 shares, no shares outstanding......................... -- --
Additional paid in capital........................................................................ 2,382 101,031
Retained earnings................................................................................. 556,611
Stock Subscription Receivable..................................................................... (3,000) (9,524)
--------- -----------
Total stockholders' equity.......................................................................... 648,829
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................................... $ $18,043,555
========= ===========
</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 NINE MONTHS ENDED
JANUARY 24, 1997 (PREDECESSOR) AND JANUARY 30, 1998 (COMBINED)
<TABLE>
<CAPTION>
(HLM
(PREDECESSOR (PREDECESSOR DESIGN)
COMPANY) COMPANY) COMBINED
----------- ---------- -----------
NINE MONTHS ONE MONTH NINE MONTHS
ENDED ENDED ENDED
----------- ---------- -----------
JANUARY 24, MAY 30, JANUARY 30,
1997 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES (Note 1):
Fee income..................................................................... $18,439,931 $1,998,611 $16,160,923
Reimbursable income............................................................ 1,002,349 234,425 5,382,493
----------- ---------- -----------
Total revenues............................................................ 19,442,280 2,233,036 21,543,416
----------- ---------- -----------
CONSULTANT EXPENSES.............................................................. 3,573,159 192,862 3,802,734
----------- ---------- -----------
PROJECT EXPENSES:
Direct expenses................................................................ 522,063 35,404 744,579
Reimbursable expenses.......................................................... 877,693 68,617 630,190
----------- ---------- -----------
Total project expenses.................................................... 1,399,756 104,021 1,374,769
----------- ---------- -----------
NET PRODUCTION INCOME............................................................ 14,469,365 1,936,153 16,365,913
DIRECT LABOR..................................................................... 4,944,712 602,096 4,802,078
INDIRECT EXPENSES................................................................ 9,848,192 1,172,712 9,744,540
----------- ---------- -----------
OPERATING INCOME (LOSS).......................................................... (323,539) 161,345 1,819,295
----------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income................................................................ 3,575 54 1,888
Interest expense............................................................... (283,602) (37,005) (750,509)
----------- ---------- -----------
Total other income (expense), net......................................... (280,027) (36,951) (748,621)
----------- ---------- -----------
INCOME (LOSS) BEFORE TAXES....................................................... (603,566) 124,394 1,070,674
INCOME TAXES (Note 8):
Current tax expense (benefit).................................................. (23,713) (11,907) 58,000
Deferred tax expense (benefit)................................................. (119,804) 54,907 456,063
----------- ---------- -----------
Total income tax expense (benefit)........................................ (143,517) 43,000 514,063
----------- ---------- -----------
NET INCOME (LOSS)................................................................ $ (460,049) $ 81,394 $ 556,611
=========== ========== ===========
PRO FORMA NET INCOME PER SHARE (NOTE 1).......................................... $ .65
===========
PRO FORMA NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA (NOTE 1)............... 859,973
===========
</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
NINE MONTHS ENDED JANUARY 30, 1998 (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.......... 618,375 618 2,382 (3,000)
-------- ------ --------------- ------------
BALANCE, APRIL 25, 1997........................ 618,375 618 2,382 (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)...... 84,459 85 98,055 (5,924) 92,216
Net Income -- Combined (unaudited)........... 556,611 556,611
-------- ------ --------------- -------- ------------ -------------
BALANCE JANUARY 30, 1998 -- COMBINED
(UNAUDITED).................................. 703,634 $ 711 $ 101,031 $556,611 $ (9,524) $ 648,829
======== ====== =============== ======== ============ =============
</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 NINE MONTHS ENDED JANUARY 24, 1997 (PREDECESSOR) AND JANUARY 30, 1998
(COMBINED)
<TABLE>
<CAPTION>
(PREDECESSOR COMPANY) (HLM
-------------------------- DESIGN)
COMBINED
NINE MONTHS ONE MONTH NINE MONTHS
ENDED ENDED ENDED
----------- ----------- -----------
JANUARY 29, MAY 30, JANUARY 30,
1997 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $ (460,049) $ 81,394 $ 556,611
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation................................................................. 431,073 55,544 247,463
Amortization of goodwill..................................................... 77,589 9,571 114,549
Amortization of deferred loan fees........................................... 108,526
Deferred rent................................................................ 4,249
Deferred income taxes........................................................ (110,228) 54,907 (17,844)
Changes in certain working capital items:
Increase in trade and other receivables.................................... (326,971) (1,500,472) (622,088)
Increase in costs and estimated earnings compared to billings on
uncompleted contracts, net................................................ 1,162,905 1,199,028 38,310
(Increase) decrease in refundable income taxes............................. (42,465) (11,157) 504,400
Increase in prepaid expenses............................................... (545,813) (10,427) (333,837)
(Increase) decrease in other assets........................................ 352,700 (1,152) (170,668)
Increase (decrease) in accounts payable.................................... (808,446) 233,659 (913,522)
Increase (decrease) in accrued expenses.................................... 718,998 (278,500) 643,475
Increase (decrease) in other non-current liabilities....................... (15,000) 15,000
----------- ----------- -----------
Net cash (used in) provided by operating activities..................... 438,542 (152,605) 155,375
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (600,377) (2,023) (549,848)
Note receivable from officer.................................................... (130,000) 30,000
----------- ----------- -----------
Net cash used in investing activities................................... (730,377) (2,023) (519,848)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on line of credit....................................................... 400,000 (2,360,000)
Proceeds from long-term borrowings.............................................. 100,000 2,800,000 6,712,307
Payments on long-term borrowings................................................ (216,974) (285,372) (3,305,100)
Payment of deferred loan fees................................................... (56,300)
Payment on ESOP buyback......................................................... (3,221,824)
Proceeds from issuance of notes payable to shareholders......................... 182,308
Proceeds from the issuance of warrants.......................................... 24,757
Proceeds from exercise of warrants.............................................. (135)
Proceeds from issuance of common stock.......................................... 28,910
----------- ----------- -----------
Net cash provided by financing activities............................... 283,026 154,628 364,923
----------- ----------- -----------
INCREASE (DECREASE) in Cash....................................................... (8,809) 450
CASH BALANCE:
Beginning of year............................................................... 11,130 2,321 2,321
----------- ----------- -----------
End of year..................................................................... $ 2,321 $ 2,321 $ 2,771
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the year for:
Interest..................................................................... $ 280,042 $ 6,827 $ 584,695
Income tax payments (refunds)................................................ $ 18,752 $ (750) $ 21,244
Noncash investing and financing transactions:
Retirement of common stock through issuance of note payable.................. $ 36,047
Reduction of ESOP debt....................................................... $ 336,231
Issuance of warrants to certain debtholders.................................. $ 238,752
</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 NINE MONTHS ENDED JANUARY 24,
1997
(PREDECESSOR -- UNAUDITED), THE ONE MONTH PERIOD ENDED MAY 30, 1997
(PREDECESSOR -- UNAUDITED) AND THE NINE MONTHS ENDED JANUARY 30, 1998
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 January 30, 1998 (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 nine months ended
January 24, 1997 (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 January 30, 1998 and for the nine
months then ended (unaudited). All significant balances and
transactions between HLM Design and HLMI, HLMNC and HLMO have been
eliminated in the combined financial statements.
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
January 30, 1998 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 January 24, 1997 and January 30, 1998 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 May 1, 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 May 1, 1998 financial
statements. If the change had been effected for the nine months ended January
30, 1998, the effect would have been a reduction to Stockholder's Equity by
approximately $10,511, an increase in minority interest by approximately $10,511
and a decrease in Net Income of approximately $10,509.
INTERIM FINANCIAL INFORMATION -- The accompanying unaudited financial
information for the nine months ended January 24, 1997 (Predecessor) and January
30, 1998 (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 30, 1998 and a 1.75 for 1 stock
split effective as of February 13, 1998, and a reverse stock split of .66 for 1
effective as of February 27, 1998 for an effective 12.75 for 1 stock split
("Stock Split"). In addition, there was a reduction in Common Stock par value to
$.001 effective as of February 13, 1998. 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 nine month periods.
<TABLE>
<CAPTION>
9 MONTHS ENDED JANUARY 30,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenues................................................... $19,442,280 $23,776,453
=========== ===========
Net Income (loss).......................................... $ (397,590) $ 617,655
=========== ===========
</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 nine 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 January 30, 1998 is as
follows:
<TABLE>
<CAPTION>
JANAURY 30,
1998
-----------
<S> <C>
Costs incurred on uncompleted projects (excluding overhead).................................................... $35,988,413
Estimated earnings thereon..................................................................................... 38,170,640
-----------
Total.......................................................................................................... 74,159,053
Less billings to date.......................................................................................... 71,876,045
-----------
Net underbillings.............................................................................................. $ 2,283,008
===========
</TABLE>
Net underbillings are included in the accompanying balance sheet as
follows:
<TABLE>
<CAPTION>
JANUARY 30,
1998
-----------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted projects......................................................................................... $ 5,471,799
Billings in excess of costs and estimated earnings on
uncompleted projects......................................................................................... (3,188,791)
-----------
Net underbillings.............................................................................................. $ 2,283,008
===========
</TABLE>
F-10
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. FINANCING ARRANGEMENTS
A summary of notes payable at January 30, 1998 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 January 30, 1998 is as follows:
<TABLE>
<CAPTION>
1/30/98
----------
<S> <C>
Notes payable to Messrs. Harris and Brannon at 15%, with a final payment due July 31, 1998 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, 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........................................................... 2,536,049
----------
Total long-term debt............................................................................................ 5,100,368
----------
Less current maturities (based on refinanced terms)............................................................. 743,311
----------
Long-term portion............................................................................................... $4,357,057
==========
</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 January 30, 1998 the Company was in compliance with such
covenants.
Repayment of the various financing agreements are as follows:
<TABLE>
<S> <C>
Three months ended May 1, 1998.................................. $ 401,675
Fiscal 1999..................................................... 517,255
Fiscal 2000..................................................... 579,679
Fiscal 2001..................................................... 976,438
Fiscal 2002..................................................... 2,463,660
Thereafter...................................................... 161,661
----------
Total......................................................... $5,100,368
==========
</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 (183,244
shares after giving effect to the Stock Split) were attached to the notes issued
to Pacific Capital and Equitas. In addition, warrants to purchase 3,422 shares
of common stock (43,630 shares after giving effect to the Stock Split) were
attached to the notes issued to Berthel Fisher in September 1997 and in December
1997. Each warrant allows holders to purchase a share of stock for $.01 a share
for a five year period. At January 30, 1998, all of the warrants held by Berthel
Fisher were exercised. All other warrants issued with debt were outstanding at
January 30, 1998.
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 $238,753 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 January 30,
1998.
5. LEASE COMMITMENTS
The total minimum rental commitment under non-cancellable operating leases
at January 30, 1998, which has been reduced by minimum rentals to be received
under subleases, are as follows:
<TABLE>
<S> <C>
3 months ended May 1, 1998............................................................. $ 531,441
Fiscal 1999............................................................................ 1,960,201
Fiscal 2000............................................................................ 1,939,163
Fiscal 2001............................................................................ 1,852,952
Fiscal 2002............................................................................ 1,714,856
Thereafter............................................................................. 6,539,818
-----------
Total $14,538,431
===========
</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 nine months ended January 30, 1998, the Company incurred $22,911
in financing advisory fees related to debt financings, for services provided by
a director. Such director resigned effective October 1997.
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>
NINE MONTHS NINE MONTHS
ENDED ENDED
JANUARY 24, JANUARY 30,
1997 1998
------------ -----------
<S> <C> <C>
Current:
Federal................................................................ $ (20,749) $ 50,750
State.................................................................. (2,964) 7,250
Deferred................................................................. (119,804) 456,063
------------ -----------
Provision for Income Taxes............................................... $ (143,517) $ 514,063
============ ===========
</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>
NINE MONTHS NINE MONTHS
ENDED ENDED
JANUARY 24, JANUARY 30,
1997 1998
----------- -----------
<S> <C> <C>
Statutory federal rate...................................................... (35.0)% 35.0%
State Income Taxes, net of federal benefit.................................. (3.3) 3.3
Penalties................................................................... 9.8 2.7
Meals and Entertainment..................................................... 4.6 2.7
Other....................................................................... 0.1 4.3
----------- -----------
Effective Tax Rates....................................................... (23.8)% 48.0%
=========== ===========
</TABLE>
The tax effect of temporary differences giving rise to deferred income tax
assets and liabilities as of January 30, 1998 is as follows:
<TABLE>
<CAPTION>
JANUARY 30,
1998
-----------
<S> <C>
Deferred income tax liabilities -- difference between the accrual basis and cash basis
of accounting related to certain assets and liabilities.............................. $(1,644,953)
-----------
Deferred income tax assets:
Contribution carryforwards........................................................... 46,410
Property and equipment............................................................... 257,598
Net operating loss carryforward...................................................... 258,812
-----------
Total deferred income tax assets....................................................... 562,820
-----------
Deferred income tax liabilities, net................................................... $(1,082,133)
===========
</TABLE>
Management believes it is probable that the Company will realize the tax
benefits of these deductible differences that were available as of January 30,
1998.
At January 30, 1998, the Company has federal net operating loss
carryforwards of approximately $677,000 expiring in various amounts beginning in
2012; however, net operating loss carryforwards are subject to restriction under
Section 382 and the separate return limitation year rules of the Internal
Revenue Code due to the merger transaction.
HLM Design, Inc. and its Affiliates will file separate company federal and
state income tax returns.
9. SUBSEQUENT EVENTS (UNAUDITED)
In February 1998, 3,422 warrants were exercised resulting in the issuance
of 3,422 shares of common stock (43,630 shares after giving effect to the stock
split).
F-13
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. HLM DESIGN FINANCIAL INFORMATION (UNAUDITED)
HLM Design's balance sheet and income statement for the nine months ended
January 30, 1998 are as follows:
<TABLE>
<S> <C>
BALANCE SHEET
Current assets........................................................................... 42,561
---------
Non-current assets....................................................................... 5,141,018
---------
Total assets............................................................................. 5,183,579
---------
---------
Current liabilities...................................................................... 2,182,886
---------
Non-current liabilities.................................................................. 2,162,307
---------
Total liabilities........................................................................ 4,345,193
=========
Total stockholders equity................................................................ 838,386
---------
Total liabilities & S/E.................................................................. 5,183,579
=========
INCOME STATEMENT
Equity in Earnings of Affiliate.......................................................... 1,034,008
Net interest, tax and other expense...................................................... 487,906
---------
Net income............................................................................... 546,102
=========
</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 26, 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 Messrs. Harris and Brannon 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...................................... 12
Dividend Policy...................................... 12
Capitalization....................................... 13
Dilution............................................. 14
Selected Financial Data.............................. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 19
Business............................................. 24
Management........................................... 29
Certain Transactions................................. 35
Principal Stockholders............................... 36
Description of Capital Stock......................... 36
Shares Eligible for Future Sale...................... 39
Underwriting......................................... 40
Legal Matters........................................ 42
Experts.............................................. 42
Additional Information............................... 42
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.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
1,200,000 SHARES
(HLM logo appears here with the following information: HLM Design.)
COMMON STOCK
----------------
PROSPECTUS
----------------
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
MARION BASS
SECURITIES CORPORATION
, 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 Nasdaq fees.
<TABLE>
<S> <C>
SEC Registration fee................................................................... $ 2,121.22
NASD filing fee........................................................................ 1,200
Nasdaq fees............................................................................ 7,500
Transfer agent and registrar fees...................................................... 15,000
Accounting fees and expenses........................................................... 195,000
Legal fees and expenses................................................................ 120,000
"Blue Sky" fees and expenses (including legal fees).................................... 25,000
Costs of printing and engraving........................................................ 90,000
Reimbursable underwriters' expenses.................................................... 98,280
Miscellaneous.......................................................................... 4,178.78
-----------
Total............................................................................. $ 558,280
===========
</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. The information set
forth in the second and third paragraphs of this Item 15 is provided on a
pre-Stock Split basis.
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 (except that in the case of the
November 1, 1997 issuance, 200 shares of Common Stock were issued in the form of
a stock bonus). 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. On December 26, 1997 Berthel Leasing exercised its Warrant and purchased
3,422 shares of Common Stock. On February 12, 1998 Equitas exercised its Warrant
and purchased 5,749 shares of Common Stock. In connection with each such
exercise of Warrants, the Company received consideration of $11.00, $43.64 and
$110.67, respectively. 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
Joseph Harris and Vernon Brannon, two of its officers and employees, pursuant to
the Registrant's Stock Option Plan, options to purchase 115,908 shares (taking
into account the Stock Split) 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.
Pacific has undertaken that it will exercise Warrants to purchase 98,953
shares of Common Stock (taking into account the Stock Split) immediately prior
to the effective date of this Registration Statement. Such securities will not
be 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 Pacific, its access to material information, the disclosures actually made to
it by the Registrant and the absence of any general solicitation or advertising.
For information concerning the Stock Split and the issuance of shares in
connection therewith, see the Prospectus which is included as part of this
Registration Statement.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Bylaws of the Registrant, as amended to date (as approved to become effective upon completion of this
Offering).
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.
4.4* Registration Rights Agreement dated as of September 10, 1997 by and among HLM Design, Inc. and Berthel
Fisher & Company Leasing, Inc.
5.1 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.6* Stockholders' Agreement 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 Form of Security Escrow Agreement among HLM Design, Inc., certain security holders and First Union
National Bank, as escrow agent.
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* Guaranty (Limited in Amount) dated as of May 30, 1997 by and among Vernon B. Brannon, Joseph M. Harris,
and a former director.
10.20.1 Addendum B to Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing,
Inc. and Hansen Lind Meyer, Inc.
10.20.2 Letter Agreement dated as of January 9, 1998 amending the Berthel Lease.
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* Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen
Lind Meyer Inc. (the "Berthel Lease").
10.23* Form of HLM Design, Inc. Stock Option Plan.
10.24 Form of HLM Design, Inc. Employee Stock Purchase Plan.
10.25 Employment Agreement between HLM Design, Inc. and Joseph M. Harris, as amended to date.
10.26 Employment Agreement between HLM Design, Inc. and Vernon B. Brannon, as amended to date.
10.27* Promissory Note dated as of May 30, 1997 issued by HLM Design, Inc. in favor of First Charter National
Bank.
10.28 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design
of Northamerica, Inc. (formerly Hansen Lind Meyer Inc.) and HLM Design.
10.29 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design
of the Southeast, P.C. (formerly HLM of North Carolina, P.C.) and HLM Design.
10.30 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design
of the Northwest, Architecture, Engineering and Planning, P.C. (formerly HLM of Oregon Architecture and
Planning, P.C.) and HLM Design.
10.31 Form of Statutory Incentive Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock
Option Plan between HLM Design, Inc. and Joseph M. Harris.
10.32 Form of Statutory Incentive Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock
Option Plan between HLM Design, Inc. and Vernon B. Brannon.
10.33 Form of Nonstatutory Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock Plan
between HLM Design, Inc. and Joseph M. Harris.
10.34 Form of Nonstatutory Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock Option Plan
between HLM Design, Inc. and Vernon B. Brannon.
10.35 Stockholders Agreement dated as of July 29, 1997 among HLM Design, Inc., Joseph M. Harris, Vernon B.
Brannon, Pacific Capital, L.P., Equitas, L.P., Clay Caroland, Shannon LeRoy, and a former director.
10.36 Promissory Note dated as of December 10, 1996 issued by Hansen Lind Meyer, Inc. in favor of First Charter
National Bank.
10.37 Modification and Extension Agreement dated as of June 2, 1997 between First Charter National Bank and
Hansen Lind Meyer, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.38 Commercial Guaranty dated as of May 30, 1997 by Hansen Lind Meyer, Inc. in favor of First Charter
National Bank.
10.39 Security Agreement dated as of June 2, 1997 between Hansen Lind Meyer, Inc. and First Charter National
Bank.
10.40 Commercial Security Agreement dated as of May 30, 1997 between Hansen Lind Meyer, Inc. and First Charter
National Bank.
10.41 Subordination Agreement dated as of May 30, 1997 among Berthel Fisher & Company Leasing, Inc., First
Charter National Bank, HLM Design, Inc. and Hansen Lind Meyer, Inc.
10.42 Note and Security Agreement dated as of September 10, 1997 by and among HLM Design, Inc., Hansen Lind
Meyer, Inc., certain individual guarantors and Berthel Fisher & Company Leasing, Inc., as amended to
date.
10.43 Note and Security Agreement dated as of September 16, 1997 by and among HLM Design, Inc., Hansen Lind
Meyer, Inc., certain individual guarantors and Berthel Fisher & Company Leasing, Inc., as amended to
date.
10.44 Intercreditor Agreement dated as of September 10, 1997 between and among Berthel Fisher & Company
Leasing, Inc., Pacific Capital, L.P. and Equitas L.P.
10.45 Commercial Guaranty dated as of May 30, 1997 by Joseph M. Harris in favor of First Charter National Bank
(relating to Promissory Note of HLM Design, Inc. of even date therewith).
10.46 Commercial Guaranty dated as of May 30, 1997 by Vernon B. Brannon in favor of First Charter National Bank
(relating to Promissory Note of HLM Design, Inc. of even date therewith).
10.47 Modification and Extension Agreement dated as of May 30, 1998 between First Charter National Bank and HLM
Design, Inc.
10.48 Modification and Extension Agreement dated as of May 30, 1998 between First Charter National Bank and
Hansen Lind Meyer, Inc.
10.49 Lease Agreement dated as of December 18, 1995 between CTHL Properties and Hanson Lind Meyer, Inc.
10.50 Promissory Note dated as of March 20, 1997 issued by Hansen Lind Meyer, Inc. in favor of Joseph M.
Harris, as extended to date.
10.51 Promissory Note dated as of March 20, 1997 issued by Hansen Lind Meyer, Inc. in favor of Vernon B.
Brannon, as extended to date.
10.52 Guaranty dated as of December 10, 1996 by Joseph M. Harris in favor of First Charter National Bank
(relating to Promissory Note of Hansen Lind Meyer, Inc. of even date therewith).
10.53 Guaranty dated as of December 10, 1996 by Vernon B. Brannon in favor of First Charter National Bank
(relating to Promissory Note of Hansen Lind Meyer, Inc. of even date therewith).
10.54 Common Stock Purchase Warrant dated as of May 30, 1997 issued to Pacific Capital, L.P.
10.55 Second Amendment to Management and Services Agreement dated as of June 5, 1998 by and between
HLM Design of Northamerica, Inc. and HLM Design.
10.56 Second Amendment to Management and Services Agreement dated as of June 5, 1998 by and between
HLM Design of Southeast, P.C. and HLM Design.
10.57 Second Amendment to Management and Services Agreement dated as of June 5, 1998 by and between
HLM Design of Northwest, Architecture, Engineering and Planning, P.C. and HLM Design.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 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
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.
II-4
<PAGE>
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Charlotte, North
Carolina on June 5, 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. 5 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 June 5, 1998
------------------------------------------------- -------
JOSEPH M. HARRIS executive officer) and Chairman
/s/ VERNON B. BRANNON Senior Vice President, Treasurer, Chief Financial June 5, 1998
------------------------------------------------- -------
VERNON B. BRANNON Officer (principal financial and accounting
officer) and Director
/s/ * Director June 5, 1998
------------------------------------------------- -------
CLAY R. CAROLAND III
/s/ * Director June 5, 1998
------------------------------------------------- -------
SHANNON LEROY
</TABLE>
*By: /s/ VERNON B. BRANNON
----------------------------------------------
VERNON B. BRANNON
(ATTORNEY-IN-FACT FOR EACH
OF THE PERSONS INDICATED)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Bylaws of the Registrant, as amended to date (as approved to become effective upon completion of this
Offering).
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.
4.4* Registration Rights Agreement dated as of September 10, 1997 by and among HLM Design, Inc. and Berthel
Fisher & Company Leasing, Inc.
5.1 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' Agreement 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 Form of Security Escrow Agreement among HLM Design, Inc., certain security holders and First Union
National Bank, as escrow agent.
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* Guaranty (Limited in Amount) dated as of May 30, 1997 by and among Vernon B. Brannon, Joseph M. Harris,
and a former director.
10 20.1 Addendum B to Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing,
Inc. and Hansen Lind Meyer, Inc.
10 20.2 Letter Agreement dated as of January 9, 1998 amending the Berthel Lease.
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* Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen
Lind Meyer Inc. (the "Berthel Lease").
10.23* Form of HLM Design, Inc. Stock Option Plan.
10.24 Form of HLM Design, Inc. Employee Stock Purchase Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.25 Employment Agreement between HLM Design, Inc. and Joseph M. Harris, as amended to date.
10.26 Employment Agreement between HLM Design, Inc. and Vernon B. Brannon, as amended to date.
10.27* Promissory Note dated as of May 30, 1997 issued by HLM Design, Inc. in favor of First Charter National
Bank.
10.28 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design
of Northamerica, Inc. (formerly Hansen Lind Meyer Inc.) and HLM Design formerly.
10.29 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design
of the Southeast, P.C. (formerly HLM of North Carolina, P.C.) and HLM Design.
10.30 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design
of the Northwest, Architecture, Engineering and Planning, P.C. (formerly HLM of Oregon Architecture and
Planning, P.C.) and HLM Design.
10.31 Form of Statutory Incentive Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock
Option Plan between HLM Design, Inc. and Joseph M. Harris.
10.32 Form of Statutory Incentive Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock
Option Plan between HLM Design, Inc. and Vernon B. Brannon.
10.33 Form of Nonstatutory Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock Plan
between HLM Design, Inc. and Joseph M. Harris.
10.34 Form of Nonstatutory Stock Option Agreement and Grant pursuant to HLM Design, Inc. 1998 Stock Option Plan
between HLM Design, Inc. and Vernon B. Brannon.
10.35 Stockholders Agreement dated as of July 29, 1997 among HLM Design, Inc., Joseph M. Harris, Vernon B.
Brannon, Pacific Capital, L.P., Equitas, L.P., Clay Caroland, Shannon LeRoy, and a former director.
10.36 Promissory Note dated as of December 10, 1996 issued by Hansen Lind Meyer, Inc. in favor of First Charter
National Bank.
10.37 Modification and Extension Agreement dated as of June 2, 1997 between First Charter National Bank and
Hansen Lind Meyer, Inc.
10.38 Commercial Guaranty dated as of May 30, 1997 by Hansen Lind Meyer, Inc. in favor of First Charter
National Bank.
10.39 Security Agreement dated as of June 2, 1997 between Hansen Lind Meyer, Inc. and First Charter National
Bank.
10.40 Commercial Security Agreement dated as of May 30, 1997 between Hansen Lind Meyer, Inc. and First Charter
National Bank.
10.41 Subordination Agreement dated as of May 30, 1997 among Berthel Fisher & Company Leasing, Inc., First
Charter National Bank, HLM Design, Inc. and Hansen Lind Meyer, Inc.
10.42 Note and Security Agreement dated as of September 10, 1997 by and among HLM Design, Inc., Hansen Lind
Meyer, Inc., certain individual guarantors and Berthel Fisher & Company Leasing, Inc., as amended to
date.
10.43 Note and Security Agreement dated as of September 16, 1997 by and among HLM Design, Inc., Hansen Lind
Meyer, Inc., certain individual guarantors and Berthel Fisher & Company Leasing, Inc., as amended to
date.
10.44 Intercreditor Agreement dated as of September 10, 1997 between and among Berthel Fisher & Company
Leasing, Inc., Pacific Capital, L.P. and Equitas L.P.
10.45 Commercial Guaranty dated as of May 30, 1997 by Joseph M. Harris in favor of First Charter National Bank
(relating to Promissory Note of HLM Design, Inc. of even date therewith).
10.46 Commercial Guaranty dated as of May 30, 1997 by Vernon B. Brannon in favor of First Charter National Bank
(relating to Promissory Note of HLM Design, Inc. of even date therewith).
10.47 Modification and Extension Agreement dated as of May 30, 1998 between First Charter National Bank and HLM
Design, Inc.
10.48 Modification and Extension Agreement dated as of May 30, 1998 between First Charter National Bank and
Hansen Lind Meyer, Inc.
10.49 Lease Agreement dated as of December 18, 1995 between CTHL Properties and Hanson Lind Meyer, Inc.
10.50 Promissory Note dated as of March 20, 1997 issued by Hansen Lind Meyer, Inc. in favor of Joseph M.
Harris, as extended to date.
10.51 Promissory Note dated as of March 20, 1997 issued by Hansen Lind Meyer, Inc. in favor of Vernon B.
Brannon, as extended to date.
10.52 Guaranty dated as of December 10, 1996 by Joseph M. Harris in favor of First Charter National Bank
(relating to Promissory Note of Hansen Lind Meyer, Inc. of even date therewith).
10.53 Guaranty dated as of December 10, 1996 by Vernon B. Brannon in favor of First Charter National Bank
(relating to Promissory Note of Hansen Lind Meyer, Inc. of even date therewith).
10.54 Common Stock Purchase Warrant dated as of May 30, 1997 issued to Pacific Capital, L.P.
10.55 Second Amendment to Management and Services Agreement dated as of June 5, 1998 by and between
HLM Design of Northamerica, Inc. and HLM Design.
10.56 Second Amendment to Management and Services Agreement dated as of June 5, 1998 by and between
HLM Design of Southeast, P.C. and HLM Design.
10.57 Second Amendment to Management and Services Agreement dated as of June 5, 1998 by and between
HLM Design of Northwest, Architecture, Engineering and Planning, P.C. and HLM Design.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
21.1* Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 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
EXHIBIT 1.1
May ___, 1998
Berthel Fisher & Company Financial Services, Inc.
100 Second Street S.E.
Cedar Rapids, Iowa 52401
Westport Resources Investment Services, Inc.
315 Post Road West
Westport, Connecticut 06880
Marion Bass Securities Corporation
4000 Park Road
Charlotte, North Carolina 28209
Ladies and Gentlemen:
HLM Design, Inc., a Delaware corporation (the "Company"), of 121 West Trade
Street, Suite 2950, Charlotte, North Carolina 28202, hereby confirms its
agreement with Berthel Fisher & Company Financial Services, Inc. ("Berthel"),
Westport Resources Investment Services, Inc. and Marion Bass Securities
Corporation ("Marion Bass") ("Westport" and "Marion Bass") together with
Berthel, the "Managers") and members of the Underwriting Group (hereinafter, the
Managers and other members of the Underwriting Group being referred to herein as
the "Underwriting Group" or "Underwriters") as follows:
SECTION I
DESCRIPTION OF SECURITIES
The Company's authorized and outstanding capitalization when the
offering of the securities contemplated hereby is permitted to commence and at
the Closing Date (hereinafter defined), will be as set forth in the Registration
Statement and Prospectus included therein (each as hereinafter defined). The
Company proposes to issue and sell to the Underwriting Group an aggregate of One
Million Two Hundred Thousand (1,200,000) shares (the "stock") of its authorized
$0.001 par value common stock, at a price of $________* per share on the terms
as hereinafter set forth. The Underwriting Group shall also have an
over-allotment option to purchase up to an additional One Hundred Eighty
Thousand (180,000) shares as provided in Section 3.01 hereof.
<PAGE>
The Company proposes to issue and sell to the Managers, on the Closing
Date at a price of $.01 per warrant, warrants (the "Warrants") to purchase
shares of the Company's common stock (the "Warrant Stock") as provided in
Section 3.03 hereof.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriting Group to enter into this Agreement,
the Company hereby represents and warrants to and agrees with the Underwriting
Group as follows:
2.01. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement on
Form S-1 (File No. 333-40616) (as amended to date the "Registration Statement"),
with respect to the Stock, including the related Prospectus, copies of which
have heretofore been delivered by the Company to the Managers, has been prepared
by the Company, and conforms in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations ("Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") promulgated thereunder, and said Registration Statement has
been filed with the Commission under the Act; one or more amendments to said
Registration Statement, copies of which have heretofore been delivered to the
Managers, has or have heretofore been filed; and said Registration Statement has
been declared effective (as hereinafter defined) with the Commission.
As used in this Agreement, the term "Registration Statement" refers to
and means said Registration Statement on Form S-1 and all amendments thereto,
including the Prospectus, all exhibits thereto and financial statements, as it
became effective; the term "Prospectus" refers to and means the Prospectus
included in the Registration Statement when it became effective and a Prospectus
filed with the Commission pursuant to Rule 424 of the Act, after the Effective
Date; and the term "Preliminary Prospectus" refers to and means any prospectus
included in said Registration Statement before it became effective. The term
"effective" refers to the entry of an order by the Commission declaring the
Registration Statement effective pursuant to Section 8 of the Act. The term
"Effective Date" refers to the date the Commission declares the Registration
Statement effective.
2.02. ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS. The Commission has
not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Stock, and each Preliminary Prospectus conformed,
when so filed, in all material respects with the requirements of the Act and the
applicable Rules and Regulations of the Commission thereunder and to the best of
the Company's knowledge did not include at the time of filing any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein in light of the circumstances in which they were
made, not misleading. As of the date hereof, and on the Closing Date, the
Registration Statement and Prospectus and any further amendments or supplements
thereto will contain all statements which are required to be stated therein in
accordance
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with the Act and the rules and regulations for the purposes of the proposed
public offering of the Stock, and all statements of material fact contained in
the Registration Statement and Prospectus will be true and correct, and neither
the Registration Statement nor the Prospectus will include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances in which they were made, not misleading; provided, however, the
Company does not make any representations or warranties as to information
contained in or omitted from the Registration Statement or the Prospectus in
reliance upon information furnished on behalf of the Managers specifically for
use in connection with the preparation thereof.
2.03. FINANCIAL STATEMENTS. The financial statements of the Company
together with related schedules and notes as set forth in the Registration
Statement and Prospectus present fairly the financial position of the Company
and the results of its operations and the changes in its financial position at
the respective dates and for the respective periods for which they apply; such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied, throughout the periods indicated
except as otherwise stated therein.
2.04. INDEPENDENT PUBLIC ACCOUNTANT. Deloitte & Touche LLP, which has
certified certain of the financial statements filed with the Commission as part
of the Registration Statement and Prospectus, are independent certified public
accountants within the meaning of the Act and the rules and regulations
promulgated thereunder.
2.05. NO MATERIAL ADVERSE CHANGE. Except as may be reflected in or
contemplated by the Registration Statement or the Prospectus, since the dates as
of which information is given in the Registration Statement and Prospectus, (i)
there has not been any material adverse change in the condition, financial or
otherwise, of the Company or in its business taken as a whole; (ii) there has
not been any material transaction entered into by the Company other than
transactions in the ordinary course of business; (iii) the Company has not
incurred any material obligations, contingent or otherwise, which are not
disclosed in the Prospectus; (iv) there has not been any change in the capital
stock or long-term debt (except current payments) of the Company; and (v) the
Company has not paid or declared any dividends or other distributions on its
common stock.
2.06. NO DEFAULTS. The Company is not in any default, which default has not
been waived, in the performance of any obligation, agreement or condition
contained in any debenture, note or other evidence of indebtedness or any
indenture or loan agreement of the Company. Except with respect to such defaults
which have been waived in writing or for which consents have been obtained in
writing, the execution and delivery of this Agreement and the consummation of
the transactions herein contemplated, and compliance with the terms of this
Agreement will not conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, the certificate of
incorporation, as amended, or bylaws of the Company, any note, indenture,
mortgage, deed of trust, or other agreement or instrument to which the Company
is a party or by which it or any of its property is bound, or any existing law,
order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality, agency or body,
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arbitration tribunal or court, domestic or foreign, having jurisdiction over the
Company or its property. The consent, approval, authorization, or order of any
court or governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
2.07. INCORPORATION AND STANDING. The Company is duly incorporated and
validly existing and is in good standing as a corporation under the laws of the
state of Delaware with authorized and outstanding capital stock as set forth in
the Registration Statement and the Prospectus, and with full corporate power and
authority to own its property and conduct its business, present and proposed, as
described in the Registration Statement and Prospectus; the Company has full
corporate power and authority to enter into this Agreement. The Company is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which it owns or leases real property or transacts business requiring such
qualification, except where the failure to so qualify or to be in good standing
would not result in a material adverse effect on the Company. The Company has no
subsidiaries other than as shown in Exhibit 21.1 to the Registration Statement.
2.08. LEGALITY OF OUTSTANDING STOCK. The outstanding common stock of the
Company has been duly authorized, validly issued and is fully paid and
nonassessable and will conform to all statements with regard thereto contained
in the Registration Statement and Prospectus. No sales of securities have been
made by the Company in violation of the registration provisions of the Act.
2.09. LEGALITY OF STOCK, WARRANT STOCK AND WARRANTS. The Stock and Warrant
Stock have been duly and validly authorized and, when issued and delivered
against payment therefor as described in this Agreement or in the Warrants, as
applicable, will be validly issued, fully paid and nonassessable. The Stock and
Warrant Stock, upon issuance, will not be subject to the preemptive rights of
any shareholders of the Company. The Warrants, when sold and delivered, will
constitute valid and binding obligations of the Company enforceable against it
in accordance with the terms thereof. A sufficient number of shares of common
stock have been reserved for issuance upon exercise of the Warrants. The Stock
and Warrants conform to all statements with regard thereto in the Registration
Statement and Prospectus.
2.10. PRIOR SALES. No securities of the Company or of an affiliate or of a
predecessor of the Company have been sold within one year prior to the date
hereof, except as set out in Item 15 of Part II of the Registration Statement.
2.11. LITIGATION. Except as set forth in the Registration Statement and
Prospectus, there is no action, suit or proceeding before any court or
governmental agency, authority or body pending or, to the knowledge of the
Company, threatened, which might result in judgments against the Company not
adequately covered by insurance or reserves established and reflected in the
Company's financial statements or which collectively might result in any
material adverse change in the condition (financial or otherwise), of the
business, or properties or assets of the Company.
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2.12. WARRANTS. Upon delivery of and payment for the Warrants to be sold by
the Company as set forth in Section 3.03 of this Agreement, the Managers and the
Underwriter's designees will receive good and marketable title thereto, free and
clear of all liens, encumbrances, charges and claims whatsoever arising through
or against the company; and the Company has, as of the date hereof, and will
have at the time of delivery of such Warrants full corporate right and power and
all authorization and approval required by law to sell, transfer and deliver
such Warrants in the manner provided hereunder.
2.13. FINDER. The Company knows of no outstanding claims for services in
the nature of a finder's fee or origination fee with respect to the sale of the
Stock hereunder resulting from its acts for which the Managers may be
responsible.
2.14. EXHIBITS. There are no contracts or other documents which are
required to be filed as exhibits to the Registration Statement by the Act or by
the Rules and Regulations which have not been so filed, and, except as may be
indicated in the prospectus, each contract to which the Company is a party and
to which reference is made in the Prospectus has been duly and validly executed,
is in full force and effect in all material respects in accordance with its
terms, and none of such contracts has been assigned by the Company; and the
Company knows of no present situation or condition or fact which would prevent
its compliance with the terms of such contracts, as amended to date. Except for
amendments or modifications of such contracts in the ordinary course of
business, the Company has no intention of exercising any right which it may have
to cancel any of its obligations under any of such contracts, and has no
knowledge that any other party to any of such contracts has any intention not to
render full performance under such contracts.
2.15. TAX RETURNS. The Company has filed all federal and state tax returns
which are required to be filed by it and has paid all taxes shown on such
returns and on all assessments received by it to the extent such taxes have
become due, except for such taxes, if any, as are being contested in good faith
and as to which adequate reserves have been provided. All taxes with respect to
which the Company is obligated have been paid or adequate accruals have been set
up to cover any such unpaid taxes.
2.16. PROPERTY. Except as otherwise set forth in or contemplated by the
Registration Statement and Prospectus, the Company has good title, free and
clear of all liens, encumbrances and defects, except liens for current taxes not
due and payable, to all property and assets which are described in the
Registration Statement and the Prospectus as being owned by the Company, subject
only to such exceptions as are not material and do not adversely affect the
present or prospective business of the Company.
2.17. AUTHORITY. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action.
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2.18 LEGALITY OF OPERATIONS. The operations of the Company are in
material compliance with applicable state laws governing permitted owners of
engineering and architectural firms, and governing the splitting of professional
fees paid to engineers and architects with persons not licensed to engage in
such professions.
SECTION 3
PURCHASE AND SALE OF THE STOCK
3.01. PURCHASE OF STOCK AND OVER-ALLOTMENT OPTION. The Company hereby
agrees to sell to members of the Underwriting Group named in Schedule I hereto
(for all of whom the Managers are acting), severally and not jointly, and each
member of the Underwriting Group, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees to purchase from the Company, severally and not jointly, the number of
shares of Stock set forth opposite their respective names in Schedule I hereto
at a purchase price of $_____*per share.
The Company hereby grants to the Underwriting Group an option (the
"Option") for a period of 45 days after the date of the Prospectus to purchase
at a purchase price of $_____* per share up to One Hundred Eighty Thousand
(180,000) additional shares of Stock in order to cover over-allotments. The
Option shares of Stock shall be purchased for the account of each member of the
Underwriting Group as nearly as practicable in the proportion that the number of
shares of Stock set opposite the name of each Underwriter in Schedule I hereto
bears to One Million Two Hundred Thousand (1,200,000).
3.01.01. DEFAULT BY AN UNDERWRITER. If any of the Underwriters shall fail
to purchase the entire number of shares of Stock set opposite its name in
Schedule I hereto, and such failure to purchase shall constitute a default by
such Underwriter in the performance of its obligations under this Agreement, the
remaining Underwriters shall have the right and shall be obligated to take up
and pay for (in the respective proportions which the number of shares of Stock
set opposite the names of the several remaining Underwriters bears to the
aggregate number of shares of Stock set opposite the names of all the remaining
Underwriters) the entire amount of shares of Stock which the defaulting
Underwriter agreed but failed to purchase, provided, however, that the aggregate
amount of all such increases for all non-defaulting Underwriters shall not
exceed One Hundred Twenty Thousand (120,000) shares of Stock, and provided,
further, that in the event that such additional shares of Stock shall exceed the
foregoing maximum, the remaining Underwriters shall have the right, but shall
not be obligated, to take up and pay for (in such proportions as may be agreed
upon among them) the entire amount (but not less than all) of the remaining
shares of Stock which all defaulting Underwriters agreed but failed to purchase.
3.01.02. LIABILITY OF DEFAULTING UNDERWRITER. Nothing contained in this
Section 3.01 shall relieve any defaulting Underwriter of its liability, if any,
to the Company or to the remaining Underwriters for damages occasioned by its
default hereunder.
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3.01.03. RIGHTS OF REMAINING UNDERWRITERS. If any of the Underwriters
shall fail to purchase the entire number of shares of Stock set opposite its
name and such failure to purchase shall not constitute a default by such
Underwriter in the performance of its obligations under this Agreement, the
remaining Underwriters shall have the right, but shall not be obligated, to take
up and pay for (in such proportions as may be agreed upon among them) the entire
amount (but not less than all) of the shares of Stock which all withdrawing
Underwriters agreed but failed to purchase.
3.02. PUBLIC OFFERING PRICE. The Underwriters propose to offer the Stock to
the public at a public offering price of $______* per share as set forth in the
Prospectus. The Underwriters may allow such concessions and discounts upon sales
to selected dealers as described in the Registration Statement.
3.02.01. PAYMENT FOR STOCK. Payment for the Stock (including Option
shares) which the underwriters agree to purchase shall be made to the Company by
wire transfer of immediately available funds to a bank account designated by the
Company, upon delivery to the Managers of certificates for shares of stock and
Warrants in definitive form in such numbers and registered in such names as the
Managers request in writing at least two full business days prior to such
delivery.
3.02.02. CLOSING. The time and date of delivery and payment hereunder is
herein called the "Closing Date" and shall take place at the office of Berthel
in Cedar Rapids, Iowa at 11:00 A.M. central time on the third business day
following the execution of this Agreement. Should the underwriting group elect
to exercise any part of the over-allotment option pursuant to Section 3.01
above, the time and date of delivery and payment for said over-allotment shares
shall be as mutually agreed, but not later than the 45th calendar day after the
"Closing Date." Said date is hereinafter referred to as the "Over-Allotment
Closing Date."
3.02.03. INSPECTION OF CERTIFICATES. For the purpose of expediting the
checking and packaging of the certificates for shares and Warrants, the Company
agrees to make the form of certificates available for inspection by the Managers
at least one business day prior to the proposed delivery date.
3.03. SALE OF WARRANTS. The Company will sell and deliver to the Managers,
at a purchase price of $.01 per Warrant, Warrants, dated the date of Closing,
substantially in the form of Exhibit A, attached hereto and by this reference
incorporated herein, evidencing the right of designees of Berthel to purchase
_______________________ shares of Warrant Stock; the right of designees of
Westport to purchase ____________________________ shares of Warrant Stock; and
the right of designees of Marion Bass to purchase _____________________________
shares of Warrant Stock at the price per share and upon the terms and conditions
provided in the Warrants. The Company shall not be obligated to sell and deliver
the Warrants, and the Managers will not be obligated to purchase and pay for the
Warrants, except upon payment for the shares of stock pursuant to Subsection
3.02.01 hereof.
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3.04. UNDERWRITER'S EXPENSE ALLOWANCE. It is understood that the Company
shall reimburse the Managers for their actual out-of-pocket expenses in the
amount of UP TO 1.365% of the gross proceeds from the offering, excluding
proceeds from the sale of the over-allotment shares. At the Closing and, if
applicable, on the Over-Allotment Closing Date, the Company shall pay to
the Managers the unpaid balance of such allowance to defray the expenses
incurred by the Underwriters in connection with the offering. The Underwriters
shall be solely responsible for all expenses incurred by the Underwriters in
connection with the offering including, but not limited to, the expenses of
their own counsel, except with respect to costs of qualifying the stock under
the state securities or blue sky laws to the extent expressly set forth in
subsection 5.07 hereof.
3.05. REPRESENTATIONS OF THE PARTIES. The parties hereto respectively
represent that as of the Closing Date the representations herein contained and
the statements contained in all the certificates theretofore or simultaneously
delivered by any party to another, pursuant to this Agreement, shall in all
material respects be true and correct.
3.06. POST-CLOSING INFORMATION. The Managers covenant that reasonably
promptly after the Closing Date, they will supply the Company with all such
information as the Company may reasonably request to be supplied to the
securities commissions of such states in which the Stock has been qualified for
sale.
3.07. RE-OFFERS BY SELECTED DEALERS. On each sale by the Underwriters of
any of the Stock to selected dealers, the Managers shall require the selected
dealer purchasing any such Stock to agree to re-offer the same on the terms and
conditions of the offering set forth in the Registration Statement and
Prospectus.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
4.01. DELIVERY OF REGISTRATION STATEMENTS. The Company shall deliver to the
Managers without charge two signed copies of the Registration Statement,
including all financial statements and exhibits filed therewith and any
amendments or supplements thereto, and shall deliver without charge to the
Managers five conformed copies of the Registration Statement and any amendment
or supplement thereto, including such financial statements and exhibits. The
signed copies of the Registration Statement so furnished to the Managers will
include signed copies of any and all consents and certificates of the
independent public accountant certifying to the financial statements included in
the Registration Statement and Prospectus and signed copies of any and all
consents and certificates of any other persons whose profession gives authority
to statements made by them and who are named in the Registration Statement or
Prospectus as having prepared, certified, or reviewed any part thereof.
4.02. DELIVERY OF PRELIMINARY PROSPECTUS. The Company will deliver to the
Managers, without charge, as many copies of each Preliminary Prospectus filed
with the Commission bearing
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in red ink the statement required by Regulation S-K, Item 501(c)(8) as may be
reasonably requested by the Underwriters. The Company consents to the use of
such documents by the Underwriters and by dealers prior to the Effective Date.
The Company will deliver at its expense such copies of the Preliminary
Prospectus as the Managers may deem reasonably necessary in order to recirculate
the Preliminary Prospectus and/or to permit compliance with the provisions of
Rule 15c-2(8)(b) promulgated pursuant to the Securities Exchange Act of 1934, as
amended ("Exchange Act").
4.03. DELIVERY OF PROSPECTUS. The Company will deliver, at its expense, as
many printed copies of the Prospectus as the Managers may reasonably request for
the purposes contemplated by this Agreement and shall deliver said printed
copies of the Prospectus to the Managers as soon as practicable on effectiveness
of this Agreement, but in no event more than one business day after the date of
this Agreement. The Company will deliver such additional copies at its expense
as may be reasonably necessary to permit dealers to comply with the requirements
of Rule 174 promulgated pursuant to the Act.
4.04. FURTHER AMENDMENTS AND SUPPLEMENTS. If during such period of time as
in the opinion of the Managers or their respective counsel a Prospectus is
required to be delivered under the Act, any event occurs or any event known to
the Company relating to or affecting the Company shall occur as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact, or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time after the Effective Date
to amend or supplement the Prospectus to comply with the Act, the Company will
forthwith notify the Managers thereof and prepare and file with the Commission
such further amendment to the Registration Statement or supplemental or amended
Prospectus as may be required and furnish and deliver to the Managers and to
others whose names and addresses are designated by the Managers, all at the cost
of the Company, a reasonable number of copies of the amended or supplemented
Prospectus which as so amended or supplemented will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the Prospectus, in the light of the circumstances under which it
is delivered to a purchaser or prospective purchaser, not misleading, and which
will comply in all material respects with the Act.
4.05. USE OF PROSPECTUS. The Company authorizes the Underwriters in
connection with the distribution of the Stock and all dealers to whom any of the
Stock may be sold by the Underwriters to use the Prospectus as from time to time
amended or supplemented, in connection with the offering and sale of the Stock
and in accordance with the applicable provisions of the Act and the applicable
Rules and Regulations and applicable state blue sky or securities laws.
SECTION 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Underwriters that:
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5.01. OBJECTION OF MANAGERS TO AMENDMENTS OR SUPPLEMENTS. After the
Effective Date, the Company will not at any time, file any amendment or
supplement to the Registration Statement or Prospectus, unless and until a copy
of such amendment or supplement has been previously furnished to the Managers
within a reasonable time period prior to the proposed filing thereof, or to
which the Managers or counsel for the Managers has reasonably objected, in
writing, on the ground that such amendment or supplement is not in compliance
with the Act or the Rules and Regulations.
5.02. BEST-EFFORTS TO CAUSE AMENDMENTS TO BECOME EFFECTIVE. The Company
will use its best efforts to cause any post-effective amendment subsequently
filed, to become effective as promptly as reasonably practicable and will
promptly advise the Managers, and will confirm such advice in writing (i) when
any amendment to the Registration Statement shall have become effective and when
any amendment of or supplement to the Prospectus shall be filed with the
Commission, (ii) when the Commission shall make a request or suggestion for any
amendment to the Registration Statement or the Prospectus or for additional
information and the nature and substance thereof, (iii) of the issuance by the
Commission of an order suspending the effectiveness of the Registration
Statement pursuant to Section 8 of the Act or of the initiation of any
proceedings for that purpose, (iv) of the happening of any event, during the
period of time as in the opinion of the managers or their respective counsel a
prospectus is required to be delivered under the act, which in the judgment of
the Company makes any material statement in the Registration Statement or
Prospectus untrue or which requires the making of any changes in the
Registration Statement or Prospectus in order to make the statements therein not
misleading, and (v) of the refusal to qualify or the suspension of the
qualification of the Stock by any authority of competent jurisdiction for
offering or sale in any jurisdiction, or of the institution of any proceedings
by any authority of competent jurisdiction for any of such purposes. The Company
will use every reasonable effort to prevent the issuance of any such order or of
any order preventing or suspending such use, to prevent any such refusal to
qualify or any such suspension, and to obtain as soon as possible a lifting of
any such order, the reversal of any such refusal and the termination of any such
suspension.
5.03. PREPARATION AND FILING OF AMENDMENTS AND SUPPLEMENTS. The Company
will prepare and file promptly with the Commission, upon request of the
Managers, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to counsel to the Company, as in the opinion of
counsel to the Managers and of counsel to the Company may be necessary in
connection with the offering or distribution of the Stock and will use its best
efforts to cause the same to become effective as promptly as possible.
5.04. BLUE SKY QUALIFICATION. The Company will, when and as requested by
the Managers, use reasonable efforts in cooperation with the Managers to qualify
the Stock or such part thereof as the Managers may determine for sale under the
so-called blue sky laws of the States of North Carolina and Iowa and of so many
other states as the Managers may reasonably request, and to continue such
qualification in effect so long as required for the purposes of the distribution
of the Stock.
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5.05. FINANCIAL STATEMENTS. The Company at its own expense will prepare and
give and will continue to give such financial statements and other information
to and as may be required by the Commission, or the proper public bodies of the
states in which the Stock may be qualified.
5.06. REPORTS AND FINANCIAL STATEMENTS TO THE MANAGERS. During the period
of five years from the Closing Date, the Company will deliver to the Managers
(i) copies of each annual report of the Company and reports filed by the Company
pursuant to the Exchange Act, (ii) copies of all other statements, documents, or
other information which the Company shall mail or otherwise make available to
any class of its security holders, or shall file with Commission; and (iii) upon
request in writing from the Managers, furnish to the Managers such other
information as may reasonably be requested and which may be properly disclosed
to the Managers with reference to the property, business and affairs of the
Company and its subsidiaries, if any.
5.07. EXPENSES PAID BY THE COMPANY. The Company will pay, whether or not
the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to the authorization of the Stock and their issue and
delivery to the Managers, any original issue taxes in connection therewith, all
transfer taxes, if any, incident to the initial sale of the Stock to the public,
the fees and expenses of the Company's counsel and accountants, the costs and
expenses incident to the preparation, printing and filing under the Act and with
the National Association of Securities Dealers, Inc. of the Registration
Statement, any Preliminary Prospectus and the Prospectus and any amendments or
supplements thereto, the cost of printing, reproducing and filing all exhibits
to the Registration Statement, the underwriting documents and the Selected
Dealers Agreement, the cost of printing and furnishing to the Managers copies of
the Registration Statement and copies of the Prospectus as herein provided, and
the cost of qualifying the Stock under the state securities or Blue Sky laws as
provided in Section 5.04 herein, including expenses and disbursements of the
Managers incurred in connection with such qualification.
5.08. REPORTS TO SHAREHOLDERS. During the period of five years from the
Closing Date, the Company will, in compliance with the requirements of the
Exchange Act and rules for Small Cap listed companies on the National
Association of Securities Dealers Automated Quotation system,
render and distribute reports to its shareholders which will include audited
statements of its operations and changes of financial position during such
period and its balance sheet as of the end of such period, as to which
statements the Company's independent certified public accountants shall have
rendered an opinion.
5.09. SECTION 11(A) FINANCIALS. The Company will make generally available
to its security holders and will deliver to the Managers, as soon as
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (as to which
no opinion need be rendered but which will satisfy the provisions of Section
11(a) of the Act) covering a period of at least 12 months beginning after the
Effective Date.
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5.10. POST-EFFECTIVE AVAILABILITY OF PROSPECTUS. Within the time during
which the Prospectus is required to be delivered under the Act, the Company will
comply, at its own expense, with all requirements imposed upon it by the Act, as
now or hereafter amended, by the Rules and Regulations, as from time to time may
be in force, and by any order of the Commission, so far as necessary to permit
the continuance of sales or dealings in the Stock.
5.11. APPLICATION OF PROCEEDS. The Company will apply the net proceeds from
the sale of the Stock substantially in the manner set forth in the Registration
Statement and Prospectus.
5.12. UNDERTAKINGS OF CERTAIN SHAREHOLDERS. The Company will deliver to the
Managers, on the effective date, the undertaking of each of Joseph M. Harris and
Vernon B. Brannon that such person shall not directly or indirectly offer or
sell to the public, or privately, any shares of common stock or other equity
securities of the Company for a period of twelve months from the Effective Date
without Berthel's prior written consent.
5.13. DELIVERY OF DOCUMENTS. At the Closing, the Company will deliver to
the Managers true and correct copies of the certificate of incorporation of the
Company and all amendments thereto, all such copies to be certified by the
Secretary of State of the State of Delaware; true and correct copies of the
bylaws of the Company and of the minutes of all meetings of the directors and
shareholders of the Company held prior to the Closing Date which in any way
relate to the subject matter of this Agreement; and true and correct copies of
all material contracts to which, the Company is a part, other than contracts for
the sale of products or services in the normal course of business.
5.14. COOPERATION WITH UNDERWRITER'S DUE DILIGENCE. At all times prior to
the Closing Date, the Company will cooperate with the Managers in such
investigation as the Managers may make or cause to be made of all the
properties, business and operations of the Company in connection with the
purchase and public offering of the Stock, and the Company will make available
to the Managers in connection therewith such information in its possession as
the Managers may reasonably request.
5.15. NO SALE PERIOD. No offering, sale or other disposition of any common
stock, equity securities will be made within one year after the Effective Date,
directly or indirectly, by the Company, otherwise than hereunder or with
Berthel's consent, except that the Company shall be permitted without further
consent from Berthel to offer, sell or otherwise dispose of common stock or
other equity securities as consideration for the execution of new Management and
Services Agreements.
5.16. APPOINTMENT OF TRANSFER AGENT. The Company has appointed First Union
National Bank as Transfer Agent for the Stock subject to the Closing. The
Company will not voluntarily
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change or terminate such appointment for a period of three years from the
Effective Date without first obtaining the written consent of the Managers,
which consent shall not be unreasonably withheld.
5.17. COMPLIANCE WITH CONDITIONS PRECEDENT. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Underwriters in Section 8 hereof.
5.18. REGISTRATION UNDER THE EXCHANGE ACT. The Company has registered the
class of equity securities that includes the Stock by filing with the Commission
a registration statement (and such copies thereof as the Commission may require)
with respect to such security, to register a security pursuant to subsection (g)
of Section 12 of the Act.
5.19. APPLICATION TO NASDAQ SMALL CAP. The Company has applied for and
obtained admission for quotation of the Stock on the Small Cap listing of the
National Association of Securities Dealers Automated Quote system commencing the
next business day following the Effective Date.
5.20 BERTHEL'S Board OBSERVER. Following the Closing, and for a period of
three (3) years after the Closing, the Company will grant to Berthel the right
to designate one individual, to whom the Company shall give notice of, and whom
the Company shall permit to attend and observe meetings of the Board of
Directors of the Company.
5.21 KEY MAN LIFE INSURANCE. The Company has in force, and will maintain
for a period of five (5) years following the Closing, "key man" life insurance
on the life of Joseph M. Harris, in the amount of $1,000,000.
SECTION 6
INDEMNIFICATION
6.01. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and hold
harmless the Underwriters and each person, if any, who controls any of the
Underwriters within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or expenses incurred by them, arising out
of any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereto or
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the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, all as of the date when
the Registration Statement or such amendment, as the case may be, becomes
effective, or any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (as amended or supplemented if the Company
shall have filed with the Commission any amendments thereof or supplements
thereto), or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the indemnity agreement contained in this subsection 6.01 shall not apply
to amounts paid in settlement of any litigation if such settlements are effected
without the written consent of the Company, nor shall it apply to the
Underwriters or any person controlling the Underwriters in respect of any such
losses, claims, damages, liabilities or actions arising out of or based upon any
such untrue statements or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information furnished in writing to the Company by any Underwriter specifically
for use in connection with the preparation of the Registration Statement and
Prospectus or any such amendment or supplement thereto. This indemnity agreement
is in addition to any other liability which the Company may otherwise have to
the Underwriters. The Underwriters agree within ten days after the receipt by
them of written notice of the commencement of any action against them or against
any person controlling them as aforesaid, in respect of which indemnity may be
sought from the Company on account of the indemnity agreement contained in this
subsection 6.01, to notify the Company in writing of the commencement thereof.
The failure of the Underwriters so to notify the Company of any such action
shall relieve the Company from any liability which it may have to the
Underwriters or any person controlling them as aforesaid on account of the
indemnity agreement contained in this subsection 6.01, but shall not relieve the
Company from any other liability which it may have to the Underwriters or such
controlling person. In case any such action shall be brought against the
Underwriters, or any of them, or any such controlling person and the Managers
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate in (and, to the extent that it shall wish, to direct)
the defense thereof at its own expense, but such defense shall be conducted by
counsel reasonably satisfactory to the Managers or such controlling person or
persons, defendant or defendants in such litigation. The Company agrees to
notify the Managers promptly of commencement of any litigation or proceedings
against it or any of its officers or directors, of which it may be advised, in
connection with the issue and sale of any of its securities and to furnish to
the Managers, at their request, copies of all pleadings therein and permit the
Managers to be an observer therein and apprise the Managers of all developments
therein, all at the Company's expense. Notwithstanding the foregoing, in no
event shall the indemnification agreement contained in this Section 6.01 inure
to the benefit of any Managers (or any person controlling such Managers) on
account of any losses, claims, damages, liabilities or actions arising from the
sale of the common stock upon the public offering to any person by such Managers
if such losses, claims, damages, liabilities or actions arise out of, or are
based upon, an untrue statement or omission or alleged untrue statement or
omission in a Preliminary Prospectus and if the Prospectus shall correct the
untrue statement or omission or the alleged untrue statement or omission which
is the basis of the loss, claim, damage, liability or
14
<PAGE>
action for which indemnification is sought and a copy of the Prospectus had not
been sent or given to such person at or prior to the confirmation of such sale
to him in any case where such delivery is required by the Securities Act, unless
such failure to deliver the Prospectus was a result of non-compliance by the
Company with Section 4.03 hereof.
6.02. INDEMNIFICATION BY UNDERWRITERS. The Underwriters severally agree to
indemnify and hold harmless the Company, the directors of the Company, each of
the Company's officers who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the Act
against any and all losses, liabilities, claims, damages and expenses described
in the indemnity contained in subsection 6.01 as incurred by them, but only with
respect to any statement in or omission from, or alleged untrue statement or
omissions made in the Registration Statement or any amendment thereto, or the
Prospectus (as amended or as supplemented, if amended or supplemented as
aforesaid) or any application or other document filed in any state or
jurisdiction in order to qualify the Stock under the blue sky or securities laws
thereof, or any information furnished pursuant to Section 3.05 hereof, if such
statement or omission was made in reliance upon information furnished in writing
to the Company by the Underwriters on its behalf specifically for use in
connection with the preparation thereof or supplement thereto. The Underwriters
shall not be liable for amounts paid in settlement of any litigation if such
settlement was effected without the consent of the Underwriters. In case of
commencement of any action in respect of which indemnity may be sought from the
Underwriters on account of the indemnity agreement contained in this subsection
6.02, each person agreed to be indemnified by the Underwriters shall have the
same obligation to notify the Underwriters as the Underwriters have toward the
Company in subsection 6.01 above, subject to the same loss of indemnity in the
event such notice is not given, and the Underwriters shall have the same right
to participate in (and, to the extent that they shall wish, to direct) the
defense of such action at their own expense, but such defense shall be conducted
by counsel reasonably satisfactory to the Company. The Underwriters agree to
notify the Company promptly of the commencement of any litigation or proceeding
against the Underwriters or against any such controlling person, of which it may
be advised, in connection with the issue and sale of any of the securities of
the Company, and to furnish to the Company at its request copies of all
pleadings therein and apprise it of all the developments therein, all at the
Underwriters' expense, and permit the Company to be an observer therein.
SECTION 7
There is no Section 7.
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SECTION 8
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The Underwriters' obligations hereunder to purchase the Stock and to
make payment to the Company hereunder on the Closing Date shall be subject to
the accuracy, as of the Closing Date, of the representations and warranties on
the part of the Company herein contained, to the performance by the Company of
all its agreements herein contained, to the fulfillment of or compliance by the
Company with all covenants and conditions hereof, and to the following
additional conditions:
8.01. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
has been made effective by the Commission, and no order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose shall have been initiated or threatened by the Commission or
shall be pending; any request for additional information on the part of the
Commission (to be included in the Registration Statement or Prospectus or
otherwise) has been complied with to the satisfaction of the Commission; and
neither the Registration Statement or the Prospectus nor any amendment thereto
shall have been filed to which counsel to the Managers shall have reasonably
objected in writing or have not given their consent.
8.02. ACCURACY OF REGISTRATION STATEMENT. The Managers shall not have
disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of counsel to the Managers, is
material, or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein, or is necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
8.03. CASUALTY AND OTHER CALAMITY. Between the date hereof and the Closing
Date, the Company shall not have sustained any loss on account of fire,
explosion, flood, accident, calamity or any other cause, of such character as
materially adversely affects its business or property considered as an entire
entity, whether or not such loss is covered by insurance, and neither Joseph M.
Harris, President of the Company nor Vernon B. Brannon, Chief Financial Officer
of the Company shall have suffered any injury or disability of a nature which
would materially adversely affect his ability to properly function as an officer
and director of the Company.
8.04. LITIGATION AND OTHER PROCEEDINGS. Between the date hereof and the
Closing Date, there shall be no litigation instituted or threatened against the
Company and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially adversely affect the
business, franchises, licenses, patents, operations or financial condition or
income of the Company considered as a whole.
16
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8.05. LACK OF MATERIAL CHANGE. Except as contemplated herein or as set
forth in the Registration Statement and Prospectus, during the period subsequent
to the date of the last audited balance sheet included in the Registration
Statement and prior to the Closing Date, the Company (A) shall have conducted
its business in all material respects in the usual and ordinary manner as the
same was being conducted on the date of the last audited balance sheet included
in the Registration Statement, and (B) except in the ordinary course of its
business, the Company shall not have incurred any material liabilities or
obligations (direct or contingent) or disposed of any material portion of its
assets, or entered into any material transaction or suffered or experienced any
substantially adverse change in its condition, financial or otherwise. At the
Closing Date, the capital stock and surplus accounts of the Company shall be
substantially the same as at the date of the last audited balance sheet included
in the Registration Statement, without considering the proceeds from the sale of
the Stock, other than as may be set forth in the Prospectus, and except as the
surplus reflects the result of continued losses from operations.
8.06. REVIEW BY UNDERWRITER'S COUNSEL. The authorization of the Stock, the
Warrants, the Warrant Stock, the Registration Statement, the Prospectus and all
corporate proceedings and other legal matters incident thereto and to this
Agreement shall be reasonably satisfactory in all material respects to counsel
to the Managers.
8.07. OPINION OF COUNSEL. The Company shall have furnished to the Managers
the opinion, or opinions, dated the Closing Date, addressed to the Managers,
from counsel to the Company reasonably acceptable to the Managers and their
counsel, to the effect that based upon a review of the Registration Statement,
Prospectus, the Company's certificate of incorporation, bylaws, and relevant
corporate proceedings, an examination of such statutes as they deem necessary
and such other investigation as they deem necessary to express such opinion:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of Delaware, with full
corporate power and authority to own and operate its properties and to carry on
its business as set forth in the Registration Statement and Prospectus.
(ii) The Company is qualified as a foreign corporation in the
state of North Carolina and there is no other state in which the Company's
ownership of property or its conduct of business known to such counsel requires
such qualification and where the failure to so qualify would have a material
adverse effect on its operations.
(iii) The Company has authorized and outstanding capital stock
as set forth in the Registration Statement and Prospectus; the outstanding
common stock of the Company, the Stock, and the Warrants conform to the
statements concerning them in the Registration Statement and Prospectus; the
outstanding common stock of the Company has been duly and validly issued and is
fully-paid and nonassessable and contains no preemptive rights; the Stock and
the shares of Warrant Stock issuable upon exercise of the Warrants will be, upon
issuance thereof and payment therefor
17
<PAGE>
in accordance with this Agreement and the Warrants, duly and validly issued,
fully paid and nonassessable, and will not be subject to the preemptive rights
of any shareholder of the Company.
(iv) The Warrants have been duly and validly authorized and
issued and are valid and binding instruments enforceable in accordance with
their terms under the laws of the State of Delaware.
(v) A sufficient number of shares of common stock have been
duly reserved for issuance upon exercise of the Warrants.
(vi) To the knowledge of such counsel, no consents, approvals,
authorizations or orders of regulatory agencies, offices or authorities are
known to such counsel which are necessary for the valid authorization, issue or
sale of the Stock hereunder, except as required under the Act or blue sky or
state securities laws or such as have been obtained.
(vii) The issuance and sale of the Stock, the Warrants, and
the consummation of the transactions contemplated by this Agreement and
compliance with the terms of this Agreement by the Company will not violate or
result in a breach by the Company of any of the terms, conditions, or provisions
of or constitute a default by the Company under the certificate of
incorporation, or bylaws of the Company, or any material note, indenture,
mortgage, deed of trust, or other material agreement or instrument known to such
counsel (as identified on a schedule attached to such opinion) to which the
Company is a party or by which the Company or any of its property is bound or
any existing law (provided this paragraph shall not relate to federal or state
securities laws), order, rule, regulation, writ, injunction, or decree known to
such counsel of any government, governmental instrumentality, agency, body,
arbitration tribunal, or court, domestic or foreign, having jurisdiction over
the Company or its property.
(viii) The Registration Statement has become effective under
the Act and, to the knowledge of such counsel, no order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened by the
Commission under the Act; the Registration Statement and Prospectus, and each
amendment and supplement thereto, as of the effective date comply as to form in
all material respects with the requirements of the Act and the Rules and
Regulations thereunder; all contracts, to the extent described in the
Registration Statement or Prospectus, are sufficiently summarized or described
therein, or filed as exhibits thereto as required, and such counsel does not
know of any other contracts required to be summarized or disclosed or filed as
exhibits; and such counsel, does not know of any legal or governmental
proceedings pending or threatened to which the Company is the subject which
might reasonably be expected to result in a material adverse effect.
(ix) This Agreement has been duly authorized and executed by
the Company.
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(x) The operations of the Company are in material compliance
with applicable state law governing permitted owners of engineering and
architectural firms, and governing the splitting of professional fees paid to
engineers and architects with persons not licensed to engage in such
professions.
As to routine factual matters such as the issuance of stock
certificates and receipt of payment therefor, the states in which the Company
transacts business, the adoption of resolutions reflected by the Company's
minute book and the like, such counsel may rely on the certificate of an
appropriate officer of the Company.
8.08.01. ACCOUNTANT'S LETTER. The Managers shall have received a letter
addressed to it and dated the date of this Agreement and the Closing Date,
respectively, from Deloitte & Touche LLP, independent public accountants for the
Company, stating that (i) with respect to the Company they are independent
public accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and the response to Item 509 of Regulation S-K
as reflected by the Registration Statement is correct insofar as it relates to
them; (ii) in their opinion, the financial statements examined by them of the
Company at all dates and for all periods referred to in their opinion and
included in the Registration Statement and Prospectus, comply in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder with respect to registration
statements on Form S-1; (iii) on the basis of certain indicated procedures (but
not an examination in accordance with generally accepted auditing standards),
including examinations of the instruments of the Company set forth under
"Capitalization" in the Prospectus, a reading of the latest available interim
unaudited financial statements of the Company, whether or not appearing in the
Prospectus, inquiries of the officers of the Company or other persons
responsible for its financial and accounting matters regarding the specific
items for which representations are requested below and a reading of the minute
books of the Company, nothing has come to their attention which would cause them
to believe that during the period from the last audited balance sheet included
in the Registration Statement to a specified date not more than five days prior
to the date of such letter (a) there has been any change in the capital stock or
other securities of the Company or any payment or declaration of any dividend or
other distribution in respect thereof or exchange therefor from that shown on
its latest audited balance sheet which was included in the Prospectus or in the
debt of the Company from that shown or contemplated under "Capitalization" in
the Registration Statement or Prospectus other than as set forth in or
contemplated by the Registration Statement or Prospectus; (b) there have been
any material decreases in net current assets or net assets as compared with
amounts shown in the last audited balance sheet included in the Prospectus so as
to make said financial statements misleading; and (c) on the basis of the
indicated procedures and inquiries referred to in clause (iii) above, nothing
has come to their attention which, in their judgment, would cause them to
believe or indicate that (1) the unaudited financial statements and schedules
set forth in the Registration Statement and Prospectus do not present fairly the
financial position and results of operations of the Company, for the periods
indicated, in conformity with the generally accepted accounting principles
applied on a consistent basis with the audited financial statements, OR (2) the
dollar amounts, percentages and other financial
19
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information set forth in the Registration Statement and Prospectus under the
captions "Prospectus Summary," "Risk Factors," "Dilution," "Capitalization,"
"Management Stock Option Plan," "Principal Stockholders" and "Certain
Transactions," are not in agreement with the Company's general ledger, financial
records or computations made by the Company therefrom.
8.08.02. CONFORMED COPIES OF ACCOUNTANT'S LETTER. The Managers shall be
furnished without charge, in addition to the original signed copies, such number
of signed or photostatic or conformed copies of such accountants' letter as the
Managers shall reasonably request.
8.09. OFFICERS' CERTIFICATE. The Company shall have furnished to the
Managers a certificate of the Company, executed by the President and Chief
Financial Officer, dated as of the Closing Date, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct at and as of the Closing Date, and the Company
has complied with all the agreements and has satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date.
(ii) The Registration Statement has become effective and no
order suspending the effectiveness of the Registration Statement has been issued
and to the best of the knowledge of the respective signers, no proceeding for
that purpose has been initiated or is threatened by the Commission.
(iii) They have each carefully examined the Registration
Statement and Prospectus and any amendments and supplements thereto, and to the
best of their knowledge, the Registration Statement and the Prospectus and any
amendments and supplements thereto contain all statements required to be stated
therein, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading and, since the Effective Date, there has occurred no
event required to be set forth in an amended or a supplemented Prospectus which
has not been so set forth.
(iv) Except as set forth in the Registration Statement and
Prospectus, since the respective dates as of which the periods for which
information is given in the Registration Statement and Prospectus and prior to
the date of such certificate (A) there has not been any substantially adverse
change, financial or otherwise, in the affairs or condition of the Company, and
(B) the Company has not incurred any material liabilities, direct or contingent,
or entered into any material transactions, otherwise than in the ordinary course
of business.
20
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(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, no dividends or
distribution whatever have been declared and/or paid on or with respect to the
common stock of the Company.
8.10. TENDER OF DELIVERY OF STOCK. All of the Stock being offered by the
Company and the Warrants being purchased from the Company by the Managers shall
be tendered for delivery in accordance with the terms and provisions of this
Agreement.
8.11. BLUE SKY QUALIFICATION. The Stock shall be qualified in such states
as the Managers may reasonably request pursuant to Section 5.04, and each such
qualification shall be in effect and not subject to any stop order or other
proceeding by a regulating authority of competent jurisdiction on the Closing
Date.
8.12. APPROVAL OF UNDERWRITER'S COUNSEL. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Managers, whose approval shall
not be unreasonably withheld. The suggested form of such documents shall be
provided to the counsel for the Managers at least one business day before the
Closing Date. The Underwriter's counsel will provide a written memorandum
stating such closing documents which he deems necessary for their review. Such
memorandum shall be delivered five business days before the Closing Date to
counsel for the Company.
8.13. OFFICERS' CERTIFICATE AS A COMPANY REPRESENTATIVE. Any certificate
signed by an officer of the Company and delivered to the Managers or to counsel
for the Managers will be deemed a representation and warranty by the Company to
the Managers as to the statements made therein.
SECTION 9
TERMINATION
9.01. TERMINATION BECAUSE OF NON-COMPLIANCE. This Agreement may be
terminated by the Managers by notice to the Company at any time prior to the
Closing Date in the event that the Company shall have failed or been unable to
comply with any of the terms, conditions or provisions of this Agreement on the
part of the Company to be performed, complied with or fulfilled on or prior to
the Closing (including but not limited to those specified in Sections 2, 3, 4,
5, and 8 hereof) within the respective times herein provided for, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Managers in writing.
9.02. MARKET OUT TERMINATION. This Agreement may be terminated by the
Managers by notice to the Company at any time on or prior to the Closing Date
if, in the reasonable judgment of the Managers, payment for and delivery of the
Stock is rendered impracticable or inadvisable because (i) trading in securities
generally on the New York Stock Exchange, American Stock
21
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Exchange, or NASDAQ shall have been halted, suspended or materially limited,
(ii) a general moratorium on commercial banking activities in New York, Iowa,
North Carolina or Delaware shall have been declared by either federal or state
authorities, or (iii) a war or other national calamity, crisis or change in
political, financial, or economic conditions, shall have occurred, the effect of
which on the financial markets of the United States is such that it would be
undesirable, impracticable or inadvisable in the reasonable judgment of the
Managers to proceed or continue with this Agreement or with the public offering.
Notice of such termination may be given to the Company by telegram, telecopy or
telephone and shall subsequently be confirmed by letter.
9.03. EFFECT OF TERMINATION HEREUNDER. Any termination of this Agreement
pursuant to this Section 9 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party thereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it pursuant to
Section 5.07; and the Company and the Managers shall be obligated to pay,
respectively, all losses, claims, damages or liabilities, joint or several,
under Section 6.01 in the case of the Company and Section 6.02 in the case of
the Managers.
SECTION 10
UNDERWRITERS' REPRESENTATIONS AND WARRANTIES
The Underwriters represent and warrant to and agree with the Company
that:
10.01. REGISTRATION AS BROKER-DEALER AND MEMBER OF NASD. Each Underwriter is
registered as a broker-dealer with the Commission and is registered as a
broker-dealer in all states in which it conducts business and is a member in
good standing of the National Association of Securities Dealers, Inc.
10.02. NO PENDING PROCEEDINGS. There is not now pending or threatened
against the Managers any action or proceeding of which they have been advised,
by or before the Commission or any state securities commission concerning its
activities as a broker or dealer, nor has any of the Managers been named as a
"cause" in any such action or proceeding.
10.03. COMPANY'S RIGHT TO TERMINATE. In the event any action or proceeding
of the type referred to in Section 10.02 above shall be instituted or threatened
against the Managers at any time prior to the Closing Date, or in the event
there shall be filed by or against any of the Managers in any court pursuant to
any federal, state, local or municipal statute, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of any of the assets or if any of them makes an assignment for the benefit of
creditors, the Company shall have the right upon written notice to the Managers
to terminate this Agreement without any liability to the Managers of any kind
except for the payment of expenses as provided herein.
22
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SECTION 11
NOTICE
Except as otherwise expressly provided in this Agreement:
11.01. NOTICE TO THE COMPANY. Whenever notice is required by the provisions
of this Underwriting Agreement to be given to the Company, such notice shall be
in writing addressed to the Company as follows:
HLM Design, Inc.
c/o Mr. Joseph M. Harris
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
with a copy to:
Mr. Gary C. Ivey
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
11.02. NOTICE TO THE UNDERWRITERS. Whenever notice is required by the
provisions of this Agreement to be given to the Underwriters, such notice shall
be given in writing addressed to the Managers at the addresses set out at the
beginning of this Agreement, with a copy to:
Mr. Michael K. Denney
Bradley & Riley, P.C.
100 First Street S.W.
Cedar Rapids, Iowa 52404
SECTION 12
MISCELLANEOUS
12.01. BENEFIT. This Agreement is made solely for the benefit of the
Underwriters, and the Company, their respective officers and directors and (for
the limited purposes of Section 6 hereof) any controlling person referred to in
Section 15 of the Act, and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successor" or the term "successors and assigns" as used in this Agreement
shall not include any purchasers, as such, of any of the Stock.
23
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12.02. SURVIVAL. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company or its officers as set
forth in or made pursuant to this Agreement and the indemnity agreements of the
Company and the Underwriters contained in Section 6 hereof shall survive and
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company or the Underwriters or any such officer or director
thereof or any controlling person of the Company or of the Underwriters, (ii)
delivery of or payment for the Stock, and (iii) the Closing Date. Any successor
of the Company and the Underwriters or any controlling person, officer or
director thereof, as the case may be, shall be entitled to the benefits hereof.
12.03. GOVERNING LAW. The validity, interpretation and construction of this
Agreement and of each part hereof will be governed by the laws of the State of
Iowa.
12.04. UNDERWRITERS' INFORMATION. The statements with respect to the public
offering of the Stock on the cover page of the Prospectus and under the caption
"Underwriting" in the Prospectus constitute the written information furnished by
or on behalf of the Underwriters referred to in subsection 2.02 hereof, in
subsection 6.01 hereof and subsection 6.02 hereof.
12.05. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
12.06 TERMINATION OF LETTER OF INTENT. Upon the execution and delivery
hereof, that certain Letter of Intent between Berthel and the Company executed
by the Company as of August 12, 1997 is hereby terminated and superseded in all
respects and is of no further force or effect.
24
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SIGNATURE PAGE FOR UNDERWRITING AGREEMENT
Please confirm that the foregoing correctly sets forth the Agreement between you
and the Company.
Very truly yours,
HLM Design, Inc.
By: __________________________________
Joseph M. Harris, President
By: __________________________________
Vernon B. Brannon, Chief Financial Officer
25
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ACCEPTANCE AND ACKNOWLEDGMENT PAGE FOR UNDERWRITING AGREEMENT
WE HEREBY CONFIRM AS OF THE DATE HEREOF
THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND THE
UNDERWRITERS.
Berthel Fisher & Company Financial Services, Inc.
(for itself and as representative of the members of the Underwriting Group)
By: ____________________________________
Thomas J. Berthel, Chairman
Westport Resources Investment Services, Inc.
(for itself)
By: ____________________________________
John Lane, Vice President
Marion Bass Securities Corporation
(for itself)
By: ____________________________________
Marion Bass, President
26
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SCHEDULE I
UNDERWRITING COMMITMENTS
Berthel Fisher & Company Financial Services, Inc. shares
Westport Resources Investment Services, Inc. shares
Marion Bass Securities Corporation shares
27
1,200,000 SHARES
HLM DESIGN, INC.
AGREEMENT AMONG UNDERWRITERS
May ___, 1998
Berthel Fisher & Company Financial Services, Inc.
100 Second Street S.E.
Cedar Raids, Iowa 52401
AS REPRESENTATIVE
Ladies and Gentlemen:
We wish to confirm as follows the agreement among you, the undersigned
and the other Underwriters named in Schedule I to the Underwriting Agreement, as
it is to be executed (all such parties being herein called the "Underwriters"),
with respect to the purchase by the Underwriters severally from the HLM Design,
Inc., (the "Company") of the respective numbers of Shares (hereinafter the
"Shares") set forth in Schedule I to the Underwriting Agreement. The number of
Shares to be purchased by each Underwriter from the Company shall be determined
in accordance with Section 3 of the Underwriting Agreement. It is understood
that changes may be made in those who are to be Underwriters and in the
respective numbers of Shares to be purchased by them, but that the number of
Shares to be purchased by us as set forth in the Underwriting Agreement will not
be changed without our consent except as provided herein and in the Underwriting
Agreement. The obligations of the Underwriters to purchase the number of Shares
set opposite their respective names in Schedule I to the Underwriting Agreement,
as they may be increased by Section 3.01.01 of the Underwriting Agreement, are
herein called their "underwriting obligations." The number of Shares set
opposite our name in said Schedule I, as such number may be increased under said
Section 3.01.01, are herein called "our Shares." For purposes of this Agreement
the following definitions shall be applicable:
(a) "Managers' Concession" shall be the compensation of not
less than forty percent (40%) of the underwriting discount to
members of the Underwriting
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Group for acting as Managers.
The Managers' Concession shall include the right to all
warrants to be issued pursuant to the Underwriting Agreement.
(b) "Underwriting Group Concession" shall mean compensation to
members of the Underwriting Group for assuming the underwriting risk
and shall be not less than fifty percent (50%) of the underwriting
discount on the Shares for which each Underwriter is obligated
hereunder.
(c) "Underwriting Fee" shall mean additional compensation to
members of the Underwriting Group for assuming the underwriting risk
and shall be not less than ten percent (10%) of the underwriting
discount.
(d) "Dealer's Concession" shall mean compensation to Dealers
who are members of the Selling Group and shall, as to Dealers who have
executed an agreement with you, be not less than fifty percent (50%) of
the underwriting discount.
(e) "Dealer's Reallowance Concession" shall mean the
compensation allowed Dealers by Underwriters other than the Manager and
shall be one-half of the Dealer's Concession.
(f) It is contemplated that the underwriting discount will be
ten percent (10%) of the offering price. You in your absolute
discretion shall determine, within the foregoing limitations, the
precise allocation of the underwriting discount.
1. Authority and Compensation of Representative. We hereby authorize
you as our Representative and on our behalf, (a) to enter into an agreement with
the Company substantially in the form attached hereto as Exhibit A (the
"Underwriting Agreement"), but with such changes therein as in your judgment are
not materially adverse to the Underwriters, (b) to exercise all the authority
and discretion vested in the Underwriters and in you by the provisions of the
Underwriting Agreement, and (c) to take all such action as you in your
discretion may deem necessary or advisable in order to carry out the provisions
of the Underwriting Agreement and this Agreement and the sale and distribution
of the Shares, provided that the time within which the Registration Statement is
required to become effective pursuant to the Underwriting Agreement will not be
extended more than 48 hours without the approval of a majority in interest of
the Underwriters (including yourselves). We authorize you, in executing the
Underwriting Agreement on our behalf, to set forth in Schedule I of the
Underwriting Agreement as our commitment to purchase the number of Shares (which
shall not be substantially in excess of the number of shares included in your
invitation to participate unless we have agreed otherwise) included in a wire,
telex, or similar means of communication transmitted by you to us at least 24
hours prior to the commencement of the offering as our finalized underwriting
obligation.
2. Public Offering. A public offering of the Shares is to be made, as
herein provided, as soon after the Registration Statement relating thereto shall
become effective as in your judgment is advisable. The Shares shall be initially
offered to the public at the public offering price of $_______* per share as
determined by you and the Company. You will advise us by telegraph or telephone
when the Shares shall be released for offering and shall advise us at or prior
to that time of the allocation of the underwriting discount. We authorize you as
Representative of the Underwriters, after the initial public offering, to vary
the public offering price, in your sole discretion, by reason of changes in
general market conditions or otherwise. The public offering price of the Shares
at the time in effect is herein called the "Offering Price."
We hereby agree to deliver all preliminary and final prospectuses
required for compliance with the provisions of Rule 15c2-8 under the Securities
Exchange Act of 1934 and Section 5(b) of the Securities Act. You have heretofore
delivered to us such preliminary prospectuses as have been requested by us,
receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called "Dealers") all or any part of
our Shares as you may determine. Such sales of Shares, if any, shall be made (i)
in the case of Group Sales, at the Offering Price, and (ii) in the case of sales
to Dealers, at the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Shares reserved for our account for offering to Dealers bears to the aggregate
of all Shares of all Underwriters including you so reserved. The over-allotment
option provided for in Section 3.01 to the extent exercised shall be exercised
by you as a Representative of the Underwriters, and shall be exercised only for
the purpose of making Group Sales or sales to Dealers by you. Such sales for our
account of the over-allotment option shall as nearly as practicable be in
proportion to the underwriting obligations of the respective Underwriters.
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You agree to notify us not less than 24 hours prior to the commencement
of the public offering as to the number of Shares, if any, which we may retain
for direct sale. Prior to the termination of this Agreement, you may reserve for
offering and sale as hereinbefore provided any Shares remaining unsold
theretofore retained by us and we may, with your consent, retain any Shares
remaining unsold theretofore reserved by you.
Sales to Dealers shall be made under a Selected Dealers Agreement,
attached hereto as Exhibit B, attached hereto and by this reference incorporated
herein. We authorize you to determine the form and manner of any communications
with Dealers, and to make such changes in the Selected Dealers Agreement as you
may deem appropriate. In the event that there shall be any such agreements with
Dealers, you are authorized to act as managers thereunder and we agree, in such
event, to be governed by the terms and conditions of such agreements. Each
Underwriter agrees that it will not offer any of the Shares for sale at a price
below the Offering Price or allow any concession therefrom except as herein
otherwise provided. We as to our Shares may enter into agreements with dealers,
but any Reallowance Concession shall not exceed half of the Dealer's Concession.
It is understood that any person to whom an offer may be made as
hereinbefore provided shall be a member of the National Association of
Securities Dealers, Inc. or dealers or institutions with their principal place
of business located outside of the United States, its territories or possessions
and not registered under the Securities Exchange Act of 1934 who agree to make
no sales within the United States, its territories or possessions or to persons
who are nationals thereof or residents therein and, in making sales, to comply
with the NASD's interpretations with respect to free-riding and withholding.
We authorize you to determine the form and manner of any public
advertisement of the Shares.
Nothing in this Agreement contained shall be deemed to restrict our
right, subject to the provisions of this Section 3, to offer our Shares prior to
the effective date of the Registration Statement, provided that any such offer
shall be made in compliance with any applicable requirements of the Securities
Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission thereunder and of any
applicable state securities laws.
4. Repurchases in the Open Market. Any Shares sold by us (otherwise
than through you) which, prior to the termination of this Section or such
earlier date as you may determine, shall be contracted for or purchased in the
open market by you on behalf of any Underwriter or Underwriters, shall be
repurchased by us on demand at a price equal to the cost of such purchase plus
commissions and taxes on redelivery. Any Shares delivered on such
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repurchase need not be the identical Shares originally sold by us. In lieu of
delivery of such Shares to us, you may (i) sell such Shares in any manner for
our account and charge us with the amount of any loss or expense or credit us
with the amount of any profit, less any expense, resulting from such sale, or
(ii) charge our account with an amount not in excess of the concession to
Dealers on such Shares.
5. Delivery and Payment. We agree to deliver to you at or before :00
a.m., Cedar Rapids Time, on the Closing Date referred to in the Underwriting
Agreement, of Berthel Fisher & Company Financial Services, Inc. for the offering
price of the Shares less Dealer's Concession of the Shares that we retained for
direct sale by us, the proceeds of which shall be delivered by you, in the
manner provided in the Underwriting Agreement, to or for the account of the
Company against delivery of certificates for such Shares to you for our account.
You are authorized to accept such delivery and to give receipts therefor. You
may advance funds for Shares which have been sold or reserved for sale to retail
purchasers or Dealers for our account. If we fail (whether or not such failure
shall constitute a default hereunder) to deliver to you, or you fail to receive,
our and/or payment for sales made by you for our account for the Shares which we
have agreed to purchase, you, individually and not as Representative of the
Underwriters, are authorized (but shall not be obligated) to make payment, in
the manner provided in the Underwriting Agreement, to or for the account of the
Company for such Shares for our account, but any such payment by you shall not
relieve us of any of our obligations under the Underwriting Agreement or under
this Agreement and we agree to repay you on demand the amount so advanced for
our account.
We also agree on demand to take up and pay for or to deliver to you
funds sufficient to pay for at cost any Shares and other shares of common stock
of the Company purchased by you for our account pursuant to the provisions of
Section 9 hereof, and to deliver to you on demand any Shares sold or
over-allotted by you for our account pursuant to any provision of this
Agreement.
We authorize you to deliver our Shares, and any other shares purchased
by you for our account pursuant to the provisions of Section 9 hereof, against
sales made by you for our account pursuant to any provision of this Agreement.
Upon receipt by you of payment for the Shares sold by us and/or through
you for our account, you will remit to us promptly an amount equal to the
Underwriter's Concession on such Shares. You agree to cause to be delivered to
us, as soon as practicable after the Closing Date referred to in the
Underwriting Agreement, such part of our Shares purchased on such Closing Date
as shall not have been sold or reserved for sale by you for our account.
In case any Shares reserved for sale in Group Sales or to Dealers shall
not be purchased and paid for in due course as contemplated hereby, we agree to
accept delivery when tendered by you of any Shares so reserved for our account
and not so purchased and pay you the offering price less the Dealer's and
Underwriter's Concessions.
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the purpose of carrying out this Agreement, and in connection therewith to
execute and deliver any notes or other instruments and to hold or pledge as
security therefor all or any part of our Shares or any other shares of common
stock of the Company purchased hereunder for our account. Any lending bank is
hereby authorized to accept your instructions as Representative in all matters
relating to such loans. Any part of our Shares or of such other common stock
held by you may be delivered to us for carrying purposes and, if so delivered,
will be redelivered to you upon demand.
7. Allocation of Expense and Liability. We authorize you to charge our
account with and we agree to pay (a) all transfer taxes on sales made by you for
our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses in excess of those
reimbursed by the Company incurred by you in connection with the purchase,
carrying and distribution, or proposed purchase and distribution, of the Shares
and all other expenses arising under the terms of the Underwriting Agreement or
this Agreement. Your determination of all such expenses and your allocation
thereof shall be final and conclusive. Funds for our account at any time in your
hands as our Representative may be held in your general funds without
accountability for interest. As soon as practicable after the termination of
this Agreement, the net credit or debit balance in our account, after proper
charge and credit for all interim payments and receipts, shall be paid to or
paid by us, provided that you in your discretion may reserve from distribution
an amount to cover possible additional expenses chargeable to the several
Underwriters.
8. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Shares shall constitute any representation by you as to
the existence or non-existence of possible unforeseen expenses or liabilities of
or charges against the several Underwriters. Notwithstanding the distribution of
any net credit balance to us or the termination of this Agreement or both, we
shall be and remain liable for, and will pay on demand, (a) our proportionate
share (based on our underwriting obligations) of all expenses and liabilities
which may be incurred by or for the accounts of the Underwriters, including any
liability which may be incurred by the Underwriters or any of them based on the
claim that the Underwriters constitute an association, unincorporated business,
partnership or any separate entity, and (b) any transfer taxes paid after such
settlement on account of any sale or transfer for our account.
9. Stabilization. We authorize you, until the termination of this
Agreement, (a) to make purchases and sales of the shares of common stock of the
Company, in the open market or otherwise, for long or short account, and on such
terms and at such prices as you in your
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discretion may deem desirable, (b) in arranging for sales of Shares, to
over-allot, and (c) either before or after the termina tion of this Agreement,
to cover any short position incurred pursuant to this Section 9; subject,
however, to the applicable rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934. All such purchases, sales
and over-allotments shall be made for the accounts of the several Underwriters
as nearly as practicable in proportion to their respective underwriting
obligations; provided that our net position resulting from such purchases and
sales and over-allotments shall not at any time exceed, either for long or short
account, 15% of the number of Shares agreed to be purchased by us.
If you engage in any stabilizing transactions as Representative of the
Underwriters, you shall notify us of that fact. Each of us agrees to file with
you, within five business days following the date of termination of such
transactions, triplicate originals of a report "not as manager" on Form X-17A- 1
in accordance with the requirements of Rule 17a-2(e) under the Securities
Exchange Act of 1934. You shall, as such Representative, file such reports with,
and make the requisite reports on such transactions as required by, the
Securities and Exchange Commission in accordance with Rule 17a-2 under the
Securities Exchange Act of 1934.
We agree to advise you, from time to time upon request until the
settlement of accounts hereunder, of the number of Shares at the time retained
by us unsold, and we will upon request sell to you for the accounts of one or
more of the several Underwriters such number of our unsold Shares as you may
designate, at the Offering Price less such amount, not in excess of the
concession to Dealers, as you may determine.
10. Open Market Transactions. We agree that except with your consent
and except as herein provided upon advice from you we will not make purchases or
sales on the open market or otherwise or attempt to induce others to make
purchases or sales, either before or after the purchase of the Shares, of any
shares of common stock of the Company, and prior to the completion (as defined
in Rule 10b-6 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of our participation in the distribution, we will
otherwise comply with Rule 10b-6. Nothing in this Section 10 contained shall
prohibit us from acting as broker or agent in the execution of unsolicited
orders of customers for the purchase or sale of any securities of the Company.
11. Blue Sky. Prior to the initial offering by the Underwriters, you
will inform us as to the states under the respective securities or Blue Sky laws
of which it is believed that the Shares have been qualified or are exempt for
sale, but you do not assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to sell the
Shares in any jurisdiction. We authorize you, if you deem it unadvisable in
arranging sales of Shares for our account hereunder to sell any of our Shares to
any particular Dealer or other buyer because of the securities or Blue Sky laws
of any jurisdiction, to sell our Shares to one or more other Underwriters at the
Offering Price less, in the case of a sale to a Dealer, such
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amount, not in excess of the concession to Dealers thereon, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the several
Underwriters in proportion to their respective underwriting obligations.
12. Default by Underwriters. Default by one or more Underwriters in
respect of their obligations under the Underwriting Agreement shall not release
us from any of our obligations. In case of such default by one or more
Underwriters, you are authorized to increase, pro rata with the other
nondefaulting Underwriters, the number of Shares which we shall be obligated to
purchase from the Company, provided that the aggregate amount of all such
increases for all non-defaulting Underwriters shall not exceed 10% of the
Shares, and, if the aggregate number of the Shares not taken up by such
defaulting Underwriters exceeds such 10%, you are further authorized, but shall
not be obligated, to arrange for the purchase by other persons, who may include
yourselves, of all or a portion of the Shares not taken up by such Underwriters.
In the event any such increases or arrangements are made, the respective numbers
of Shares to be purchased by the non-defaulting Underwriters and by any such
other person or persons shall be taken as the basis for the underwriting
obligations under this Agreement, but this shall not in any way affect the
liability of any defaulting Underwriters to the other Underwriters for damages
resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any shares of common
stock purchased by you for their respective accounts pursuant to Section 9
hereof, or to deliver any such shares of common stock sold or over- allotted by
you for their respective accounts pursuant to any provisions of this Agreement,
and to the extent that arrangements shall not have been made by you for other
persons to assume the obligations of such defaulting Underwriter or
Underwriters, each non-defaulting Underwriter shall assume its proportionate
share of the aforesaid obligations of each such defaulting Underwriter without
relieving any such defaulting Underwriter of its liability therefor.
13. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty full
business days in the aggregate. You may, however, terminate this Agreement or
any provisions hereof at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the taking
of such action as you may deem advisable in respect of all matters pertaining to
any and all offers and sales of the Shares, including the right to make any
modifications which you consider necessary or desirable in the arrangements with
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Dealers or others. You shall be under no liability for or in respect of the
value of the Shares or the validity or the form thereof, the Registration
Statement, the Prospectus, the Underwriting Agreement or other instruments
executed by the Company or others; or for or in respect of the issuance,
transfer or delivery of any of the Shares; or for the performance by the Company
or others of any agreement on its or their part; nor shall you as such
Representative or otherwise be liable under any of the provisions hereof or for
any matters connected herewith, except for want of good faith, and except for
any liability arising under the Securities Act of 1933; and no obligation not
expressly assumed by you as such Representative herein shall be implied from
this Agreement. In representing the Underwriters hereunder, you shall act as the
Representative of each of them respectively. Nothing herein contained shall
constitute the several Underwriters partners with you or with each other, or
render any Underwriter liable for the commitments of any other Underwriter,
except as otherwise provided in Section 12 hereof. The commitments and
liabilities of each of the several Underwriters are several in accordance with
their respective underwriting obligations and are not joint.
15. Acknowledgment of Registration Statement, etc. We hereby confirm
that we have examined the Registration Statement (including all amendments
thereto) relating to the Shares as heretofore filed with the Securities and
Exchange Commission, that we are familiar with the amend ment to the
Registration Statement and the final form of Prospectus proposed to be filed,
that we are willing to accept the responsibilities of an underwriter thereunder,
and that we are willing to proceed as therein contemplated. We further confirm
that the statements made under the heading "Underwriting" in such proposed final
form of Prospectus are correct and we authorize you so to advise the Company on
our behalf. We understand that the aforementioned documents are subject to
further change and that we will be supplied with copies of any amendment or
amendments to the Registration Statement and of any amended Prospectus promptly,
if and when received by you, but the making of such changes and amendments shall
not release us or affect our obligations hereunder or under the Underwriting
Agreement.
16. Indemnification. Each Underwriter, including you, agrees to
indemnify and hold harmless each other Underwriter and each person who controls
any other Underwriter within the meaning of Section 15 of the Securities Act of
1933, as amended, to the extent of their several commitment under the
Underwriting Agreement and upon the terms that such Underwriter agrees to
indemnify and hold harmless the Company as set forth in Section 6.02 of the
Underwriting Agreement. The agreement contained in this Section 16 shall survive
any termination of this Agreement Among Underwriters.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule 15c3-1, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, agree to purchase the number of Shares we may
be obligated to purchase under any provision of the Underwriting Agreement or
this Agreement.
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18. Miscellaneous. We have transmitted herewith a completed
Underwriters' Questionnaire on the form thereof supplied by you. Any notice
hereunder from you to us or from us to you shall be deemed to have been duly
given if sent by registered mail, telegram, teletype, telex, telecopier, graphic
scan, or other written form of telecommunication to us at our address as set
forth in the Underwriting Agreement, or to Berthel Fisher & Company Financial
Services, Inc. at 100 Second Street S.E., Cedar Raids, Iowa 5240, and to
Westport Resources Investment Services, Inc. at 315 Post Road West, Westport,
Connecticut 06880.
We understand that you are each members in good standing of the NASD.
We hereby confirm that we are a member in good standing of the NASD who agrees
to comply with all applicable rules of the NASD, including without limitation,
the NASD's Interpretation with Respect to Free-Riding and Withholding and [ ] of
the NASD's Rules of Fair Practice or, if we are not such a member, we are a
foreign dealer not eligible for membership in the NASD (a) who hereby agree to
make no sales within the United States, its territories or its possessions
(except that we may participate in Group Sales under Section 3 above) or to
persons who are citizens thereof or residents therein, and, in making sales to
comply with the above-mentioned interpretations in [ ] of the above-mentioned
Article III, as if we were an NASD member and [ ] as it applies to a non-member
broker or dealer in a foreign country, and (b) who in connection with sales and
offers to sell Stock made by us outside the United States, (i) we either furnish
to each person to whom any such sale or offer is made a copy of the then current
Preliminary Prospectus or the Prospectus (as then amended or supplemented if the
Company shall have furnished amendments or supplements thereto), as the case
maybe, or inform such person that such Preliminary Prospectus or Prospectus will
be available upon request, and (ii) will furnish to each person to whom any such
sale or offer is made such prospectus, advertisement or other offering document
containing information relating to the Stock or the Company as may be required
under the law of the jurisdiction in which such sale or offer is made. Any
prospectus, advertisement or other offering document furnished by us to any
person in accordance with clause (b)(ii) of the preceding sentence and any such
additional material as we may furnish to any person (i) shall comply in all
respects with the law of the jurisdiction in which it is so furnished; (ii)
shall be prepared and so furnished at our sole risk and expense; and (iii) shall
not contain information relating to the Stock or the Company which is
inconsistent in any respect with the information contained in the then current
Preliminary Prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), as the
case may be.
This instrument may be signed by the Underwriters in various
counterparts which together shall constitute one and the same agreement among
all the Underwriters and shall become effective upon execution. In no event,
however, shall we have any liability under this Agreement if the Underwriting
Agreement is not executed.
Please confirm that the foregoing correctly states the understanding
between us by
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signing and returning to us a counterpart hereof.
Very truly yours,
BERTHEL FISHER & COMPANY FINANCIAL
SERVICES, INC., as Attorney- in-Fact for
the several Underwriters named in
Schedule I to the Underwriting Agreement
By: __________________________________
Thomas J. Berthel, Chairman
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CONFIRMATION PAGE FOR AGREEMENT AMONG UNDERWRITERS
Confirmed as of the date first above written.
BERTHEL FISHER & COMPANY FINANCIAL
SERVICES, INC., as Representative
By: __________________________________
Thomas J. Berthel, Chairman
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EXHIBIT A
UNDERWRITING AGREEMENT
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EXHIBIT B
SELECTED DEALERS AGREEMENT
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EXHIBIT C
ALLOCATION SCHEDULES
ALLOCATION OF MANAGERS' CONCESSION
Berthel Fisher & Company Financial Services, Inc.
Westport Resources Investment Services, Inc.
Marion Bass Securities Corporation
ALLOCATION OF WARRANTS
Berthel Fisher & Company Financial Services, Inc.
Westport Resources Investment Services, Inc.
Marion Bass Securities Corporation
ALLOCATION OF UNDERWRITING FEE
Berthel Fisher & Company Financial Services, Inc.
Westport Resources Investment Services, Inc.
Marion Bass Securities Corporation
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby irrevocably
constitutes and appoints BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC. the
true and lawful agents and attorneys-in-fact of the undersigned with the power
and authority to execute and deliver an Agreement Among Underwriters (which
Agreement Among Underwriters grants to the Representative of the Underwriters as
named therein the authority to execute the Underwriting Agreement) and to
otherwise act as agents and attorneys-in-fact of the undersigned with respect to
all matters arising in connection with the undersigned's acting as one of the
Underwriters of a proposed offering of:
1,200,000 Shares
HLM DESIGN, INC.
Common Shares
(par value $.01 per share)
with full power and authority to execute and deliver for and on behalf of the
undersigned all agree ments, consents and documents in connection therewith as
said agents and attorneys-in-fact, or any of them, may deem advisable. The
undersigned hereby gives to said agents and attorneys-in-fact the power and
authority to appoint a substitute or substitutes to act hereunder with the same
power and authority as said agents and attorneys-in-fact, or any of them, would
have if personally acting. The undersigned hereby ratifies and confirms all that
said agents and attorneys-in-fact, or any of them, or any substitute or
substitutes, may do by virtue hereof.
Duly executed at ____________________ this ______ day of __________ , 1998.
________________________________
(Firm Name)
By _____________________________
Title: _________________________
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CORPORATE ACKNOWLEDGMENT
STATE OF _________________ )
) ss:
COUNTY OF _________________ )
On this day [ ] of May, 199____, before me, the undersigned,
a Notary Public in and for the State of Iowa, personally appeared
_______________________________ to me known to be the identical person named in
and who executed the foregoing instrument, and acknowledged that such person, as
the ____________________________________ of __________________________, executed
the same as the voluntary act and deed of such corporation.
_________________________________
Notary Public
PARTNERSHIP ACKNOWLEDGMENT
STATE OF _________________ )
) ss:
COUNTY OF _________________ )
On this [ ] day of May, 199____, before me, the undersigned,
a Notary Public in and for the State of Iowa, personally appeared
_______________________________ to me known to be the identical person named in
and who executed the foregoing instrument, and acknowledged that such person, as
the ____________________________________ of __________________________, executed
the same as the voluntary act and deed of such partnership.
_________________________________
Notary Public
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Signing Procedure:
As a convenience to the Underwriters, we have instituted the following
procedures:
1. All prospective Underwriters are requested to execute this Power of
Attorney authorizing BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC. to sign
the Agreement Among Underwriters on their behalf. Prospective underwriters are
encouraged to read the Agreement Among Underwriters and related agreements
carefully before returning the Power of Attorney to us as it authorizes the
execution of the Agreement Among Underwriters and the Underwriting Agreement on
your behalf.
2. Prior to the anticipated signing of the Underwriting Agreement and
public offering, we will notify you by telegram, teletype, telex, telecopier,
graphic scan or other written form of telecommunication of your finalized
underwriting obligation and the number of shares to be retained by you for sale.
3. Unless BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC. receives
written notice from you by telegram, teletype, telex, telecopier, graphic scan
or other written form of telecommunication from you (whether or not you received
the notice referred to in Item 2) revoking this Power of Attorney prior to the
time specified in our notice referred to in Item 2, the Agreement Among
Underwriters will be signed on your behalf pursuant to this Power of Attorney.
4. We will in due course send you an executed copy (which may have
facsimile or conformed signatures) of the Agreement Among Underwriters.
<PAGE>
<PAGE>
- --------------- ----------------
Number Shares
- --------------- ----------------
COMMON STOCK (HLM LOGO) HLM
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 404217 10 1
SEE REVERSE FOR
CERTAIN DEFINITIONS
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.001 PAR VALUE EACH OF
HLM DESIGN, INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and Bylaws of the Corporation, as now or
hereafter amended. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
(Charlotte, North Carolina)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
/s/ Vernon B. Brannon (SEAL) /s/ Joseph M. Harris
SENIOR VICE PRESIDENT CHAIRMAN AND PRESIDENT
<PAGE>
HLM DESIGN, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT--________Custodian______
TEN ENT --as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act _________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________
---------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
[AMERICAN BANK NOTE GRAPHIC APPEARS HERE] [HLM DESIGN GRAPH APPEARS HERE]
EXHIBIT 4.2
This Warrant has been sold pursuant to an exemption from registration under the
Securities Act of 1933 and state securities statutes requiring the purchaser to
hold such Warrant for investment. The Warrant may not be resold or otherwise
transferred unless the Warrant has been registered under said Act and state
securities statutes or the holder of the Warrant obtains an opinion of counsel
reasonably satisfactory to HLM DESIGN, INC. that such transfer is exempt from
such registration. In addition, this Warrant may be transferred, in whole or in
part, only (i) pursuant to operation of law, (ii) to persons who are both
officers and shareholders of the Holder; or (iii) to employees of the Holder.
Notwithstanding the foregoing, for a period of one year from the date hereof,
this Warrant may not be transferred to any person, other than bona fide officers
of the Holder, or by operation of law.
WARRANT
HLM DESIGN, INC.
(hereinafter referred to as the "Company")
Right to purchase __________________________* (______*)
shares (the "Warrant Shares") of Common Stock of the Company
(the "Common Stock") at a price per share of $__________ [120%
of Offering Price], exercisable in whole or in part at any
time during the term set forth herein
THIS CERTIFIES THAT, for value received,__________________________ [the
Underwriter] (hereinafter the "Holder"), its successors and assigns, is entitled
to purchase and receive the aforementioned number of shares of the common stock
of the Company at the time of exercise upon payment of the aforementioned price
per share or an aggregate price of ______________________* Dollars
($___________*).
The obligations of the Company and the rights of the Holder pursuant to
this Warrant are subject to the following terms and conditions:
I. DEFINITIONS
A. "Holder" means _____________________________ and its heirs,
successors and assigns. If there is more than one Holder at
any time, each such Holder shall be entitled, without
duplication, to the rights and privileges granted hereunder.
B. "Company" means HLM DESIGN, INC. and its successors and
assigns.
C. "Registration," "register" and like words mean compliance with
all of the laws, rules, regulations and provisions of
agreements and corporate documents pertaining to the lawful
and unconditional transfer of the securities by way of a
public offering or distribution, including Regulation A, when
applicable.
D. "Security" means this Warrant, shares of stock of all classes,
types and services, and all rights, however evidenced or
contained, convertible or exercisable or exchangeable into
such shares.
<PAGE>
E. "Agreement" means the Underwriting Agreement dated May _____,
1998 entered into by the Company , the Holder and others.
II. TERM
This Warrant shall expire upon the earlier of (i) the fifth (5th)
anniversary date hereof, or (ii) thirty (30) days after the Holder has received
written notice of the consolidation or merger of the Company to or with any
corporation or corporations (other than a merger with another corporation in
which the holders of Common Stock receive stock in the surviving corporation as
the sole form of consideration), the sale or transfer by the Company of all or
substantially all of its assets for cash, the acquisition by any person or
"group" (as such term is defined pursuant to Rule 13d-3 pursuant to the
Securities Exchange Act of 1934, as amended) of all of the then outstanding
shares of Common Stock (the "Expiration Date").
III. EXERCISE PRICE
The exercise price for each share of Common Stock shall be
$____________ per share.
IV. EXERCISE
A. This Warrant shall become exercisable one (1) year after the
date hereof. Thereafter, this Warrant may be exercised in
whole or in part at any time or times on or before the
Expiration Date.
B. This Warrant and the rights of the Holder hereunder shall be
exercised by delivery (for notation in the case of partial
exercise, or surrender in the case of total exercise) of this
Warrant and of a signed subscription agreement in form
attached hereto as Exhibit A specifying the portion of this
Warrant exercised, and by payment to the Company by certified
check or bank draft of the exercise price for such shares.
C. The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but
unissued stock for the purpose of issuance of the Warrant
Shares upon exercise of this Warrant, such number of its duly
authorized shares of Common Stock as shall from time to time
be sufficient to effect the exercise thereof in whole.
V. ANTI-DILUTION
If all or any portion of this Warrant shall be exercised subsequent to
any stock dividend, split-up, recapitalization, merger, consolidation,
combination or exchange of shares, separation, reorganization or liquidation of
the Company occurring after the date hereof, as a result of which shares of any
class shall be issued in respect of outstanding shares of Common Stock of the
Company (or shall be issuable in respect of securities convertible into shares
of Common Stock) or upon exercise of rights (other than this Warrant) to
purchase shares of Common Stock or shares of such Common Stock shall be changed
into the same or a different number of shares of the same or another class or
classes, the Holder exercising this Warrant shall receive, for the aggregate
price paid upon such exercise, the aggregate number and class of shares which
such Holder would have received for the aggregate price paid, as if the Holder
had exercised this Warrant immediately before such stock dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of shares,
separation, reorganization or liquidation.
VI. TRANSFER
<PAGE>
A. This Warrant shall be registered on the books of the Company,
and shall be transferable in whole or in part only on said
books by the registered Holder hereof in person or by duly
authorized attorney.
B. This Warrant may be transferred, in whole or in part, only (i)
pursuant to operation of law, (ii) to persons who are both
officers and shareholders of the Holder; or (iii) to employees
of the Holder. Notwithstanding the foregoing, for a period of
one year from the date hereof, this Warrant may not be
transferred to any person, other than bona fide officers
of the Holder, or by operation of law.
VII. THERE IS NO SECTION VII.
VIII. CONSIDERATION
This Warrant is referred to in the Agreement. The Company acknowledges
that the consideration for the issuance of this Warrant was the execution and
performance of the Agreement and other good and valuable consideration.
IX. INFORMATION
The Holder shall be entitled to receive all notices, communications and
information mailed, delivered or made available to shareholders of the Company.
The address for the Holder is _________________________________________________.
X. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina.
XI. MISCELLANEOUS
The subject headings contained in this Warrant are for convenience only
and shall not control or affect in any way the meaning or interpretation of the
provisions of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered and its seal placed hereon by its duly authorized officer
at Charlotte, North Carolina, this [ ] day of May, 1998.
HLM DESIGN, INC.
By:___________________________________
___________________________________
<PAGE>
EXHIBIT A TO WARRANT
FORM OF SUBSCRIPTION PURSUANT TO WARRANT
The undersigned, holder or assignee of such holder of the foregoing
Warrant of HLM DESIGN, INC., hereby (i) subscribes for ________________________
(_______ ) shares of stock which the undersigned is entitled to purchase under
the terms of the Warrant, and (ii) directs that the stock issuable upon exercise
of the Warrant be issued and delivered to the following named person(s), payment
of the exercise price to be made on delivery as follows:
DATED:__________________
______________________________________
(Name)
______________________________________
(Address)
Signature ______________________________________
EXHIBIT 5.1
(Parker, Poe, Adams & Bernstein L.L.P. Letterhead)
June 5, 1998
Board of Directors
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina
Dear Sirs:
We are acting as counsel to HLM Design, Inc., a Delaware corporation
(the "Company"), in connection with the preparation, execution, filing and
processing, with the Securities and Exchange Commission (the "Commission"),
pursuant to the Securities Act of 1933, as amended (the "Act"), of a
Registration Statement (No. 333-40617) on Form S-1 (as amended through the date
hereof, the "Registration Statement") and the issuance and sale of the Shares
referred to below. This opinion is furnished to you for filing with the
Commission pursuant to Item 601(b)(5) of Regulation S-K promulgated under the
Act.
The Registration Statement covers the issuance and sale of up to
1,380,000 shares (the "Shares") of Common Stock, par value $.001 per share (the
"Common Stock"), consisting of 1,200,000 shares to be offered by the Company,
and up to 180,000 shares that the several underwriters to be party to the
Underwriting Agreement referred to below (the "Underwriters") will have an
option to purchase from the Company solely to cover over-allotments. The Shares
are proposed to be sold pursuant to an Underwriting Agreement among the Company,
Berthel Fisher & Company Financial Services, Inc., Westport Resources Investment
Services, Inc., and Marion Bass Securities Corporation, as representatives of
the Underwriters, a form of which Underwriting Agreement is filed as Exhibit 1.1
to the Registration Statement (the "Underwriting Agreement").
In our representation of the Company, we have examined the Registration
Statement, the Underwriting Agreement, the Company's Amended and Restated
Certificate of Incorporation and Bylaws, each as amended to date, all applicable
actions of the Company's Board of Directors recorded in the Company's minute
book, the form of certificate evidencing the Shares, and certificates of public
officials and such other documents as we have considered necessary for purposes
of rendering the opinions expressed below.
<PAGE>
Based upon the foregoing, we are of the following opinion:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware.
2. The completion, execution, attestation, issuance and delivery
against payment by the Company of the Shares pursuant to the
terms of the Underwriting Agreement have been duly authorized
by all necessary corporate action on behalf of the Company.
3. When (a) the Underwriting Agreement in definitive form shall
have been duly completed by including therein the purchase
price of the Shares and related terms, (b) the Underwriting
Agreement as so completed shall have been duly executed and
delivered by or on behalf of the Underwriters and by or on
behalf of the Company, and (c) the Shares shall have been duly
completed, executed, attested, issued, delivered and paid for
in accordance with the terms of the Underwriting Agreement,
then the Shares will be validly issued, fully paid and
nonassessable.
The opinions expressed herein are limited to the laws of the State of
North Carolina, the General Corporation Law of the State of Delaware and the
Act.
We hereby consent to the use of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the use of our name under the heading "Legal
Matters" in related prospectuses. In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
Parker, Poe, Adams & Bernstein L.L.P.
EXHIBIT 10.7
SECURITY ESCROW AGREEMENT
THIS ESCROW AGREEMENT made and entered into this ___day of May, 1998,
among the persons and parties who have signed this Agreement as security holders
(herein collectively referred to as the "Security Holders"), HLM Design, Inc., a
Delaware corporation (the "Issuer"), and First Union National Bank (the "Escrow
Agent");
WITNESSETH THAT:
A. Each of the Security Holders is the owner of the number of shares of
common stock, par value $.001 per share (the "Common Stock") of the Issuer or
possesses options to acquire shares of Common Stock of the Issuer listed
opposite his or its name on Exhibit A attached hereto.
B. The Issuer has applied to the state securities administrators of
certain states for registration of 1,200,000 shares of Common Stock for sale to
the residents of such states (the "Registration"). As a condition of such
Registration, certain administrators (the "Administrators") have required that
the Security Holders, the Escrow Agent and the Issuer enter into this Agreement
and agree to be bound by applicable rules and regulations of the Administrators
pertaining to such agreements.
C. Each of the Security Holders has deposited the securities listed
opposite his or its name and documents evidencing options to acquire the
securities on Exhibit A with the Escrow Agent, and the Escrow Agent hereby
acknowledges receipt thereof. Such securities are herein collectively referred
to as "Escrowed Stock" or "Shares".
NOW, THEREFORE, the persons and parties hereto agree as follows:
1. DEPOSIT OF CERTIFICATES. Simultaneously with the execution of this
Agreement, each Security Holder is depositing with the Escrow Agent, and the
Escrow Agent hereby acknowledges receipt of, the certificates and documents
representing the Escrowed Stock listed on Exhibit A. At the written request of
the Issuer, the Escrow Agent shall make available to the Issuer and any affected
Securities Holder, such documents as are necessary to exercise the foregoing
options to acquire Shares.
2. TERM. The term of this Agreement shall commence on the date that the
Registration is declared effective by the Administrators. The certificates or
documents evidencing the Shares are to be deposited with the Escrow Agent and
are to be held pursuant hereto, for a period of three years from the date of
acquisition of such Shares unless released earlier in accordance with the terms
of this Agreement.
<PAGE>
3. RELEASE OF SHARES. The Shares shall be released to Security Holders
prior to the end of the term provided in paragraph 2 above as follows:
a. One-hundred percent (100%) of the Shares shall be
released from escrow after the Issuer has had annual
net earnings per share as determined in accordance
with generally accepted accounting principles
(GAAP) equal to, or greater than, seven and one-half
percent (7.5%) of the per share public offering
price, after taxes and excluding extraordinary items,
for any two consecutive fiscal years after the dated
of effectiveness; or,
b. One-hundred percent (100%) of the Shares shall be
released from escrow after the Issuer's Shares have
traded in a reliable public market at a price of at
least one-hundred seventy-five percent (175%) of the
initial public offering price for at least ninety
(90) consecutive trading days after at least one year
from the date of effectiveness.
4. DOCUMENTATION TO ESCROW AGENT REGARDING RELEASE OF SHARES. A request
for termination of the escrow, based on the satisfaction of either paragraph
3.a. or 3.b. above, shall be forwarded to the Escrow Agent. A request for
termination of the escrow based upon paragraph 3.a shall be accompanied by an
earnings per share calculation audited and reported on by an independent
certified public accountant.
5. TERMINATION OR PARTIAL OFFERING. The foregoing notwithstanding, the
Shares will be released by the Escrow Agent if the public offering has been
terminated and no securities were sold pursuant thereto.
6. RESTRICTION ON TRANSFER. The Escrowed Stock may be transferred by
will, or pursuant to the laws of descent and distribution, or through
appropriate legal proceedings, but in all cases the Shares shall remain in
escrow and subject to the terms of this Agreement until released pursuant to
paragraph 2 or paragraph 3 above. Upon the death of the holder of any Escrowed
Stock, the Escrowed Stock of the deceased holder may be hypothecated, subject to
all of the terms of this Agreement, to the extent necessary to pay the expenses
of the estate. The Shares in escrow may be transferred by gift to family
members, provided that the Shares shall remain subject to the terms of this
Agreement. The Shares may not be pledged to secure a debt except as noted above,
and except that Joseph M. Harris and Vernon B. Brannon shall each be permitted
to maintain the pledge of 70,000 Shares currently provided to First Charter
National Bank to secure certain indebtedness.
7. VOTING POWER. The Escrowed Stock shall have all voting rights to
which the non-escrowed shares are entitled.
8. DIVIDENDS. Any dividends paid on the Shares shall be paid to the
Escrow Agent by checks of the Issuer made payable to the Escrow Agent with a
notation of this
2
<PAGE>
Agreement thereon, and any such dividends shall be held pursuant to the terms of
this Agreement. The Escrow Agent shall treat such dividends as assets of the
Issuer, available for distribution under the terms of paragraph 9 below, except
as provided herein. The Escrow Agent shall place the dividends in an interest
bearing account. The dividends and the interest earned thereon will be disbursed
in proportion to the number of Shares released from the escrow at the time the
Shares are released pursuant to paragraph 2 or paragraph 3 above, unless they
are applied to the payment of the fees of the Escrow Agent under paragraph 13
below.
9. STOCK DIVIDENDS OR SPLITS. Stock dividends on, and shares resulting
from stock splits of, the Escrowed Stock shall be delivered to the Escrow Agent
and shall be held pursuant to this Agreement as if they were original shares of
Escrowed Stock deposited hereunder. In the event of any stock dividend, stock
split or recapitalization of the Issuer, the price per share figures herein
shall be adjusted appropriately.
10. ADDITIONAL SHARES. Upon the exercise by any Security Holder of his
or its options to acquire additional shares of the Issuer pursuant to the
documents listed on Exhibit A, the additional shares received from the exercise
of such options shall forthwith be deposited in escrow with the Escrow Agent and
shall be subject to the terms and conditions of this Agreement.
11. DISSOLUTION PREFERENCE. The Security Holders agree that in the
event of dissolution, liquidation, merger, consolidation, sale of assets,
exchange, or any transaction or proceeding that results in the distribution of
the assets of the Issuer, the Security Holders hereby waive all their rights,
title and interests and participations in the assets of the Issuer until the
holders of all non-escrowed shares have been paid, or have had irrevocably set
aside for them, an amount equal to one hundred percent (100%) of the public
offering price per share, adjusted for stock splits and stock dividends.
Subsequently, the Shares shall be entitled to receive an amount per share equal
to one hundred percent (100%) of the amount per share paid to, or set aside for,
the non-escrowed shares. Thereafter, the Security Holders shall participate on a
pro rata basis with all shareholders. Mergers, consolidations, or
reorganizations may proceed on terms and conditions different than those stated
above if a majority of shares held by persons, other than promoters and Security
Holders, approve the terms and conditions by vote at a meeting held for such
purpose.
12. RELIANCE BY ESCROW AGENT. The Escrow Agent may conclusively rely
on, and shall be protected, when it acts in good faith upon, any statement,
certificate, notice, request, consent, order or other document which it believes
to be genuine and signed by the proper party. The Escrow Agent shall have no
duty or liability to verify any such statement, certificate, notice, request,
consent, order or other document and its sole responsibility shall be to act
only as expressly set forth in this Agreement. The Escrow Agent shall be under
no obligation to institute or defend any action, suit or proceeding in
connection with this Agreement unless it is indemnified to its satisfaction. The
Escrow Agent may consult counsel with respect to any question arising under this
Agreement and the Escrow Agent shall not be liable for any action
3
<PAGE>
taken, or omitted, in good faith upon advice of counsel. In performing any of
its duties hereunder, the Escrow Agent shall not incur any liability to anyone
for any damages, losses or
expenses except for willful default or negligence, and it shall accordingly not
incur any such liability with respect to: (i) any action taken or omitted in
good faith upon advice of its counsel or counsel for the Issuer given with
respect to any questions relating to the duties and responsibility of the Escrow
Agent under this Agreement, or (ii) any action taken or omitted in reliance upon
any instrument, including written advice provided for herein, not only as to its
due execution and the validity and effectiveness of its provisions, but also as
to the truth and accuracy of any information contained therein, which the Escrow
Agent shall in good faith believe to be genuine, to have been signed or
presented by the proper person or persons, and to conform with the provisions of
this Agreement. All Shares and funds held pursuant to this Agreement shall
constitute trust property. The Escrow Agent shall not be liable for any interest
on the Shares.
13. COMPENSATION TO ESCROW AGENT. The Escrow Agent shall be entitled to
receive from the Issuer reasonable compensation for its services as set forth in
Exhibit B attached hereto. In the event that the Escrow Agent renders any
additional services not provided for herein, or if any controversy arises
hereunder, or if the Escrow Agent is made a party to, or intervenes in any
action, suit or proceeding pertaining to this Agreement, the Issuer shall
provide reasonable compensation for such additional services. Upon notice to the
Security Holders, the Escrow Agent may deduct its compensation from any cash
dividends or distributions held pursuant to paragraph 8 above.
14. QUALIFICATION AND INDEPENDENCE OF ESCROW AGENT. The Issuer
hereby represents that a complete list of its officers, directors and promoters
is attached hereto as Exhibit C. Based thereon, the Escrow Agent hereby
represents and warrants that it is not affiliated with the Issuer, any officer,
director or promoter of the Issuer or any Security Holder.
15. INDEMNIFICATION. The Issuer and the Security Holders agree to hold
the Escrow Agent harmless from, and indemnify the Escrow Agent for, any and all
costs of investigation or claims, costs, expenses, attorney fees or other
liabilities or disbursements arising out of any administrative investigation or
proceeding or any litigation, commenced or threatened, relating to this
Agreement, including without limitation, the implementation of this Agreement,
the distribution of the Shares or funds, the investment of funds, the
interpretation of this Agreement or similar matters, provided that the Escrow
Agent shall not be indemnified for any claims, costs, expenses or other
liability arising from its bad faith or negligence or that of its employees,
officers, directors or agents.
16. SCOPE. This agreement shall be binding upon, and inure to the
benefit of, the parties hereto, their heirs, successors and assigns.
17. TERMINATION. Except for the indemnification provisions of paragraph
15 above, which shall survive in any event, this Agreement shall terminate in
its entirety when all the
4
<PAGE>
Shares have been released as provided in paragraph 2 or paragraph 3 above.
5
<PAGE>
IN WITNESS WHEREOF, the Security Holders, the Issuer and the Escrow
Agent have entered into this Agreement as of the date first above written, in
multiple counterparts, each of which shall be considered an original.
SECURITY HOLDERS:
____________________________________
Joseph M. Harris
____________________________________
Vernon B. Brannon
BERTHEL FISHER & COMPANY
LEASING, INC.
____________________________________
By:
Its:
ISSUER:
HLM DESIGN, INC.
By:_______________________________
Its:_______________________________
ESCROW AGENT
FIRST UNION NATIONAL BANK
____________________________________
By:_________________________________
Its:________________________________
6
<PAGE>
EXHIBIT A
Securities
Name of Holder Number of Shares Number of Options
- -------------- ---------------- -----------------
Joseph M. Harris 309,188 57,954
Vernon B. Brannon 309,187 57,954
Berthel Fisher & Company Leasing, Inc. 43,631
7
<PAGE>
EXHIBIT B
Escrow Agent Fees
8
<PAGE>
EXHIBIT C
Officers and Directors
Officers Directors
- -------- ---------
Joseph M. Harris Joseph M. Harris
Vernon B. Brannon Vernon B. Brannon
Karen Kaplan Clay R. Caroland III
D. Shannon LeRoy
9
<PAGE>
Exhibit 10.20.1
ADDENDUM B
This Addendum A (the "Addendum") is attached to and made a part of that
Lease Agreement # 063-21770-000 dated May 30, 1997 (the "Lease Agreement")
executed by and between Berthel Fisher & Company Leasing, Inc. ("Lessor") and
Hansen Lind Meyer Inc.
("Lessee").
All terms defined in the Lease Agreement will have the same meaning
when used in this Addendum unless redefined herein.
Notwithstanding anything to the contrary stated herein, in the event
the Lessee requests to prepay the Lease Agreement the Lessor will grant the
request so long as the prepayment is on the following terms:
1) If the prepayment takes place within the first 12 months of the
Lease Agreement, Lessee will pay to the Lessor, only Lessor's net investment
(Lessor's Equipment Cost) plus all accrued interest due through the date of the
payoff plus any additional accrued interest so that when paid in full (combined
monthly payments and accrued interest), Lessor will have received interest equal
to one full year of interest, which both parties agree is at a rate of fourteen
percent (14%) per annum;
OR
2) If the prepayment takes place after the end of the 12th month of the
Lease Agreement, Lessee must pay in accordance with the terms of the Lease
Agreement including payment of the FMV Purchase Option.
All other terms and conditions remain the same.
LESSOR: LESSEE:
Berthel Fisher & Company Hansen Lind Meyer, Inc.
Leasing, Inc.
By:/s/ Nancy L. Lowenberg By: /s/ Joseph M. Harris
------------------------- -----------------------
Title: Vice President & COO Title: President
------------------------- -----------------------
<PAGE>
Exhibit 10.20.2
(HLM Letterhead)
January 9, 1998
Mr. Thomas J. Berthel, President
Berthel Fisher Company Leasing, Inc.
100 Second Street S.E.
Cedar Rapids, IA 52401-4250
Dear Tom:
HLM Design, Inc. (HLM) and Berthel Fisher Company Leasing, Inc., the General
Partner, (Berthel) have agreed to amend Lease #076-21770-000 in
Telecommunications Income Fund in the amount of $2.8 Million.
For a $50,000 one-time payment for the Residual Value (to be paid within 30 days
of the signing of this agreement), Berthel agrees to the following addendum to
lease agreement #076-21770-000).
The purchase option at the end of the lease will be changed from Fair Market
Value not to exceed 10% to a bargain purchase of one dollar (1) at the end of
the lease term.
If you have any question, please call me.
Sincerely,
/s/ Vernon B. Brannon
Vernon B. Brannon
Senior Vice President
VBB:ji
Agreed and accepted:
Berthel Fisher Company Leasing, Inc.
By: /s/Thomas J. Berthel
-------------------------------
EXHIBIT 10.24
HLM DESIGN, INC.
EMPLOYEE STOCK PURCHASE PLAN
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HLM DESIGN, INC.
EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
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Page
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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 Participate......................................................................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
ARTICLE V OPTIONS................................................................................................5
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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, $.001 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
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in the event that no such committee exists or is appointed, "Committee" shall
mean the Board of Directors.
(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, $.001 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
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of stock of the Company or any Subsidiary (as determined in accordance with the
rules of Section 424(d) of the Code relating to attribution of stock ownership).
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.
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4.4 Withdrawal of Contributions from Plan. Prior to an Exercise Date, a
Participant may elect to withdraw the Contributions then credited to his Account
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 57,954 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 and provided that
the number of shares issued or issuable hereunder and under the Company's 1998
Stock Option Plan shall not at any time exceed in the aggregate 10% of the total
number of shares of common stock outstanding. 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). As of 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
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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 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 (or, in the case of the
Participant's death, his estate'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.
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(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 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 purposes 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
the foregoing and 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
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of such leave of absence, or (ii) the ninety-first day of such leave of absence,
such participant's employment shall be deemed to have terminated for purposes of
the plan on whichever of such dates first occurs (unless the Participant's right
to reemployment is guaranteed by statute or contract).
(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).
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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 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.
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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.
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.
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EXHIBIT 10.25
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.
- 2 -
<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: /s/ Vernon B. Brannon
Title:_____________________________
/s/ Joseph Harris (SEAL)
-------------------------------
JOSEPH M. HARRIS, Employee
- 8 -
<PAGE>
AMENDMENT NUMBER ONE
TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER ONE TO EMPLOYMENT AGREEMENT originally entered
into as of the 15th day of January, 1998 (the "Agreement") by and between HLM
DESIGN, INC. (the "Company") and JOSEPH M. HARRIS, an individual residing at
21120 Blakeley Shores Drive, Cornelius, North Carolina 28031 (the "Employee").
The parties to the Agreement desire to amend certain provisions of the
Agreement, and, in further consideration of the mutual covenants contained
herein and therein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and Employee agree as
follows:
1. The first sentence of Paragraph 3 of the Agreement shall be amended
to read as follows:
"The Company shall pay the Employee a monthly automobile
allowance of One Thousand Dollars ($1,000.00) per month,
-1-
<PAGE>
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."
2. In all other respects, the Agreement shall remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as by law provided, effective as of the 19th day of May, 1998.
HLM DESIGN, INC.
/s/ Vernon B. Brannon
By: __________________________________
Title: _______________________________
/s/ Joseph M. Harris (SEAL)
------------------------------
JOSEPH M. HARRIS, Employee
-2-
EXHIBIT 10.26
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: /s/ Joseph Harris
Title:____________________________
/s/ Vernon B. Brannon (SEAL)
---------------------------------
VERNON B. BRANNON, Employee
- 8 -
<PAGE>
AMENDMENT NUMBER ONE
TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER ONE TO EMPLOYMENT AGREEMENT originally entered
into as of the 15th day of January, 1998 (the "Agreement") 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").
The parties to the Agreement desire to amend certain provisions of the
Agreement, and, in further consideration of the mutual covenants contained
herein and therein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and Employee agree as
follows:
1. The first sentence of Paragraph 3 of the Agreement shall be amended
to read as follows:
"The Company shall pay the Employee a monthly automobile
allowance of One Thousand Dollars ($1,000.00) per month,
-1-
<PAGE>
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."
2. In all other respects, the Agreement shall remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as by law provided, effective as of the 19th day of May, 1998.
HLM DESIGN, INC.
/s/ Joseph M. Harris
By: ________________________________________
Title: _____________________________________
/s/ Vernon B. Brannon (SEAL)
____________________________
VERNON B. BRANNON, Employee
-2-
FIRST AMENDMENT TO
MANAGEMENT AND SERVICES AGREEMENT
THIS FIRST AMENDMENT (this "First Amendment") to that certain
Management and Services Agreement by and between HLM DESIGN, INC., a Delaware
corporation ("Design") and HLM DESIGN OF NORTHAMERICA, INC., an Iowa corporation
formerly known as Hansen Lind Meyer Inc. ("HLM") as dated effective May 29, 1997
(the "Agreement") is hereby executed and agreed to by the undersigned. In
recognition of the fact that the purpose of this First Amendment is to revise
the Section of the Agreement subject hereto to reflect the original intent of
the parties, this First Amendment shall be effective retroactively as of May 29,
1997.
Section 13.e. of the Agreement is hereby amended and restated
to read in its entirety as follows:
Assignability. Design may assign this Agreement, and/or transfer,
assign or delegate any or all of its rights, obligations and
responsibilities under this Agreement, without the consent of HLM. This
Agreement is not transferrable or assignable by HLM without the prior
written consent of Design.
All other provisions of the Agreement shall remain unmodified and in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their duly authorized representatives, effective as of the
date set forth above.
HLM DESIGN, INC.
By: /s/ (illegible signature)
----------------------------------
HLM DESIGN OF NORTHAMERICA, INC.,
F/K/A HANSEN LIND MEYER INC.
By: /s/ (illegible signature)
----------------------------------
FIRST AMENDMENT TO
MANAGEMENT AND SERVICES AGREEMENT
THIS FIRST AMENDMENT (this "First Amendment") to that certain
Management and Services Agreement by and between HLM DESIGN, INC., a Delaware
corporation ("Design") and HLM DESIGN OF THE SOUTHEAST, P.C., a North Carolina
corporation formerly known as HLM of North Carolina, P.C. ("HLM") as dated
effective May 29, 1997 (the "Agreement") is hereby executed and agreed to by the
undersigned. In recognition of the fact that the purpose of this First Amendment
is to revise the Section of the Agreement subject hereto to reflect the original
intent of the parties, this First Amendment shall be effective retroactively as
of May 29, 1997.
Section 13.e. of the Agreement is hereby amended and restated
to read in its entirety as follows:
Assignability. Design may assign this Agreement, and/or transfer,
assign or delegate any or all of its rights, obligations and
responsibilities under this Agreement, without the consent of HLM. This
Agreement is not transferrable or assignable by HLM without the prior
written consent of Design.
All other provisions of the Agreement shall remain unmodified and in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their duly authorized representatives, effective as of the
date set forth above.
HLM DESIGN, INC.
By: /s/ (illegible signature)
----------------------------------
HLM DESIGN OF THE SOUTHEAST, P.C.,
F/K/A HLM OF NORTH CAROLINA, P.C.
By: /s/ (illegible signature)
----------------------------------
FIRST AMENDMENT TO
MANAGEMENT AND SERVICES AGREEMENT
THIS FIRST AMENDMENT (this "First Amendment") to that certain
Management and Services Agreement by and between HLM DESIGN, INC., a Delaware
corporation ("Design") and HLM DESIGN OF THE NORTHWEST, ARCHITECTURE,
ENGINEERING AND PLANNING, P.C., an Oregon corporation formerly known as HLM of
Oregon, Architecture and Planning, P.C. ("HLM") as dated effective May 29, 1997
(the "Agreement") is hereby executed and agreed to by the undersigned. In
recognition of the fact that the purpose of this First Amendment is to revise
the Section of the Agreement subject hereto to reflect the original intent of
the parties, this First Amendment shall be effective retroactively as of May 29,
1997.
Section 13.e. of the Agreement is hereby amended and restated
to read in its entirety as follows:
Assignability. Design may assign this Agreement, and/or transfer,
assign or delegate any or all of its rights, obligations and
responsibilities under this Agreement, without the consent of HLM. This
Agreement is not transferrable or assignable by HLM without the prior
written consent of Design.
All other provisions of the Agreement shall remain unmodified and in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their duly authorized representatives, effective as of the
date set forth above.
HLM DESIGN, INC.
By: /s/ (illegible signature)
----------------------------------
HLM DESIGN OF THE
NORTHWEST, ARCHITECTURE,
ENGINEERING AND PLANNING,
P.C., F/K/A HLM OF OREGON,
ARCHITECTURE AND PLANNING,
P.C.
By: /s/ (illegible signature)
----------------------------------
EXHIBIT 10.31
STATUTORY INCENTIVE STOCK OPTION AGREEMENT AND GRANT
PURSUANT TO
HLM DESIGN, INC. 1998 STOCK OPTION PLAN
This Statutory Incentive Stock Option Agreement and Grant is entered
into as of this day of _________________, 1998 between HLM Design, Inc., a
Delaware corporation (the "Company"), and Joseph M. Harris (the "Optionee").
WHEREAS, the Company and its stockholders have approved the HLM Design,
Inc. 1998 Stock Option Plan (the "Plan") pursuant to which the Company may, from
time to time, make awards of Options (as defined below) and enter into Statutory
Incentive Stock Option Agreements with eligible employees of the Company or of
any Subsidiary (as defined below);
WHEREAS, pursuant to the Plan, the Company has determined to grant to
the Optionee an Option to purchase Common Stock (as defined below) of the
Company, which Option shall be subject to the terms and conditions of this
Statutory Incentive Stock Option Agreement and Grant;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereby agree as
follows:
1. DEFINITIONS.
For purposes of this Statutory Incentive Stock Option Agreement and
Grant, the following terms shall have the meanings indicated:
(a) "ACT" shall mean the Securities Act of 1933, as amended.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "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.
(d) "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.
(e) "COMMITTEE" shall mean the committee of members of the
Board that is designated by the Board to administer the Plan. In the event that
no such Committee exists or is appointed, "COMMITTEE" shall mean the Board.
<PAGE>
(f) "COMMON STOCK" shall mean the Common Stock, par value
$.001 per share, of the Company.
(g) "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.
(h) "EXERCISE DATE" shall mean the business day, during the
Option Period, upon which the Optionee delivers to the Company the written
notice and consideration contemplated by Section 5(c) of the Plan.
(i) "FAIR MARKET VALUE" shall mean, with respect to the Common
Stock on any day, its market value determined as provided in Section 5(c) of the
Plan.
(j) "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.
(k) "OPTION" shall mean the option to purchase shares of
Common Stock granted to the Optionee pursuant to this Option Agreement.
(l) "OPTION AGREEMENT" shall mean this Statutory Incentive
Stock Option Agreement and Grant between the Company and the Optionee by which
the Option is granted to the Optionee pursuant to the Plan.
(m) "OPTION PERIOD" shall mean the period commencing from the
date of this Option Agreement and ending at the close of business ten years from
the date of this Option Agreement (or five years from the date of this Option
Agreement in the case of an Optionee who is a Ten Percent Stockholder) or such
earlier date as when this Option Agreement may be terminated by its terms.
(n) "OPTION SHARES" shall mean the shares of Common Stock
purchased upon exercise of the Option.
(o) "OPTIONEE" shall mean the individual executing this Option
Agreement and, as applicable, the estate, personal representative or beneficiary
to whom this Option may be transferred pursuant to this Option Agreement by will
or by the laws of descent and distribution.
2
<PAGE>
(p) "PLAN" shall mean the HLM Design, Inc. 1998 Stock Option
Plan and any amendments thereto.
(q) "RETIREMENT" shall mean, with respect to the Optionee,
retirement from the Company and any Subsidiary in accordance with the Company's
and/or Subsidiary's retirement policy as may be in effect from time to time.
(r) "SUBSIDIARY" shall mean any subsidiary corporation of HLM
Design, Inc. as defined in Sections 424(f) and 424(g) of the Code.
(s) "TEN PERCENT STOCKHOLDER" shall mean 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.
(t) "TERMINATION" shall mean the cessation, for any reason, of
the employer-employee relationship between the Company and any Subsidiary and
the Optionee.
(u) "TOTAL OPTION PRICE" shall mean the consideration payable
to the Company by the Optionee upon exercise of the Option pursuant to Section
5(c) of the Plan.
2. GRANT OF OPTION. Effective upon the date of the commencement of the
Company's initial public offering and subject to the terms and conditions set
forth herein, the Company hereby grants to the Optionee the Option to purchase
from the Company, at an exercise price per share equal to the price at which
Common Stock is offered to the public in the Company's initial public offering
(or, in the case of an Optionee who is a Ten Percent Stockholder, at an exercise
price per share equal to 110% of the price at which Common Stock is offered to
the public in the Company's initial public offering), up to but not exceeding in
the aggregate 17,386 shares of Common Stock.
3. EXERCISE OF OPTION. The Option granted in paragraph 2 above may be
exercised as follows:
(a) The Option shall be exercisable at any time and from time
to time during the Option Period; provided however, that in the first calendar
year of the Option Period, the Option shall become exercisable only to the
extent of that number of shares of Common Stock having an aggregate fair market
value of $100,000 based on the per share value of the Common Stock at the time
of the effectiveness of the grant of the Option (this per share value being
equal to the price at which the Common Stock is offered to the public in the
Company's initial public offering). In each subsequent calendar year of the
Option Period, the Option shall become exercisable to the extent of an
additional number of shares of Common Stock having an aggregate fair market
value of $100,000 determined as provided in the preceding sentence. The Option
shall terminate on the expiration of the Option Period, if not earlier
terminated; provided that, in the event of the Optionee's Retirement, the
Committee in its sole and absolute discretion may accelerate the Exercise Date,
which acceleration may, in the sole discretion of the Committee, be subject to
further terms and conditions mandated by the Committee.
3
<PAGE>
(b) No less than 100 shares of Common Stock may be purchased
on any Exercise Date unless the number of shares purchased at such time is the
total number of shares in respect of which the Option is then exercisable.
(c) If at any time and for any reason the Option covers a
fraction of a share, then, upon exercise of the Option, the Optionee shall
receive the Fair Market Value of such fractional share in cash.
(d) The Option shall be exercised by the Optionee in
accordance with the terms and conditions of Section 5(c) of the Plan.
(e) As soon as administratively practicable following the
Exercise Date, subject to the receipt of payment of the Total Option Price and
of any payment in cash of federal, state or local income tax withholding or
other employment tax that may be due upon the issuance of the Option Shares as
determined and computed by the Company pursuant to paragraph 6 below, the
Company shall issue to the Optionee the number of shares with respect to which
such Option shall be so exercised and shall deliver to the Optionee a
certificate or certificates therefor.
(f) The Option is not transferable by the Optionee otherwise
than by will or the laws of descent and distribution. No assignment or transfer
of this Option, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise, except by will or the laws of
descent and distribution, shall vest in the assignee or transferee any interest
or right herein whatsoever; but immediately upon any attempt to assign or
transfer this Option, except as expressly permitted herein, the same shall
terminate and be of no force or effect.
(g) The Optionee agrees to maintain the status of the entire
Option as an "incentive stock option" as defined under Section 422 of the Code.
4. TERMINATION. The Option granted hereby shall terminate and be of no
force or effect upon and following the occurrence of any of the following
events:
(a) The expiration of the Option Period.
(b) The Termination of the Optionee's employment for any
reason other than the Optionee's death, Disability or Involuntary Termination
Without Cause.
(c) The expiration of three months after the date of the
Optionee's Involuntary Termination Without Cause. During such three-month
period, the Optionee shall have the right to exercise the Option hereby granted
in accordance with the terms of this Option Agreement, but only to the extent
the Option was exercisable on the date of the Termination of the Optionee's
employment.
(d) The expiration of twelve months after Termination of the
Optionee's employment with the Company and any Subsidiary as a result of the
Optionee's Disability. During such twelve-month period, the Optionee shall have
the right to exercise the Option hereby granted in accordance with the terms of
this Option Agreement, but only to the extent the Option was exercisable on the
date of the Termination of the Optionee's employment.
5
<PAGE>
(e) To the extent permitted for incentive stock options under
Section 422 of the Code, in the event of the death of the Optionee while in the
employ of the Company or any Subsidiary or, in the event of the death of the
Optionee after Termination described in subparagraph (c) or (d), above, but
within the three-month or twelve-month period described in subparagraph (c) or
(d), above, upon the expiration of twelve months following the Optionee's death.
During such extended period, the Option may be exercised subject to Section
5(d)(iv) of the Plan 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 Termination of the Optionee's employment.
(f) To the extent set forth in paragraph 7 below, upon the
dissolution, liquidation, consolidation or merger of the Company, and, to the
extent set forth in subparagraph 3(f), above, upon an attempted assignment or
transfer of the Option otherwise than as expressly permitted herein.
Any determination made by the Committee with respect to any matter
referred to in this paragraph 4 shall be final and conclusive on all persons
affected thereby.
5. RIGHTS AS STOCKHOLDER. An Optionee shall have no rights as a
stockholder of the Company with respect to any shares underlying the Option
until the day of the issuance of a stock certificate to him or her for those
shares upon payment of the exercise price in accordance with the terms and
provisions hereof. Subject to paragraph 7 below, no adjustments shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.
6. PAYMENT OF WITHHOLDING TAXES. Upon the Optionee's exercise of his or
her Option with respect to any of the Option Shares in accordance with the
provisions of paragraph 3 above, the Optionee shall pay to the Company upon
exercise of the Option the amount of any federal, state or local income tax
withholding or other employment tax that may be due upon such exercise. The
determination of the amount of any such federal, state or local income tax
withholding or other employment tax due in such event shall be made by the
Company and shall be binding upon the Optionee.
7. RECAPITALIZATION; REORGANIZATION. The shares underlying this Option
are shares of Common Stock as constituted on the date of this Option Agreement,
but if, during the Option Period and prior to the delivery by the Company of all
of the shares of Common Stock with respect to which this Option is granted, the
Company shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend or some other increase or decrease
in the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, then, (a) in the event of
any increase in the number of such shares outstanding, the number of shares of
Common Stock then remaining subject to this Option shall be proportionately
increased (except that any fraction of a share resulting from any such
adjustment shall be excluded from the operation of this Option Agreement), and
the exercise price per share shall be proportionately reduced, and, (b) in the
event of a reduction in the number of such shares outstanding, the number of
shares of Common Stock then remaining subject to this Option shall be
proportionately reduced (except that any fractional share resulting from any
such adjustment shall
5
<PAGE>
be excluded from the operation of this Option Agreement), and the exercise price
per share shall be proportionately increased.
In the event of a merger of one or more corporations into the Company
with respect to which the Company shall be the surviving or resulting
corporation, the Optionee shall, at no additional cost, be entitled upon any
exercise of this Option to receive (subject to any required action by
shareholders), in lieu of the number of shares as to which this Option shall
then be so exercised, the number and class of shares of stock or other
securities to which the Optionee would have been entitled pursuant to the terms
of the agreement of merger if, immediately prior to such merger, the Optionee
had been the holder of record of a number of shares of Common Stock of the
Company equal to the number of shares as to which such Option shall be so
exercised; provided, however, that, anything herein contained to the contrary
notwithstanding, upon the occurrence of any event described in Section 5(g) of
the Plan, this Option shall be subject to acceleration as provided in such
Section 5(g).
In the event of a change in the Common Stock as presently constituted,
which change is limited to a change of all of the authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
The existence of this Option shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any or all
adjustments, dividends, stock dividends, recapitalization, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
other stocks with preference ahead of or convertible into, or otherwise
affecting, the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
8. NO REGISTRATION RIGHTS. Anything in this Option Agreement to the
contrary notwithstanding, if, at any time specified herein for the issuance of
Option Shares, any law, regulation or requirements of any governmental authority
having jurisdiction in the premises shall require either the Company or the
Optionee, in the opinion of the Company's counsel, to take any action in
connection with the shares then to be issued, the issue of such shares shall be
deferred until such action shall have been taken. Nothing in this Option
Agreement shall be construed to obligate the Company at any time to file or
maintain the effectiveness of a registration statement under the Act, or under
the securities laws of any state or other jurisdiction, or to take or cause to
be taken any action which may be necessary in order to provide an exemption from
the registration requirements of the Act under Rule 144 or any other exemption
with respect to the Option Shares or otherwise for resale or other transfer by
the Optionee (or by the executor or administrator of such Optionee's estate or a
person who acquired the Option or any Option Shares or other rights by bequest
or inheritance or by reason of the death of the Optionee) as a result of the
exercise of an Option granted pursuant to this Option Agreement.
9. RESOLUTION OF DISPUTES. Any dispute or disagreement that arises
under, or as a result of, or pursuant to, this Option Agreement shall be
determined by the Committee in its absolute and uncontrolled discretion, and any
such determination or other determination by the Committee under
6
<PAGE>
or pursuant to this Option Agreement, and any interpretation by the Committee of
the terms of this Option Agreement, shall be final, binding and conclusive on
all parties affected thereby.
10. COMPLIANCE WITH THE ACT. Notwithstanding any provision herein or in
the Plan to the contrary, the Company shall be under no obligation to issue any
shares of Common Stock to the Optionee upon exercise of the Option granted
hereby unless and until the Company has determined that such issuance is either
exempt from registration, or is registered, under the Act and is either exempt
from registration and qualification, or is registered or qualified, as
applicable, under all applicable state securities or "blue sky" laws.
11. MISCELLANEOUS.
(a) BINDING ON SUCCESSORS AND REPRESENTATIVES. This Option
Agreement shall be binding not only upon the parties, but also upon their heirs,
executors, administrators, personal representatives, successors and assigns
(including any transferee of a party to this Agreement); and the parties agree,
for themselves and their successors, assigns and representatives, to execute any
instrument which may be necessary legally to effect the terms and conditions of
this Option Agreement.
(b) ENTIRE AGREEMENT. This Option Agreement, together with the
Plan, constitutes the entire agreement of the parties with respect to the Option
and supersedes any previous agreement, whether written or oral, with respect
thereto. This Option Agreement has been entered into in compliance with the
terms of the Plan; wherever a conflict may arise between the terms of this
Option Agreement and the terms of the Plan, the terms of the Plan shall control.
(c) AMENDMENT. Neither this Option Agreement nor any of the
terms and conditions herein set forth may be altered or amended orally, and any
such alteration or amendment shall be effective only when reduced to writing and
signed by each of the parties or their respective successors and assigns.
(d) CONSTRUCTION OF TERMS. Any reference herein to the
singular or plural shall be construed as plural or singular whenever the context
requires.
(e) NOTICES. All notices, requests and amendments under this
Option Agreement shall be in writing, and notices shall be deemed to have been
given when personally delivered or sent prepaid registered mail:
(i) if to the Company, at the following address:
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
Attention: Chief Financial Officer
or at such other address as the Company shall designate by notice.
7
<PAGE>
(ii) if to the Optionee, to the Optionee's
address appearing in the Company's
employment records, or at such other address
as the Optionee shall designate by notice.
(f) GOVERNING LAW. This Option Agreement shall be governed by,
and construed in accordance with, the laws of the State of North Carolina
(excluding the principles of conflict of laws thereof).
(g) SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Option Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
(h) AN INCENTIVE STOCK OPTION. The Option granted hereunder is
intended to be an "Incentive Stock Option" under Section 422 of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
HLM DESIGN, INC.
By: _________________________________________
Title: ______________________________________
OPTIONEE: JOSEPH M. HARRIS
_______________________________________(SEAL)
8
<PAGE>
EXHIBIT 10.32
STATUTORY INCENTIVE STOCK OPTION AGREEMENT AND GRANT
PURSUANT TO
HLM DESIGN, INC. 1998 STOCK OPTION PLAN
This Statutory Incentive Stock Option Agreement and Grant is entered
into as of this day of _________________, 1998 between HLM Design, Inc., a
Delaware corporation (the "Company"), and Vernon B. Brannon (the "Optionee").
WHEREAS, the Company and its stockholders have approved the HLM Design,
Inc. 1998 Stock Option Plan (the "Plan") pursuant to which the Company may, from
time to time, make awards of Options (as defined below) and enter into Statutory
Incentive Stock Option Agreements with eligible employees of the Company or of
any Subsidiary (as defined below);
WHEREAS, pursuant to the Plan, the Company has determined to grant to
the Optionee an Option to purchase Common Stock (as defined below) of the
Company, which Option shall be subject to the terms and conditions of this
Statutory Incentive Stock Option Agreement and Grant;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereby agree as
follows:
1. DEFINITIONS.
For purposes of this Statutory Incentive Stock Option Agreement and
Grant, the following terms shall have the meanings indicated:
(a) "ACT" shall mean the Securities Act of 1933, as amended.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "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.
(d) "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.
(e) "COMMITTEE" shall mean the committee of members of the
Board that is designated by the Board to administer the Plan. In the event that
no such Committee exists or is appointed, "COMMITTEE" shall mean the Board.
<PAGE>
(f) "COMMON STOCK" shall mean the Common Stock, par value
$.001 per share, of the Company.
(g) "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.
(h) "EXERCISE DATE" shall mean the business day, during the
Option Period, upon which the Optionee delivers to the Company the written
notice and consideration contemplated by Section 5(c) of the Plan.
(i) "FAIR MARKET VALUE" shall mean, with respect to the Common
Stock on any day, its market value determined as provided in Section 5(c) of the
Plan.
(j) "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.
(k) "OPTION" shall mean the option to purchase shares of
Common Stock granted to the Optionee pursuant to this Option Agreement.
(l) "OPTION AGREEMENT" shall mean this Statutory Incentive
Stock Option Agreement and Grant between the Company and the Optionee by which
the Option is granted to the Optionee pursuant to the Plan.
(m) "OPTION PERIOD" shall mean the period commencing from the
date of this Option Agreement and ending at the close of business ten years from
the date of this Option Agreement (or five years from the date of this Option
Agreement in the case of an Optionee who is a Ten Percent Stockholder) or such
earlier date as when this Option Agreement may be terminated by its terms.
(n) "OPTION SHARES" shall mean the shares of Common Stock
purchased upon exercise of the Option.
(o) "OPTIONEE" shall mean the individual executing this Option
Agreement and, as applicable, the estate, personal representative or beneficiary
to whom this Option may be transferred pursuant to this Option Agreement by will
or by the laws of descent and distribution.
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(p) "PLAN" shall mean the HLM Design, Inc. 1998 Stock Option
Plan and any amendments thereto.
(q) "RETIREMENT" shall mean, with respect to the Optionee,
retirement from the Company and any Subsidiary in accordance with the Company's
and/or Subsidiary's retirement policy as may be in effect from time to time.
(r) "SUBSIDIARY" shall mean any subsidiary corporation of HLM
Design, Inc. as defined in Sections 424(f) and 424(g) of the Code.
(s) "TEN PERCENT STOCKHOLDER" shall mean 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.
(t) "TERMINATION" shall mean the cessation, for any reason, of
the employer-employee relationship between the Company and any Subsidiary and
the Optionee.
(u) "TOTAL OPTION PRICE" shall mean the consideration payable
to the Company by the Optionee upon exercise of the Option pursuant to Section
5(c) of the Plan.
2. GRANT OF OPTION. Effective upon the date of the commencement of the
Company's initial public offering and subject to the terms and conditions set
forth herein, the Company hereby grants to the Optionee the Option to purchase
from the Company, at an exercise price per share equal to the price at which
Common Stock is offered to the public in the Company's initial public offering
(or, in the case of an Optionee who is a Ten Percent Stockholder, at an exercise
price per share equal to 110% of the price at which Common Stock is offered to
the public in the Company's initial public offering), up to but not exceeding in
the aggregate 17,386 shares of Common Stock.
3. EXERCISE OF OPTION. The Option granted in paragraph 2 above may be
exercised as follows:
(a) The Option shall be exercisable at any time and from time
to time during the Option Period; provided however, that in the first calendar
year of the Option Period, the Option shall become exercisable only to the
extent of that number of shares of Common Stock having an aggregate fair market
value of $100,000 based on the per share value of the Common Stock at the time
of the effectiveness of the grant of the Option (this per share value being
equal to the price at which the Common Stock is offered to the public in the
Company's initial public offering). In each subsequent calendar year of the
Option Period, the Option shall become exercisable to the extent of an
additional number of shares of Common Stock having an aggregate fair market
value of $100,000 determined as provided in the preceding sentence. The Option
shall terminate on the expiration of the Option Period, if not earlier
terminated; provided that, in the event of the Optionee's Retirement, the
Committee in its sole and absolute discretion may accelerate the Exercise Date,
which acceleration may, in the sole discretion of the Committee, be subject to
further terms and conditions mandated by the Committee.
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(b) No less than 100 shares of Common Stock may be purchased
on any Exercise Date unless the number of shares purchased at such time is the
total number of shares in respect of which the Option is then exercisable.
(c) If at any time and for any reason the Option covers a
fraction of a share, then, upon exercise of the Option, the Optionee shall
receive the Fair Market Value of such fractional share in cash.
(d) The Option shall be exercised by the Optionee in
accordance with the terms and conditions of Section 5(c) of the Plan.
(e) As soon as administratively practicable following the
Exercise Date, subject to the receipt of payment of the Total Option Price and
of any payment in cash of federal, state or local income tax withholding or
other employment tax that may be due upon the issuance of the Option Shares as
determined and computed by the Company pursuant to paragraph 6 below, the
Company shall issue to the Optionee the number of shares with respect to which
such Option shall be so exercised and shall deliver to the Optionee a
certificate or certificates therefor.
(f) The Option is not transferable by the Optionee otherwise
than by will or the laws of descent and distribution. No assignment or transfer
of this Option, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise, except by will or the laws of
descent and distribution, shall vest in the assignee or transferee any interest
or right herein whatsoever; but immediately upon any attempt to assign or
transfer this Option, except as expressly permitted herein, the same shall
terminate and be of no force or effect.
(g) The Optionee agrees to maintain the status of the entire
Option as an "incentive stock option" as defined under Section 422 of the Code.
4. TERMINATION. The Option granted hereby shall terminate and be of no
force or effect upon and following the occurrence of any of the following
events:
(a) The expiration of the Option Period.
(b) The Termination of the Optionee's employment for any
reason other than the Optionee's death, Disability or Involuntary Termination
Without Cause.
(c) The expiration of three months after the date of the
Optionee's Involuntary Termination Without Cause. During such three-month
period, the Optionee shall have the right to exercise the Option hereby granted
in accordance with the terms of this Option Agreement, but only to the extent
the Option was exercisable on the date of the Termination of the Optionee's
employment.
(d) The expiration of twelve months after Termination of the
Optionee's employment with the Company and any Subsidiary as a result of the
Optionee's Disability. During such twelve-month period, the Optionee shall have
the right to exercise the Option hereby granted in accordance with the terms of
this Option Agreement, but only to the extent the Option was exercisable on the
date of the Termination of the Optionee's employment.
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(e) To the extent permitted for incentive stock options under
Section 422 of the Code, in the event of the death of the Optionee while in the
employ of the Company or any Subsidiary or, in the event of the death of the
Optionee after Termination described in subparagraph (c) or (d), above, but
within the three-month or twelve-month period described in subparagraph (c) or
(d), above, upon the expiration of twelve months following the Optionee's death.
During such extended period, the Option may be exercised subject to Section
5(d)(iv) of the Plan 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 Termination of the Optionee's employment.
(f) To the extent set forth in paragraph 7 below, upon the
dissolution, liquidation, consolidation or merger of the Company, and, to the
extent set forth in subparagraph 3(f), above, upon an attempted assignment or
transfer of the Option otherwise than as expressly permitted herein.
Any determination made by the Committee with respect to any matter
referred to in this paragraph 4 shall be final and conclusive on all persons
affected thereby.
5. RIGHTS AS STOCKHOLDER. An Optionee shall have no rights as a
stockholder of the Company with respect to any shares underlying the Option
until the day of the issuance of a stock certificate to him or her for those
shares upon payment of the exercise price in accordance with the terms and
provisions hereof. Subject to paragraph 7 below, no adjustments shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.
6. PAYMENT OF WITHHOLDING TAXES. Upon the Optionee's exercise of his or
her Option with respect to any of the Option Shares in accordance with the
provisions of paragraph 3 above, the Optionee shall pay to the Company upon
exercise of the Option the amount of any federal, state or local income tax
withholding or other employment tax that may be due upon such exercise. The
determination of the amount of any such federal, state or local income tax
withholding or other employment tax due in such event shall be made by the
Company and shall be binding upon the Optionee.
7. RECAPITALIZATION; REORGANIZATION. The shares underlying this Option
are shares of Common Stock as constituted on the date of this Option Agreement,
but if, during the Option Period and prior to the delivery by the Company of all
of the shares of Common Stock with respect to which this Option is granted, the
Company shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend or some other increase or decrease
in the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, then, (a) in the event of
any increase in the number of such shares outstanding, the number of shares of
Common Stock then remaining subject to this Option shall be proportionately
increased (except that any fraction of a share resulting from any such
adjustment shall be excluded from the operation of this Option Agreement), and
the exercise price per share shall be proportionately reduced, and, (b) in the
event of a reduction in the number of such shares outstanding, the number of
shares of Common Stock then remaining subject to this Option shall be
proportionately reduced (except that any fractional share resulting from any
such adjustment shall be
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<PAGE>
excluded from the operation of this Option Agreement), and the exercise price
per share shall be proportionately increased.
In the event of a merger of one or more corporations into the Company
with respect to which the Company shall be the surviving or resulting
corporation, the Optionee shall, at no additional cost, be entitled upon any
exercise of this Option to receive (subject to any required action by
shareholders), in lieu of the number of shares as to which this Option shall
then be so exercised, the number and class of shares of stock or other
securities to which the Optionee would have been entitled pursuant to the terms
of the agreement of merger if, immediately prior to such merger, the Optionee
had been the holder of record of a number of shares of Common Stock of the
Company equal to the number of shares as to which such Option shall be so
exercised; provided, however, that, anything herein contained to the contrary
notwithstanding, upon the occurrence of any event described in Section 5(g) of
the Plan, this Option shall be subject to acceleration as provided in such
Section 5(g).
In the event of a change in the Common Stock as presently constituted,
which change is limited to a change of all of the authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
The existence of this Option shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any or all
adjustments, dividends, stock dividends, recapitalization, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
other stocks with preference ahead of or convertible into, or otherwise
affecting, the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
8. NO REGISTRATION RIGHTS. Anything in this Option Agreement to the
contrary notwithstanding, if, at any time specified herein for the issuance of
Option Shares, any law, regulation or requirements of any governmental authority
having jurisdiction in the premises shall require either the Company or the
Optionee, in the opinion of the Company's counsel, to take any action in
connection with the shares then to be issued, the issue of such shares shall be
deferred until such action shall have been taken. Nothing in this Option
Agreement shall be construed to obligate the Company at any time to file or
maintain the effectiveness of a registration statement under the Act, or under
the securities laws of any state or other jurisdiction, or to take or cause to
be taken any action which may be necessary in order to provide an exemption from
the registration requirements of the Act under Rule 144 or any other exemption
with respect to the Option Shares or otherwise for resale or other transfer by
the Optionee (or by the executor or administrator of such Optionee's estate or a
person who acquired the Option or any Option Shares or other rights by bequest
or inheritance or by reason of the death of the Optionee) as a result of the
exercise of an Option granted pursuant to this Option Agreement.
9. RESOLUTION OF DISPUTES. Any dispute or disagreement that arises
under, or as a result of, or pursuant to, this Option Agreement shall be
determined by the Committee in its absolute and uncontrolled discretion, and any
such determination or other determination by the Committee under
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<PAGE>
or pursuant to this Option Agreement, and any interpretation by the Committee of
the terms of this Option Agreement, shall be final, binding and conclusive on
all parties affected thereby.
10. COMPLIANCE WITH THE ACT. Notwithstanding any provision herein or in
the Plan to the contrary, the Company shall be under no obligation to issue any
shares of Common Stock to the Optionee upon exercise of the Option granted
hereby unless and until the Company has determined that such issuance is either
exempt from registration, or is registered, under the Act and is either exempt
from registration and qualification, or is registered or qualified, as
applicable, under all applicable state securities or "blue sky" laws.
11. MISCELLANEOUS.
(a) BINDING ON SUCCESSORS AND REPRESENTATIVES. This Option
Agreement shall be binding not only upon the parties, but also upon their heirs,
executors, administrators, personal representatives, successors and assigns
(including any transferee of a party to this Agreement); and the parties agree,
for themselves and their successors, assigns and representatives, to execute any
instrument which may be necessary legally to effect the terms and conditions of
this Option Agreement.
(b) ENTIRE AGREEMENT. This Option Agreement, together with the
Plan, constitutes the entire agreement of the parties with respect to the Option
and supersedes any previous agreement, whether written or oral, with respect
thereto. This Option Agreement has been entered into in compliance with the
terms of the Plan; wherever a conflict may arise between the terms of this
Option Agreement and the terms of the Plan, the terms of the Plan shall control.
(c) AMENDMENT. Neither this Option Agreement nor any of the
terms and conditions herein set forth may be altered or amended orally, and any
such alteration or amendment shall be effective only when reduced to writing and
signed by each of the parties or their respective successors and assigns.
(d) CONSTRUCTION OF TERMS. Any reference herein to the
singular or plural shall be construed as plural or singular whenever the context
requires.
(e) NOTICES. All notices, requests and amendments under this
Option Agreement shall be in writing, and notices shall be deemed to have been
given when personally delivered or sent prepaid registered mail:
(i) if to the Company, at the following address:
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
Attention: Chief Financial Officer
or at such other address as the Company shall designate by notice.
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(ii) if to the Optionee, to the Optionee's
address appearing in the Company's
employment records, or at such other address
as the Optionee shall designate by notice.
(f) GOVERNING LAW. This Option Agreement shall be governed by,
and construed in accordance with, the laws of the State of North Carolina
(excluding the principles of conflict of laws thereof).
(g) SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Option Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
(h) AN INCENTIVE STOCK OPTION. The Option granted hereunder is
intended to be an "Incentive Stock Option" under Section 422 of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
HLM DESIGN, INC.
By: _________________________________________
Title: ______________________________________
OPTIONEE: VERNON B. BRANNON (SEAL)
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EXHIBIT 10.33
NONSTATUTORY STOCK OPTION AGREEMENT AND GRANT
PURSUANT TO
HLM DESIGN, INC. 1998 STOCK OPTION PLAN
This Nonstatutory Stock Option Agreement and Grant is entered into as
of this ___ day of ______________, 1998 between HLM Design, Inc., a Delaware
corporation (the "Company"), and Joseph M. Harris (the "Optionee").
WHEREAS, the Company and its stockholders have approved the HLM Design,
Inc. 1998 Stock Option Plan (the "Plan") pursuant to which the Company may, from
time to time, make awards of Options (as defined below) and enter into
Nonstatutory Stock Option Agreements with, eligible employees of the Company or
of any Subsidiary (as defined below);
WHEREAS, pursuant to the Plan, the Company has determined to grant to
the Optionee an Option to purchase Common Stock (as defined below) of the
Company, which Option shall be subject to the terms and conditions of this
Nonstatutory Stock Option Agreement and Grant;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereby agree as
follows:
1. DEFINITIONS.
For purposes of this Nonstatutory Stock Option Agreement and Grant, the
following terms shall have the meanings indicated:
(a) "ACT" shall mean the Securities Act of 1933, as amended.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "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.
(d) "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.
(e) "COMMITTEE" shall mean the committee of members of the
Board that is designated by the Board to administer the Plan. In the event that
no such Committee exists or is appointed, "COMMITTEE" shall mean the Board.
<PAGE>
(f) "COMMON STOCK" shall mean the Common Stock, par value
$.001 per share, of the Company.
(g) "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.
(h) "EXERCISE DATE" shall mean the business day, during the
Option Period, upon which the Optionee delivers to the Company the written
notice and consideration contemplated by Section 5(c) of the Plan.
(i) "FAIR MARKET VALUE" shall mean, with respect to the Common
Stock on any day, its market value determined as provided in Section 5(c) of the
Plan.
(j) "IMMEDIATE FAMILY" shall mean the Optionee's spouse,
children, present or former stepchildren, grandchildren, present or former
stepgrandchildren, parents, present or former stepparents, grandparents,
siblings (including half brothers and sisters), in-laws and individuals whose
relationship with the Optionee arises due to legal adoption.
(k) "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.
(l) "OPTION" shall mean the option to purchase shares of
Common Stock granted to the Optionee pursuant to this Option Agreement.
(m) "OPTION AGREEMENT" shall mean this Nonstatutory Stock
Option Agreement and Grant between the Company and the Optionee by which the
Option is granted to the Optionee pursuant to the Plan.
(n) "OPTION PERIOD" shall mean the period commencing from the
date of this Option Agreement and ending at the close of business ten years from
the date of this Option Agreement or such earlier date as when this Option
Agreement may be terminated by its terms.
(o) "OPTION SHARES" shall mean the shares of Common Stock
purchased upon exercise of the Option.
(p) "OPTIONEE" shall mean the individual executing this Option
Agreement and, as applicable, the estate, personal representative, beneficiary
or Permitted Transferee to whom this Option may be transferred pursuant to this
Option Agreement by will, by the laws of descent and
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distribution, pursuant to a domestic relations order as defined in the Code, or
as otherwise permitted by paragraph 3(f) below.
(q) "PERMITTED TRANSFEREE" shall mean a member of the
Optionee's Immediate Family, a trust established solely for the benefit of one
or more members of the Optionee's Immediate Family or a partnership or limited
liability company of which the only individuals or entities who are or could be
partners or shareholders are members of the Optionee's Immediate Family and/or a
trust established solely for the benefit of one or more members of the
Optionee's Immediate Family.
(r) "PLAN" shall mean the HLM Design, Inc. 1998 Stock Option
Plan and any amendments thereto.
(s) "RETIREMENT" shall mean, with respect to the Optionee,
retirement from the Company and any Subsidiary in accordance with the Company's
and/or Subsidiary's retirement policy as may be in effect from time to time.
(t) "SUBSIDIARY" shall mean any subsidiary corporation of HLM
Design, Inc. as defined in Sections 424(f) and 424(g) of the Code.
(u) "TERMINATION" shall mean the cessation, for any reason, of
the employer-employee relationship between the Company and any Subsidiary and
the Optionee.
(v) "TOTAL OPTION PRICE" shall mean the consideration payable
to the Company by the Optionee upon exercise of the Option pursuant to Section
5(c) of the Plan.
2. GRANT OF OPTION. Effective upon the date hereof, and subject to the
terms and conditions set forth herein, the Company hereby grants to the Optionee
the Option to purchase from the Company, at an exercise price of $5.50 [but not
less than 85% of the initial public offering price] per share, up to but not
exceeding in the aggregate 40,568 shares of Common Stock.
3. EXERCISE OF OPTION. The Option granted in paragraph 2 above may be
exercised as follows:
(a) The Option shall be exercisable at any time and from time
to time during the Option Period. The Option shall terminate on the expiration
of the Option Period, if not earlier terminated; provided that, in the event of
the Optionee's Retirement, the Committee in its sole and absolute discretion may
accelerate the Exercise Date, which acceleration may, in the sole discretion of
the Committee, be subject to further terms and conditions mandated by the
Committee.
(b) No less than 100 shares of Common Stock may be purchased
on any Exercise Date unless the number of shares purchased at such time is the
total number of shares in respect of which the Option is then exercisable.
(c) If at any time and for any reason the Option covers a
fraction of a share, then, upon exercise of the Option, the Optionee shall
receive the Fair Market Value of such fractional share in cash.
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(d) The Option shall be exercised by the Optionee in
accordance with the terms and conditions of Section 5(c) of the Plan.
(e) As soon as administratively practicable following the
Exercise Date, subject to the receipt of payment of the Total Option Price and
of any payment in cash of federal, state or local income tax withholding or
other employment tax that may be due upon the issuance of the Option Shares as
determined and computed by the Company pursuant to paragraph 6 below, the
Company shall issue to the Optionee the number of shares with respect to which
such Option shall be so exercised and shall deliver to the Optionee a
certificate or certificates therefor.
(f) The Option is not transferable by the Optionee otherwise
than (i) by will or the laws of descent and distribution; (ii) pursuant to a
domestic relations order as defined in the Code; or (iii) by transfer without
consideration to a Permitted Transferee, with the consent of and subject to the
rules, terms and conditions imposed by the Committee and provided that the
Committee is notified in advance in writing of any proposed transfer to a
Permitted Transferee and the Committee determines that the proposed transfer
complies with the requirements of the Plan and this Nonstatutory Stock Option
Agreement. No assignment or transfer of this Option, or of the rights
represented thereby, whether voluntary or involuntary, by operation of law or
otherwise, except as described above, shall vest in the assignee or transferee
any interest or right herein whatsoever; but immediately upon any attempt to
assign or transfer this Option, except as expressly permitted herein, the same
shall terminate and be of no force or effect.
4. TERMINATION. The Option granted hereby shall terminate and be of no
force or effect upon and following the occurrence of any of the following
events:
(a) The expiration of the Option Period.
(b) The Termination of the Optionee's employment for any
reason other than the Optionee's death, Disability or Involuntary Termination
Without Cause.
(c) The expiration of three months after the date of the
Optionee's Involuntary Termination Without Cause. During such three-month
period, the Optionee shall have the right to exercise the Option hereby granted
in accordance with the terms of this Option Agreement, but only to the extent
the Option was exercisable on the date of the Termination of the Optionee's
employment.
(d) The expiration of twelve months after Termination of the
Optionee's employment with the Company and any Subsidiary as a result of the
Optionee's Disability. During such twelve-month period, the Optionee shall have
the right to exercise the Option hereby granted in accordance with the terms of
this Option Agreement, but only to the extent the Option was exercisable on the
date of the Termination of the Optionee's employment.
(e) In the event of the death of the Optionee while in the
employ of the Company or, in the event of the death of the Optionee after
Termination described in subparagraph (c) or (d), above, but within the
three-month or twelve-month period described in subparagraph (c) or (d), above,
upon the expiration of twelve months following the Optionee's death. During such
extended
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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 Termination of the Optionee's employment.
(f) To the extent set forth in paragraph 7 below, upon the
dissolution, liquidation, consolidation or merger of the Company, and, to the
extent set forth in subparagraph 3(f) above, upon an attempted assignment or
transfer of the Option otherwise than as expressly permitted herein.
Any determination made by the Committee with respect to any matter
referred to in this paragraph 4 shall be final and conclusive on all persons
affected thereby.
5. RIGHTS AS STOCKHOLDER. An Optionee shall have no rights as a
stockholder of the Company with respect to any shares underlying the Option
until the day of the issuance of a stock certificate to him or her for those
shares upon payment of the exercise price in accordance with the terms and
provisions hereof. Subject to paragraph 7 below, no adjustments shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.
6. PAYMENT OF WITHHOLDING TAXES. Upon the Optionee's exercise of his or
her Option with respect to any of the Option Shares in accordance with the
provisions of paragraph 3 above, the Optionee shall pay to the Company upon
exercise of the Option the amount of any federal, state or local income tax
withholding or other employment tax that may be due upon such exercise. The
determination of the amount of any such federal, state or local income tax
withholding or other employment tax due in such event shall be made by the
Company and shall be binding upon the Optionee.
7. RECAPITALIZATION; REORGANIZATION. The shares underlying this Option
are shares of Common Stock as constituted on the date of this Option Agreement,
but if, during the Option Period and prior to the delivery by the Company of all
of the shares of Common Stock with respect to which this Option is granted, the
Company shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend or some other increase or decrease
in the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, then, (a) in the event of
any increase in the number of such shares outstanding, the number of shares of
Common Stock then remaining subject to this Option shall be proportionately
increased (except that any fraction of a share resulting from any such
adjustment shall be excluded from the operation of this Option Agreement), and
the exercise price per share shall be proportionately reduced, and, (b) in the
event of a reduction in the number of such shares outstanding, the number of
shares of Common Stock then remaining subject to this Option shall be
proportionately reduced (except that any fractional share resulting from any
such adjustment shall be excluded from the operation of this Option Agreement),
and the exercise price per share shall be proportionately increased.
In the event of a merger of one or more corporations into the Company
with respect to which the Company shall be the surviving or resulting
corporation, the Optionee shall, at no additional cost, be entitled upon any
exercise of this Option to receive (subject to any required action by
shareholders), in lieu of the number of shares as to which this Option shall
then be so exercised, the
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number and class of shares of stock or other securities to which the Optionee
would have been entitled pursuant to the terms of the agreement of merger if,
immediately prior to such merger, the Optionee had been the holder of record of
a number of shares of Common Stock of the Company equal to the number of shares
as to which such Option shall be so exercised; provided, however, that, anything
herein contained to the contrary notwithstanding, upon the occurrence of any
event described in Section 5(g) of the Plan, this Option shall be subject to
acceleration as provided in such Section 5(g).
In the event of a change in the Common Stock as presently constituted,
which change is limited to a change of all of the authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
The existence of this Option shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any or all
adjustments, dividends, stock dividends, recapitalization, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
other stocks with preference ahead of or convertible into, or otherwise
affecting, the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
8. NO REGISTRATION RIGHTS. Anything in this Option Agreement to the
contrary notwithstanding, if, at any time specified herein for the issuance of
Option Shares, any law, regulation or requirements of any governmental authority
having jurisdiction in the premises shall require either the Company or the
Optionee, in the opinion of the Company's counsel, to take any action in
connection with the shares then to be issued, the issue of such shares shall be
deferred until such action shall have been taken. Nothing in this Option
Agreement shall be construed to obligate the Company at any time to file or
maintain the effectiveness of a registration statement under the Act, or under
the securities laws of any state or other jurisdiction, or to take or cause to
be taken any action which may be necessary in order to provide an exemption from
the registration requirements of the Act under Rule 144 or any other exemption
with respect to the Option Shares or otherwise for resale or other transfer by
the Optionee (or by the executor or administrator of such Optionee's estate or a
person who is a Permitted Transferee or who acquired the Option or any Option
Shares or other rights by bequest or inheritance or by reason of the death of
the Optionee) as a result of the exercise of an Option granted pursuant to this
Option Agreement.
9. RESOLUTION OF DISPUTES. Any dispute or disagreement that arises
under, or as a result of, or pursuant to, this Option Agreement shall be
determined by the Committee in its absolute and uncontrolled discretion, and any
such determination or other determination by the Committee under or pursuant to
this Option Agreement, and any interpretation by the Committee of the terms of
this Option Agreement, shall be final, binding and conclusive on all parties
affected thereby.
10. COMPLIANCE WITH THE ACT. Notwithstanding any provision herein or in
the Plan to the contrary, the Company shall be under no obligation to issue any
shares of Common Stock to the Optionee upon exercise of the Option granted
hereby unless and until the Company has determined that such issuance is either
exempt from registration, or is registered, under the Act and is either
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exempt from registration and qualification, or is registered or qualified, as
applicable, under all applicable state securities or "blue sky" laws.
11. MISCELLANEOUS.
(a) BINDING ON SUCCESSORS AND REPRESENTATIVES. This Option
Agreement shall be binding not only upon the parties, but also upon their heirs,
executors, administrators, personal representatives, successors and assigns
(including any transferee of a party to this Agreement); and the parties agree,
for themselves and their successors, assigns and representatives, to execute any
instrument which may be necessary legally to effect the terms and conditions of
this Option Agreement.
(b) ENTIRE AGREEMENT. This Option Agreement, together with the
Plan, constitutes the entire agreement of the parties with respect to the Option
and supersedes any previous agreement, whether written or oral, with respect
thereto. This Option Agreement has been entered into in compliance with the
terms of the Plan; wherever a conflict may arise between the terms of this
Option Agreement and the terms of the Plan, the terms of the Plan shall control.
(c) AMENDMENT. Neither this Option Agreement nor any of the
terms and conditions herein set forth may be altered or amended orally, and any
such alteration or amendment shall be effective only when reduced to writing and
signed by each of the parties or their respective successors and assigns.
(d) CONSTRUCTION OF TERMS. Any reference herein to the
singular or plural shall be construed as plural or singular whenever the context
requires.
(e) NOTICES. All notices, requests and amendments under this
Option Agreement shall be in writing, and notices shall be deemed to have been
given when personally delivered or sent prepaid registered mail:
(i) if to the Company, at the following address:
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
Attention: Chief Financial Officer
or at such other address as the Company shall designate by notice.
(ii) if to the Optionee, to the Optionee's
address appearing in the Company's
employment records, or at such other address
as the Optionee shall designate by notice.
(f) GOVERNING LAW. This Option Agreement shall be governed by,
and construed in accordance with, the laws of the State of North Carolina
(excluding the principles of conflict of laws thereof).
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(g) SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Option Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
(h) NOT AN INCENTIVE STOCK OPTION. The Option granted
hereunder is not intended to be an "Incentive Stock Option" under Section 422 of
the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
HLM DESIGN, INC.
By: ______________________________________________
Title: ___________________________________________
OPTIONEE: JOSEPH M. HARRIS
____________________________________________(SEAL)
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EXHIBIT 10.34
NONSTATUTORY STOCK OPTION AGREEMENT AND GRANT
PURSUANT TO
HLM DESIGN, INC. 1998 STOCK OPTION PLAN
This Nonstatutory Stock Option Agreement and Grant is entered into as
of this ___ day of ______________, 1998 between HLM Design, Inc., a Delaware
corporation (the "Company"), and Vernon B. Brannon (the "Optionee").
WHEREAS, the Company and its stockholders have approved the HLM Design,
Inc. 1998 Stock Option Plan (the "Plan") pursuant to which the Company may, from
time to time, make awards of Options (as defined below) and enter into
Nonstatutory Stock Option Agreements with, eligible employees of the Company or
of any Subsidiary (as defined below);
WHEREAS, pursuant to the Plan, the Company has determined to grant to
the Optionee an Option to purchase Common Stock (as defined below) of the
Company, which Option shall be subject to the terms and conditions of this
Nonstatutory Stock Option Agreement and Grant;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereby agree as
follows:
1. DEFINITIONS.
For purposes of this Nonstatutory Stock Option Agreement and Grant, the
following terms shall have the meanings indicated:
(a) "ACT" shall mean the Securities Act of 1933, as amended.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "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.
(d) "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.
(e) "COMMITTEE" shall mean the committee of members of the
Board that is designated by the Board to administer the Plan. In the event that
no such Committee exists or is appointed, "COMMITTEE" shall mean the Board.
<PAGE>
(f) "COMMON STOCK" shall mean the Common Stock, par value
$.001 per share, of the Company.
(g) "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.
(h) "EXERCISE DATE" shall mean the business day, during the
Option Period, upon which the Optionee delivers to the Company the written
notice and consideration contemplated by Section 5(c) of the Plan.
(i) "FAIR MARKET VALUE" shall mean, with respect to the Common
Stock on any day, its market value determined as provided in Section 5(c) of the
Plan.
(j) "IMMEDIATE FAMILY" shall mean the Optionee's spouse,
children, present or former stepchildren, grandchildren, present or former
stepgrandchildren, parents, present or former stepparents, grandparents,
siblings (including half brothers and sisters), in-laws and individuals whose
relationship with the Optionee arises due to legal adoption.
(k) "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.
(l) "OPTION" shall mean the option to purchase shares of
Common Stock granted to the Optionee pursuant to this Option Agreement.
(m) "OPTION AGREEMENT" shall mean this Nonstatutory Stock
Option Agreement and Grant between the Company and the Optionee by which the
Option is granted to the Optionee pursuant to the Plan.
(n) "OPTION PERIOD" shall mean the period commencing from the
date of this Option Agreement and ending at the close of business ten years from
the date of this Option Agreement or such earlier date as when this Option
Agreement may be terminated by its terms.
(o) "OPTION SHARES" shall mean the shares of Common Stock
purchased upon exercise of the Option.
(p) "OPTIONEE" shall mean the individual executing this Option
Agreement and, as applicable, the estate, personal representative, beneficiary
or Permitted Transferee to whom this Option may be transferred pursuant to this
Option Agreement by will, by the laws of descent and
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distribution, pursuant to a domestic relations order as defined in the Code, or
as otherwise permitted by paragraph 3(f) below.
(q) "PERMITTED TRANSFEREE" shall mean a member of the
Optionee's Immediate Family, a trust established solely for the benefit of one
or more members of the Optionee's Immediate Family or a partnership or limited
liability company of which the only individuals or entities who are or could be
partners or shareholders are members of the Optionee's Immediate Family and/or a
trust established solely for the benefit of one or more members of the
Optionee's Immediate Family.
(r) "PLAN" shall mean the HLM Design, Inc. 1998 Stock Option
Plan and any amendments thereto.
(s) "RETIREMENT" shall mean, with respect to the Optionee,
retirement from the Company and any Subsidiary in accordance with the Company's
and/or Subsidiary's retirement policy as may be in effect from time to time.
(t) "SUBSIDIARY" shall mean any subsidiary corporation of HLM
Design, Inc. as defined in Sections 424(f) and 424(g) of the Code.
(u) "TERMINATION" shall mean the cessation, for any reason, of
the employer-employee relationship between the Company and any Subsidiary and
the Optionee.
(v) "TOTAL OPTION PRICE" shall mean the consideration payable
to the Company by the Optionee upon exercise of the Option pursuant to Section
5(c) of the Plan.
2. GRANT OF OPTION. Effective upon the date hereof, and subject to the
terms and conditions set forth herein, the Company hereby grants to the Optionee
the Option to purchase from the Company, at an exercise price of $5.50 [but not
less than 85% of the initial public offering price] per share, up to but not
exceeding in the aggregate 40,568 shares of Common Stock.
3. EXERCISE OF OPTION. The Option granted in paragraph 2 above may be
exercised as follows:
(a) The Option shall be exercisable at any time and from time
to time during the Option Period. The Option shall terminate on the expiration
of the Option Period, if not earlier terminated; provided that, in the event of
the Optionee's Retirement, the Committee in its sole and absolute discretion may
accelerate the Exercise Date, which acceleration may, in the sole discretion of
the Committee, be subject to further terms and conditions mandated by the
Committee.
(b) No less than 100 shares of Common Stock may be purchased
on any Exercise Date unless the number of shares purchased at such time is the
total number of shares in respect of which the Option is then exercisable.
(c) If at any time and for any reason the Option covers a
fraction of a share, then, upon exercise of the Option, the Optionee shall
receive the Fair Market Value of such fractional share in cash.
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<PAGE>
(d) The Option shall be exercised by the Optionee in
accordance with the terms and conditions of Section 5(c) of the Plan.
(e) As soon as administratively practicable following the
Exercise Date, subject to the receipt of payment of the Total Option Price and
of any payment in cash of federal, state or local income tax withholding or
other employment tax that may be due upon the issuance of the Option Shares as
determined and computed by the Company pursuant to paragraph 6 below, the
Company shall issue to the Optionee the number of shares with respect to which
such Option shall be so exercised and shall deliver to the Optionee a
certificate or certificates therefor.
(f) The Option is not transferable by the Optionee otherwise
than (i) by will or the laws of descent and distribution; (ii) pursuant to a
domestic relations order as defined in the Code; or (iii) by transfer without
consideration to a Permitted Transferee, with the consent of and subject to the
rules, terms and conditions imposed by the Committee and provided that the
Committee is notified in advance in writing of any proposed transfer to a
Permitted Transferee and the Committee determines that the proposed transfer
complies with the requirements of the Plan and this Nonstatutory Stock Option
Agreement. No assignment or transfer of this Option, or of the rights
represented thereby, whether voluntary or involuntary, by operation of law or
otherwise, except as described above, shall vest in the assignee or transferee
any interest or right herein whatsoever; but immediately upon any attempt to
assign or transfer this Option, except as expressly permitted herein, the same
shall terminate and be of no force or effect.
4. TERMINATION. The Option granted hereby shall terminate and be of no
force or effect upon and following the occurrence of any of the following
events:
(a) The expiration of the Option Period.
(b) The Termination of the Optionee's employment for any
reason other than the Optionee's death, Disability or Involuntary Termination
Without Cause.
(c) The expiration of three months after the date of the
Optionee's Involuntary Termination Without Cause. During such three-month
period, the Optionee shall have the right to exercise the Option hereby granted
in accordance with the terms of this Option Agreement, but only to the extent
the Option was exercisable on the date of the Termination of the Optionee's
employment.
(d) The expiration of twelve months after Termination of the
Optionee's employment with the Company and any Subsidiary as a result of the
Optionee's Disability. During such twelve-month period, the Optionee shall have
the right to exercise the Option hereby granted in accordance with the terms of
this Option Agreement, but only to the extent the Option was exercisable on the
date of the Termination of the Optionee's employment.
(e) In the event of the death of the Optionee while in the
employ of the Company or, in the event of the death of the Optionee after
Termination described in subparagraph (c) or (d), above, but within the
three-month or twelve-month period described in subparagraph (c) or (d), above,
upon the expiration of twelve months following the Optionee's death. During such
extended
4
<PAGE>
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 Termination of the Optionee's employment.
(f) To the extent set forth in paragraph 7 below, upon the
dissolution, liquidation, consolidation or merger of the Company, and, to the
extent set forth in subparagraph 3(f) above, upon an attempted assignment or
transfer of the Option otherwise than as expressly permitted herein.
Any determination made by the Committee with respect to any matter
referred to in this paragraph 4 shall be final and conclusive on all persons
affected thereby.
5. RIGHTS AS STOCKHOLDER. An Optionee shall have no rights as a
stockholder of the Company with respect to any shares underlying the Option
until the day of the issuance of a stock certificate to him or her for those
shares upon payment of the exercise price in accordance with the terms and
provisions hereof. Subject to paragraph 7 below, no adjustments shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.
6. PAYMENT OF WITHHOLDING TAXES. Upon the Optionee's exercise of his or
her Option with respect to any of the Option Shares in accordance with the
provisions of paragraph 3 above, the Optionee shall pay to the Company upon
exercise of the Option the amount of any federal, state or local income tax
withholding or other employment tax that may be due upon such exercise. The
determination of the amount of any such federal, state or local income tax
withholding or other employment tax due in such event shall be made by the
Company and shall be binding upon the Optionee.
7. RECAPITALIZATION; REORGANIZATION. The shares underlying this Option
are shares of Common Stock as constituted on the date of this Option Agreement,
but if, during the Option Period and prior to the delivery by the Company of all
of the shares of Common Stock with respect to which this Option is granted, the
Company shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend or some other increase or decrease
in the number of shares of Common Stock outstanding, without receiving
compensation therefor in money, services or property, then, (a) in the event of
any increase in the number of such shares outstanding, the number of shares of
Common Stock then remaining subject to this Option shall be proportionately
increased (except that any fraction of a share resulting from any such
adjustment shall be excluded from the operation of this Option Agreement), and
the exercise price per share shall be proportionately reduced, and, (b) in the
event of a reduction in the number of such shares outstanding, the number of
shares of Common Stock then remaining subject to this Option shall be
proportionately reduced (except that any fractional share resulting from any
such adjustment shall be excluded from the operation of this Option Agreement),
and the exercise price per share shall be proportionately increased.
In the event of a merger of one or more corporations into the Company
with respect to which the Company shall be the surviving or resulting
corporation, the Optionee shall, at no additional cost, be entitled upon any
exercise of this Option to receive (subject to any required action by
shareholders), in lieu of the number of shares as to which this Option shall
then be so exercised, the
5
<PAGE>
number and class of shares of stock or other securities to which the Optionee
would have been entitled pursuant to the terms of the agreement of merger if,
immediately prior to such merger, the Optionee had been the holder of record of
a number of shares of Common Stock of the Company equal to the number of shares
as to which such Option shall be so exercised; provided, however, that, anything
herein contained to the contrary notwithstanding, upon the occurrence of any
event described in Section 5(g) of the Plan, this Option shall be subject to
acceleration as provided in such Section 5(g).
In the event of a change in the Common Stock as presently constituted,
which change is limited to a change of all of the authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
The existence of this Option shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any or all
adjustments, dividends, stock dividends, recapitalization, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
other stocks with preference ahead of or convertible into, or otherwise
affecting, the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
8. NO REGISTRATION RIGHTS. Anything in this Option Agreement to the
contrary notwithstanding, if, at any time specified herein for the issuance of
Option Shares, any law, regulation or requirements of any governmental authority
having jurisdiction in the premises shall require either the Company or the
Optionee, in the opinion of the Company's counsel, to take any action in
connection with the shares then to be issued, the issue of such shares shall be
deferred until such action shall have been taken. Nothing in this Option
Agreement shall be construed to obligate the Company at any time to file or
maintain the effectiveness of a registration statement under the Act, or under
the securities laws of any state or other jurisdiction, or to take or cause to
be taken any action which may be necessary in order to provide an exemption from
the registration requirements of the Act under Rule 144 or any other exemption
with respect to the Option Shares or otherwise for resale or other transfer by
the Optionee (or by the executor or administrator of such Optionee's estate or a
person who is a Permitted Transferee or who acquired the Option or any Option
Shares or other rights by bequest or inheritance or by reason of the death of
the Optionee) as a result of the exercise of an Option granted pursuant to this
Option Agreement.
9. RESOLUTION OF DISPUTES. Any dispute or disagreement that arises
under, or as a result of, or pursuant to, this Option Agreement shall be
determined by the Committee in its absolute and uncontrolled discretion, and any
such determination or other determination by the Committee under or pursuant to
this Option Agreement, and any interpretation by the Committee of the terms of
this Option Agreement, shall be final, binding and conclusive on all parties
affected thereby.
10. COMPLIANCE WITH THE ACT. Notwithstanding any provision herein or in
the Plan to the contrary, the Company shall be under no obligation to issue any
shares of Common Stock to the Optionee upon exercise of the Option granted
hereby unless and until the Company has determined that such issuance is either
exempt from registration, or is registered, under the Act and is either
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<PAGE>
exempt from registration and qualification, or is registered or qualified, as
applicable, under all applicable state securities or "blue sky" laws.
11. MISCELLANEOUS.
(a) BINDING ON SUCCESSORS AND REPRESENTATIVES. This Option
Agreement shall be binding not only upon the parties, but also upon their heirs,
executors, administrators, personal representatives, successors and assigns
(including any transferee of a party to this Agreement); and the parties agree,
for themselves and their successors, assigns and representatives, to execute any
instrument which may be necessary legally to effect the terms and conditions of
this Option Agreement.
(b) ENTIRE AGREEMENT. This Option Agreement, together with the
Plan, constitutes the entire agreement of the parties with respect to the Option
and supersedes any previous agreement, whether written or oral, with respect
thereto. This Option Agreement has been entered into in compliance with the
terms of the Plan; wherever a conflict may arise between the terms of this
Option Agreement and the terms of the Plan, the terms of the Plan shall control.
(c) AMENDMENT. Neither this Option Agreement nor any of the
terms and conditions herein set forth may be altered or amended orally, and any
such alteration or amendment shall be effective only when reduced to writing and
signed by each of the parties or their respective successors and assigns.
(d) CONSTRUCTION OF TERMS. Any reference herein to the
singular or plural shall be construed as plural or singular whenever the context
requires.
(e) NOTICES. All notices, requests and amendments under this
Option Agreement shall be in writing, and notices shall be deemed to have been
given when personally delivered or sent prepaid registered mail:
(i) if to the Company, at the following address:
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
Attention: Chief Financial Officer
or at such other address as the Company shall designate by notice.
(ii) if to the Optionee, to the Optionee's
address appearing in the Company's
employment records, or at such other address
as the Optionee shall designate by notice.
(f) GOVERNING LAW. This Option Agreement shall be governed by,
and construed in accordance with, the laws of the State of North Carolina
(excluding the principles of conflict of laws thereof).
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(g) SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Option Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
(h) NOT AN INCENTIVE STOCK OPTION. The Option granted
hereunder is not intended to be an "Incentive Stock Option" under Section 422 of
the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
HLM DESIGN, INC.
By:__________________________________________
Title:_______________________________________
OPTIONEE: VERNON B. BRANNON
_______________________________________(SEAL)
8
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT ("Agreement") made as of the 29th day of
July, 1997 by and among HLM Design, Inc., a Delaware corporation (the
"Company"), Joe Harris ("Harris"), Vernon Brannon ("Brannon"), Bill Blalock
("Blalock"), and Pacific Capital, L.P., a Delaware limited partnership ("Pacific
Capital"), Equitas, L.P., a Delaware limited partnership ("Equitas"), and Clay
Caroland ("Caroland") and Shannon LeRoy ("LeRoy").
W I T N E S E T H:
WHEREAS, the parties hereto own the securities of the Company as set
forth on Schedule I; and
WHEREAS, the parties desire to enter into certain agreements with
respect to the voting and transfer of the securities of the Company and various
other matters, all as set forth herein: supplementing those agreements made in
the Note Purchase Agreement (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:
DEFINITIONS
"Board" means the Board of Directors of the Company.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as filed with the Secretary of State of Delaware, on March 6,
1997.
"Common Stock" means the Common Stock of the Company.
"Holders" means all parties to this Agreement.
"Note Purchase Agreement" means that certain Note Purchase Agreement
dated as of May 30, 1997 by and between the Company, Hansen Lind Meyer Inc., an
Iowa corporation, BBH Corp., a Delaware corporation, Pacific Capital and
Equitas, as amended from time to time.
"Public Offering" means a bona fide firm commitment initial
underwritten offering of Common Stock pursuant to a registration statement filed
with and
<PAGE>
declared effective by the Securities and Exchange Commission which yields
proceeds to the Company of at least Five Million Dollars ($5,000,000).
"Venture Investors" means Pacific Capital, Equitas, Caroland and LeRoy
and their permitted successors and assigns.
SECTION 1
GENERAL
SECTION 1.1 Board Composition. So long as the Secured Indebtedness (as
-----------------
defined in the Note Purchase Agreement) is outstanding, Pacific Capital and
Equitas each will hold one seat on the Board as provided under the Note Purchase
Agreement. Any vacancy in the Board occurring because of the death, resignation
or removal of a director designated by Pacific Capital and/or Equitas shall be
immediately filled by designation by Pacific Capital and/or Equitas, as
applicable, provided however, any such replacement director designated by
----------------
Pacific Capital and/or Equitas shall be subject to the prior unanimous written
approval of all the directors of the Company, which approval shall be at the
sole discretion of such other directors. A director designated by Pacific
Capital and/or Equitas may be removed from the Board without cause only by
Pacific Capital and/or Equitas, as applicable. Notwithstanding the foregoing,
the business of the Company's Board of Directors shall not be delayed by the
failure of either Pacific Capital or Equitas to designate a representative to
the Company's Board.
SECTION 1.2 Further Assurances. Each Holder shall (i) vote all Common
------------------
Stock, (ii) execute and deliver such further documents, (iii) take such further
action, and (iv) use such Holder's best efforts to cause the Board to vote in
such a manner as may be necessary or desirable to carry out the purposes and
intent of this Agreement and the Note Purchase Agreement. Each Holder agrees to
vote all Common Stock owned by such Holder, and to take all such other actions
as may be necessary, to ensure that the Company's Certificate of Incorporation
and Bylaws do not, at any time, conflict with the provisions of this Agreement.
SECTION 1.3 No Other Voting Arrangements. The parties hereto
----------------------------
acknowledge that the execution and performance of this Agreement by the parties
hereto is a condition of the execution and performance by Pacific Capital and
Equitas of the Note Purchase Agreement and the transaction contemplated thereby.
Each party hereto represents and warrants to each other party hereto that such
party has no knowledge of any written or oral agreements or arrangements with
respect to the voting of securities of the Company, other than set forth in this
Agreement, the Note Purchase Agreement and Transaction Documents as such term is
defined in the Note Purchase Agreement and in the Stockholders' Voting Agreement
dated as of May 29, 1997 by and among Harris, Brannon and Blalock. Any
agreements or arrangements other than those set forth above shall be void as
against, and shall not be recognized or given effect by, the parties hereto.
Each party shall promptly notify each other party hereto upon learning of the
existence of any such agreement or arrangement.
SECTION 1.4 Outstanding Capital Stock. Subject to the provisions of the
-------------------------
Note Purchase Agreement (which shall control in case of conflict), for purposes
of this Agreement and
<PAGE>
notwithstanding any provision to the contrary set forth herein, immediately upon
and following the date hereof (i) all shares of Common Stock to which each of
the Venture Investors in entitled upon the exercise of their respective common
stock purchase warrants as set forth on Schedule I shall be deemed to be issued
----------
and outstanding Common Stock held in the name of such Venture Investor, as
applicable, and (ii) each Venture Investor shall be deemed a Holder entitled to
all rights set forth in this Agreement as if all the shares of Common Stock
underlying such unexercised common stock purchase warrants or any portion
thereof were issued and outstanding shares held in the name of such Venture
Investor; provided, however, that until exercise of the applicable warrants the
Venture Investors shall not have voting rights or other rights as a stockholder
of the Company, as provided in the Note Purchase Agreement.
SECTION 2
RESTRICTION ON TRANSFER
SECTION 2.1 Legend. So long as this Agreement remains in effect, there
------
shall be noted conspicuously upon each certificate representing shares of Common
Stock the following statement:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS (THE "LAWS"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT IT MAY BE
TRANSFERRED IN COMPLIANCE WITH THE ACT AND THE LAWS. THE
TRANSFER OR OTHER DISPOSITION OF THIS SECURITY IS SUBJECT TO
CERTAIN RESTRICTIONS CONTAINED IN A STOCKHOLDERS' AGREEMENT
DATED AS OF _____________, 1997, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME TO WHICH THE HOLDER OF THIS SECURITY IS A
PARTY, AND THIS SECURITY SHALL NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE WITH SAID AGREEMENT. A COPY OF SAID AGREEMENT IS ON
FILE WITH THE COMPANY.
SECTION 2.2 Permitted Transfers. Notwithstanding anything to the
-------------------
contrary contained herein, any Holder may sell any or all of the Common Stock
owned by such Holder without the necessity of complying with any of the terms
and conditions of this Agreement under any of the following circumstances:
(a) pursuant to any pledge, hypothecation, assignment as
collateral security or other encumbrance entered into by any Holder in
connection with a bona fide borrowing of money or guaranty thereof not designed
or intended to circumvent the provisions of this Agreement and any sale by the
creditor in such transaction upon foreclosure of such borrowing or enforcement
of such guaranty, provided that, prior to taking such collateral security, such
-------------
creditor (i) agrees that the shares of Common Stock acquired by it are subject
to the provisions of this Agreement and (ii) gives the other Holders a thirty
(30) day right of first refusal to buy the Common Stock upon any sale thereof by
such creditor; and
3
<PAGE>
(b) if such Transfer is to an "affiliate" of such Holder (as
that term is defined in Rule 144 promulgated under the Securities Act of 1933)
or to any member of such Holder's immediate family, his heirs, executors or
legal representatives of trustees of an inter vivos trust or testamentary trust
for the benefit of members of such Holder's immediate family, provided, that any
--------
Common Stock so Transferred shall remain subject to the terms of this Agreement.
SECTION 2.3 Agreement by Transferee. Notwithstanding any other
-----------------------
provision herein, no Holder shall transfer any Common Stock to any third party,
including affiliates of such Holder pursuant to Section 2.2 or otherwise, unless
and until such third party shall have executed an agreement in form and
substance reasonably satisfactory to the Company and the other Holders, pursuant
to which such third party agrees that the Common Stock acquired by it are
subject to the provisions of this Agreement.
SECTION 3
CO-SALE RIGHTS
If a Holder ("Selling Holder"), other than any or all of the Venture
Investors, proposes to sell any of his Common Stock to a prospective purchaser
(a "Co-Sale Event"), each of the Venture Investors shall have the right and
option to require such prospective purchaser to purchase all, or at the election
of the Venture Investor, a portion, of such Venture Investor's Common Stock at
the same price and upon the same terms and conditions given the Selling Holder
("Co-Sale Rights"), provided that such Co-Sale Rights shall not permit any
-------------
Venture Investor to require such prospective purchaser(s) to purchase a greater
percentage of such Venture Investor's Common Stock holdings than is being sold
by the Selling Holder (e.g. if Selling Holder is selling a number of shares
equal to 60% of his respective common stock holdings in the Company, each of the
Venture Investors is entitled to Co-Sale Rights with respect to the number of
shares of Common Stock equal to 60% of such Venture Investor's respective common
stock holdings in the Company). For purposes of this Section 3, each of the
Venture Investors shall be entitled to exercise their respective common stock
purchase warrants for the number of shares of Common Stock necessary to
effectuate the transactions contemplated by this Section 3. The Selling Holder
shall give each of the Venture Investors written notice of the Co-Sale Event
including the proposed terms and conditions thereof ("Written Notice of Co-Sale
Event"). The Venture Investor(s) may exercise their Co-Sale Rights by delivering
written notice to the Selling Holder within twenty (20) days after the Venture
Investor receives the Written Notice of Co-Sale Event. In the event of the
exercise of such a right by a Venture Investor, the purchase of such Venture
Investor's Common Stock by the prospective purchaser(s) upon the same terms and
conditions as offered to the Selling Holder shall be an express condition to
the consummation of the Selling Holder's sale of his Common Stock to such
prospective purchaser(s). The term "prospective purchaser" as used herein shall
include any third party and any party to this Agreement.
4
<PAGE>
SECTION 4
ISSUANCE OF ADDITIONAL CAPITAL STOCK
The Company shall not issue or sell any additional shares of Common
Stock except in compliance with the provisions of the Note Purchase Agreement
and the applicable common stock purchase warrant agreement.
SECTION 5
MISCELLANEOUS
SECTION 5.1 Binding Effect. Subject to the limitations on transfer set
--------------
forth herein, this Agreement and all the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 5.2 Amendment. This Agreement may be amended or supplemented,
---------
and the observance of any term hereof of thereof may be waived, only with the
written consent of all the parties hereto.
SECTION 5.3 Termination. This Agreement shall terminate and have no
-----------
further force or effect upon the closing of, or with respect to, a Public
Offering.
SECTION 5.4 Governing Law. The interpretation, validity and
-------------
performance of the terms of this Agreement shall be governed by the laws of the
State of Delaware, regardless of the law that might be applied under principles
of conflict of law.
SECTION 5.5 Notices. All communications under this Agreement shall be
-------
in writing and sent by certified or registered mail, return receipt requested,
courier or overnight mail (i) if to a Holder as of the date hereof, to such
Holder's address set forth on the signature page hereto, or at such other
address as such Holder may have furnished to the other parties hereto in
writing, (ii) if to a Holder who became such after the date hereof, to such
Holder's address listed in the securities transfer books of the company, or at
such other address as such Holder shall have furnished to the other parties
hereto in writing, and (iii) if to the Company to HLM Design, Inc., Suite 2950,
121 West Trade Street, Charlotte, NC 28202, or at such other address as is shall
have furnished to the other parties hereto in writing. Any written communication
so addressed, sent by certified or registered mail, return receipt requested,
courier or overnight mail, shall be deemed to have been given when sent or
mailed. All other written communications shall be deemed to have been given upon
receipt thereof.
SECTION 5.6 Headings. The section and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
SECTION 5.7 Counterparts. This Agreement may be executed and delivered
------------
in two or more counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same agreement.
5
<PAGE>
SECTION 5.8 Specific Performance. The parties hereto
--------------------
acknowledge that payment of monetary damages may not be sufficient to adequately
remedy a breach or prospective breach of the terms and provisions of this
Agreement and, therefore, the parties hereto consent to the application of
equitable remedies, including, without limitation, specific performance, to
enforce the terms and provisions of this Agreement.
IN WITNESS WHEREOF, this Stockholders 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:
Company:
HLM Design, Inc.
By: /s/ Joe Harris
---------------------------------------------
Title: President
--------------------------------------
Shareholders:
/s/ Joe Harris
---------------------------------------------
Joe Harris
Address: 21120 Blakely Shores
------------------------------------
Charlotte, NC 28031
---------------------------------------------
/s/ Vernon Brannon
---------------------------------------------
Vernon Brannon
Address: 5301 Mirabell Road, Charlotte, NC 28226
---------------------------------------
/s/ William Blalock
----------------------------------------------
William J. Blalock
Address: 133 Lauren Street S.W., Aiken, SC 29801
---------------------------------------
6
<PAGE>
(continuation of signature page to Stockholders' Agreement)
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
Its: General Partner
By: /s/ illegible signature
-----------------------------------------
Title: Vice Chairman
---------------------------------------
Address: 2401 Plymouth Road, Suite
------------------------------------
Ann Arbor, MI 48105
----------------------------------------------
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.
Its: General Partner
By: /s/ Shannon LeRoy
-------------------------------------
Title: President
----------------------------------
Address: 2000 Glen Echo Road, Suite 10
-------------------------------
Nashville, TN 37215
-----------------------------------------
/s/ Clay Caroland
-----------------------------------------------
Clay Caroland
Address: 113 Clarendon Ave, Nashville, TN 37205
--------------------------------------
/s/ Shannon LeRoy
-----------------------------------------------
Shannon LeRoy
Address: 312 Allen Place, Nashville, TN 37205
--------------------------------------
7
<PAGE>
SCHEDULE I
----------
Shares of Common Stock Deemed Outstanding*
------------------------------------------
Joe Harris 20,500
Vernon Brannon 20,500
William Blalock 7,500
Pacific Capital, L.P.** 7,761
Equitas, L.P.** 4,887
Clay Caroland** 862
Shannon LeRoy** 862
________
TOTAL*** 62,872
* To be adjusted for stock splits, stock dividends, recapitalizations
and the like.
** Number of shares include the number of shares of Common Stock
underlying those certain Common Stock Purchase Warrants issued
by the Company in favor of each of these parties, which shares shall
be deemed issued and outstanding for purposes of this Agreement.
** Total Number of Shares deemed issued and outstanding for purposes of
this Agreement (but not reflected in the 62,872 total) shares held by
other shareholders whom are not parties to this Agreement.
8
HANSEN LIND MEYER INC. FIRST CHARTER NATIONAL BANK
SUITE 2950 POST OFFICE BOX 228
121 WEST TRADE STREET CONCORD, NC 28205
CHARLOTTE, NC 28202
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS
"I" includes each borrower above, "You" means the lender, its
joint and severally. successors and assigns.
KLS / RGF
Loan Number 10122
-------------------
Date December 10, 1996
--------------------------
Maturity Date August 31, 1997
-----------------
Loan Amount $500,000.00
-------------------
Renewal of
--------------------
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of Five Hundred Thousand Dollars and 00/100
Dollars $500,000.00.
[ ] Single Advance: I will receive all of this principal sum on N/A . No
additional advances are contemplated under this note.
[X] Multiple Advance: Tho principal sum shown above is the maximum amount of
principal I can borrow under this note. On 12/10/1996 I will receive the
amount of $ and future principal advances are
contemplated.
Conditions: The conditions for future advances are AS AGREED UPON BY BANK
AND BORROWER.
[X] Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to
all other conditions and expires on AUGUST 31, 1997.
[ ] Closed End Credit: You and I agree that I may borrow up to the
maximum only one time land subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal
balance from 12/10/1996 at the rate of 9.750% per year until THE NEXT
RATE CHANGE DATE.
[X] Variable Rate: This rate may then change as stated below.
[X] Index Rate: The future rate will be 1.500 % ABOVE the following index
rate: FIRST CHARTER NATIONAL BANK PRIME RATE.
[ ] No Index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[X] Frequency and Timing: The rate on this note may change as often as
DAILY.
[ ] A change in the interest rate will take effect ON THE SAME DAY.
Limitations: [ ] During the term of this loan, the applicable annual
interest rate will not bo more than N/A % or less than N/A%.
[ ] The annual interest rate will not change on any single change by
more than N/A percentage points.
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:
[X] The amount of each scheduled payment will change.
[X] The amount of the final payment will change.
ACCRUAL METHOD: Interest will be calculated on a 360/ACTUAL basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[X] on the same fixed or variable rate basis in effect before maturity
(as indicated above).
[ ] at a rate equal to .
----------------------------------------------------
[X] LATE CHARGE: If a payment is made more than 15 days after it is due, I
agree to pay a late charge of 4.000 PERCENT OF THE PAYMENT.
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount above:
-------------------------------------------------------------------------
PAYMENTS: I agree to pay this note as follows:
[X] Interest: I agree to pay accrued interest MONTHLY BEGINNING 12/31/1996.
[X] Principal: I agree to pay the principal ON 08/31/1997.
[ ] Installment: I agree to pay this note in payments. The
first payment will be in the amount of $ . and will
be due . A payment of $ will be due
thereafter. The final payment of the entire unpaid balance of principal
and interest will be due .
ADDITIONAL TERMS:
PURPOSE: The purpose of this loan is BUSINESS.
Signature of Lender:
- -----------------------------------------------
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE
(INCLUDING THOSE ON PAGE 2) AND EXECUTE THIS
NOTE UNDER SEAL. I have receive a copy on today's date.
/s/ Joseph Harris (Seal)
______________________________________________________________________
President
/s/ Vernon Brannon (Seal)
______________________________________________________________________
Secretary/Treasurer
Continuing Guaranty: Joseph Harris, Vernon Brannon, William
Blalock (Seal)
______________________________________________________________________
<PAGE>
APPLICABLE LAW: The law of this state of North Carolina will govern this note.
Any term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any provision
of this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specialty to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: If I receive the principal in more than one advance, each advance will
start to earn interest only when I receive the advance. The interest rate in
effect on this note at any given time will apply to the entire principal
advanced at that time. Notwithstanding anything to the contrary, I do not agree
to pay and you do not intend to charge any rate of interest that is higher than
the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to here (either before or after maturity). If
any notice of interest accrual is sent and is in error, we mutually agree to
correct it, and if you actually collect more interest than allowed by law and
this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other; loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges. SET-OFF: I agree that
you may set off any amount due and payable under this note against any right I
have to receive money from you.
"Right to receive money from you". means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off. REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by
real estate or a residence that is personal property, the existence of a default
and your remedies for such a default will be determined by applicable law, by
the terms of any separate instrument creating this security interest and, to the
extent not prohibited by law and not contrary to the terms of the separate
security instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default it any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep this
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without first
notifying you before making such a change; (10) I fail to plant, cultivate and
harvest crops in due season, if I am a producer of crops, (11) any loan proceeds
are used for a purpose that will contribute to excessive erosion of highly
erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay reasonable
attorneys' fees plus court costs (except where prohibited by law). To the extent
permitted by the United States Bankruptcy Code, I also agree to pay the
reasonable attorney's fees and costs you incur to collect this debt as awarded
by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary, I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
DATE OF BORROWER'S PRINCIPAL PAYMENTS INTEREST INTEREST INTEREST PAID
TRANSACTION PRINCIPAL ADVANCE INITIALS (NOT PRINCIPAL BALANCE RATE PAYMENTS THROUGH
REQUIRED)
<S> <C>
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
</TABLE>
FIRST
CHARTER
NATIONAL
BANK
Account Number: 543736
MODIFICATION AND EXTENSION AGREEMENT
STATE OF NORTH CAROLINA
COUNTY OF: Effective Date: June 02, 1997
---------------------- -------------
This Modification and Extension Agreement is made and entered into,
this 2nd day of June, 1997 by and between FIRST CHARTER NATIONAL BANK, a
national banking corporation (hereinafter referred to as "BANK"); Hansen, Lind,
Meyer, Inc. (hereinafter referred to as maker(s) or co-maker(s) on the Note
described below individually and collectively as "BORROWER");
the trustee or successor trustee under the Deed of Trust described
below (hereinafter referred to as "TRUSTEE"); and Joseph M. Harris, Vernon B.
Brannon, William J. Blalock the guarantor(s), endorser(s) or other obligor(s)
(if any) on the Note described below, or the owner(s) other than the BORROWER
(if any) of any property pledged to secure performance of BORROWER'S obligation
to BANK (hereinafter referred to individually and collectively as "THIRD
PARTY").
WITNESSETH:
WHEREAS, BORROWER is indebted to BANK in the original principal sum of:
Five Hundred Thousand Dollars and no/100 - - - - - - - - ($500,000.00)
- ---------------------------------------------------------------------------
which Note has a current principal balance of:
Five Hundred Thousand Dollars and no/100 - - - - - - - - ($500,000.00)
- ---------------------------------------------------------------------------
as evidenced by a:
[X] Note dated December 10, 1996, made payable to
First Charter National Bank
[ ] Note and Security Agreement dated , which Note is
made payable
to
[ ] Note and Deed of Trust dated , which Note is
made payable
to
and which Deed of Trust is recorded in Book , Page ,
in the County Registry and relates to the real
property described therein;
said Note, Note and Security Agreement, or Note and Deed of Trust. including any
renewals, extensions, or modifications thereof being hereinafter referred to as
"CONTRACT" and said CONTRACT being incorporated and made a part hereof by
reference; and
<PAGE>
WHEREAS, BORROWER and BANK mutually desire to modify and amend the
provisions of the CONTRACT in the manner hereinafter set forth, it being
specifically understood that, except as herein modified and amended, the terms
and provisions of the CONTRACT shall remain unchanged and continue in full force
as therein written; and
WHEREAS, THIRD PARTY. if different from BORROWER, and TRUSTEE have agreed
to the terms of this modification;
NOW, THEREFORE, by mutual agreement of the parties and in mutual
consideration of the premises and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree that said
CONTRACT by modified and amended to provide as follows:
INTEREST RATE
[ ] Interest will be paid at the rate of % per annum. This rate
will be effective the date this CONTRACT is executed.
[ ] Interest will be paid at a variable rate of interest known as the
"Contract Rate." This rate will be effective the date this CONTRACT is
executed. BORROWER acknowledges that the Contract Rate may increase or
decrease based on changes in the Prime Rate published by BANK.
The Contract Rate will be the BANK'S Prime Rate plus Percentage
Points (the "Margin"). The initial Contract Rate is %. The Minimum
Contract Rate shall be %, and the Maximum Contract Rate shall be
%, provided that at no time shall the Contract Rate exceed the
maximum interest rate allowed by law to be charged by BANK. Increases
or decreases in the Contract Rate of interest will: [ ] increase or
decrease the amount of each payment due thereafter; [ ] increase or
decrease the final payment due. The Contract Rate will [ ] be the Prime
Rate in effect on the last day of the preceding month, plus the Margin
and changes in the Contract Rate during a month will take effect as of
the first business day of the following month; OR [ ] change daily
assuming there is a change in the Prime Rate; OR [ ] as often
. The BANK'S Prime Rate is not intended or
represented to be the lowest or most favorable rate of interest charged
or offered by the BANK to its customers.
[ ] Other:
PRINCIPAL AND INTEREST PAYMENT TERMS:
[ ] Principal and Interest is payable in full at maturity on ,
.
[ ] Payable in consecutive installments of: [ ]
principal, or [ ] principal and interest, commencing on ,
19 ; and continuing on the same day of each calendar period
thereafter, in equal payments of $ , with one final payment of
all remaining principal principal and interest due on ,
.
[X] Interest is payable monthly, commencing on June 30, 1997, and
continuing on the same day of each calendar period thereafter, with one
final payment of all remaining principal and interest due on May 30,
1998.
[ ] Other:
In the event periodic accruals of interest shall exceed any periodic fixed
payment amount described above, the fixed payment amount shall be immediately
increased, or additional supplemental interest payments required on the same
periodic basis as specified above (increased fixed payments or supplemental
payments to be determined in the BANK'S sole discretion), in such amounts and at
such times as shall be necessary to pay all accruals of interest for the period
and all accruals of unpaid interest from previous periods. Such adjustments to
the fixed payment amount or supplemental payments shall remain in effect for so
long as the interest accruals shall exceed the original fixed payment amount and
shall be further adjusted upward or downward to reflect changes in the variable
interest rate. In no event shall the fixed payment amount be reduced below the
original fixed payment amount specified above.
<PAGE>
COLLATERAL:
Unless otherwise provided herein, it is expressly understood and agreed by the
parties hereto that any and all collateral given as security to insure faithful
performance by BORROWER and any THIRD PARTY of any and all obligations to BANK,
however created, whether now existing or hereafter arising, shall remain as
security for the previously described CONTRACT as modified hereby.
It is expressly understood and agreed by and between the parties hereto that any
security agreement, deed of trust, chattel mortgage, trust receipt, assignment,
contract or other writing granting BANK security for performance of any
obligation to BANK is, to the extent inconsistent herewith, modified and changed
to be consistent with the terms of this Modification and Extension Agreement.
[X] If marked, the aforesaid CONTRACT, as herein modified, and the
performance of any loan agreement between the parties shall be
additionally secured by collateral hereinafter described, and a new
security instrument shall be executed by the BORROWER and/or THIRD
PARTY:
Date: June 02, 1997 Type of Agreement: Security Agreement
From: Hansen , Lind, Meyer,
Collateral: Accounts Receivable
Date: Type of Agreement:
From:
Collateral:
[ ] If marked, the collateral hereinafter described shall be and hereby is
deleted as security for payment of the aforesaid
CONTRACT:
However, it is understood and agreed that BANK shall not be required or
obligated to take any further steps to release said collateral from any lien
or security unless BANK determines, in its sole discretion, that it may do
so without consequence to its secured position and relative priority in
other collateral, and unless BORROWER bears the reasonable cost of such
action.
All presently existing and future accounts, accounts receivable,
receivables, contracts, contract rights, book debts, general intangibles,
checks, notes, drafts, instruments, chattel paper, documents, acceptances,
choses in action and all other obligations for the payment of money created
by the Debtor from the sale of inventory or delivery of services and further
proceeds thereof.
If the CONTRACT being modified by this Agreement is signed by more than one
person or entity, the modified CONTRACT shall be the joint and several
obligation of all signers, and each provision of the CONTRACT as modified shall
apply to each and all of the signers and to the property and liability of each
and all of them.
This Modification and Extension Agreement shall bind and inure to the benefit of
the successors in interest hereto, and it is expressly understood and agreed
that this Agreement is a modification only and not a novation. The original
obligation of the BORROWER, as evidenced by the above-described CONTRACT is not
extinguished hereby. It is also understood and agreed that, except for the
above-indicated modifications said CONTRACT, and/or any other loan documents or
agreements and all singular terms and conditions thereof, shall be and remain in
force and effect and that this Modification and Extension Agreement shall not
release or affect the liability of any co-makers, guarantors, obligors, or
endorsers of said CONTRACT. BORROWER specifically consents to the terms of this
Modification and Extension Agreement and waives any objection thereto, and
further affirms any obligation to BANK previously created. BANK expressly
reserves all rights as to any party with right of recourse on the aforesaid
CONTRACT.
<PAGE>
IN WITNESS WHEREOF, this instrument has been executed by the parties
hereto and delivered on the day and year first above written.
Attest: FIRST CHARTER NATIONAL BANK
_______________________________ By: /s/ Illegible Signature
ASSISTANT SECRETARY _______________________
VICE PRESIDENT
(CORPORATE SEAL) BORROWER:
____________________________________(Seal)
BORROWER - INDIVIDUAL
____________________________________(Seal)
BORROWER - INDIVIDUAL
Hansen, Lind, Meyer, Inc.
____________________________________(Seal)
NAME OF CORPORATION
Attest:
___________________________ By: /s/ Vernon B. Brannon, Senior Vice President
ASSlSTANT SECRETARY ____________________________________________
TITLE
(CORPORATE SEAL) By:
____________________________________________
TITLE
TRUSTEE:
______________________________________(Seal)
THIRD PARTY (GUARANTOR, ENDORSER, ETC.):
______________________________________(Seal)
Joseph M. Harris
______________________________________(Seal)
Vernon B. Blalock
______________________________________(Seal)
William J. Blalock
______________________________________(Seal)
COMMERCIAL GUARANTY
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
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
Guarantor: HANSEN, LIND, MEYER, INC.
121 WEST TRADE STREET, SUITE 2950
CHARLOTTE, NC 28202
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. This Is a guaranty to payment to the Note, Including without
limitation the principal Note amount to One Million & 00/100 Dollars
($1,000,000.00).
GUARANTY. For good and valuable consideration, HANSEN, LIND, MEYER, INC.
("Guarantor") absolutely and unconditionally guarantees and promises to pay to
FIRST CHARTER NATIONAL BANK ("Lender") or its order, in legal tender to the
United States of America, the Indebtedness (as that term is defined below) to
HLM DESIGN INC. ("Borrower") to Lender on the terms and conditions set forth in
this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means HLM DESIGN INC.
GUARANTOR. The word "Guarantor" means HANSEN, LIND, MEYER, INC.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated May 30, 1997.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees
and loan charges, and (e) all collection costs and expenses relating to
the Note or to any collateral for the Note. Collection costs and
expenses include without limitation all of Lender's reasonable
attorneys' fees and Lender's legal expenses, whether or not suit is
instituted, and 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.
LENDER. The word "Lender" means FIRST CHARTER NATIONAL BANK, its
successors and assigns.
NOTE. The word "Note" means the promissory note or credit agreement
dated May 30, 1997, in the original principal amount of $1,000,000.00
from Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancing of, consolidations of, and substitutions
for the promissory note or agreement. NOTICE TO GUARANTOR: THE NOTE
EVIDENCES A REVOLVING LINE TO CREDIT FROM LENDER TO BORROWER.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY TO GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE AMOUNT TO THE INDEBTEDNESS DESCRIBED ABOVE, PLUS
ALL COSTS AND EXPENSES TO (A) ENFORCEMENT TO THIS GUARANTY AND (B) COLLECTION
AND SALE TO ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE TO
CREDIT AND GUARANTOR UNDERSTANDS AND AGREES THAT THIS GUARANTEE SHALL BE OPEN
AND CONTINUOUS UNTIL THE LINE TO CREDIT IS TERMINATED AND THE INDEBTEDNESS IS
PAID IN FULL, AS PROVIDED BELOW.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. THIS GUARANTY COVERS A REVOLVING LINE
TO CREDIT AND IT IS SPECIFICALLY ANTICIPATED THAT FLUCTUATIONS WILL OCCUR IN THE
AGGREGATE AMOUNT OF INDEBTEDNESS OWING FROM BORROWER TO LENDER. GRANTOR
SPECIFICALLY ACKNOWLEDGES AND AGREES THAT FLUCTUATIONS IN THE AMOUNT OF
INDEBTEDNESS, EVEN TO ZERO DOLLARS ($ 0.00), SHALL NOT CONSTITUTE A TERMINATION
OF THIS GUARANTY. GUARANTOR'S LIABILITY UNDER THIS GUARANTY SHALL TERMINATE ONLY
UPON (A) TERMINATION IN WRITING BY BORROWER AND LENDER OF THE LINE OF CREDIT,
(B) PAYMENT TO THE INDEBTEDNESS IN FULL IN LEGAL TENDER, AND (C) PAYMENT IN FULL
IN LEGAL TENDER TO ALL OTHER OBLIGATIONS TO GUARANTOR UNDER THIS GUARANTY.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, WITHOUT NOTICE
OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM
TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR UNSECURED LOANS TO
BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR OTHERWISE TO EXTEND
ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE, RENEW, EXTEND,
ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME TOR PAYMENT OR OTHER
TERMS TO THE INDEBTEDNESS OR ANY PART TO THE INDEBTEDNESS, INCLUDING INCREASES
AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS; EXTENSIONS MAY BE
REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD
SECURITY FOR THE PAYMENT TO THIS GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE,
ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT TO PERFECT, AND RELEASE ANY SUCH
SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE,
SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY ONE OR MORE TO BORROWER'S
SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER
MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND
CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT
THE ORDER OR MANNER TO SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY
NONJUDICIAL SALE PERMITTED BY THE TERMS TO THE CONTROLLING SECURITY AGREEMENT OR
DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY DETERMINE; (9) TO SELL, TRANSFER,
ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY PART TO THE INDEBTEDNESS; AND (H)
TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
<PAGE>
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion to any
foreclosure action either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement including without limitation, any Ioss of rights Guarantor may
suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower 's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations. if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrowers
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty. In addition
to the waivers set forth above, Guarantor expressly waives, to the extent
permitted by North Carolina law, all of Guarantor's rights under (i) North
Carolina General Statute Section 26-7 to Section 26-9 (1986) to require Lender
to take action, (ii) North Carolina General Statute Section 25-3-606 (1965 and
Supplement 1985) relating to impairment of collateral, and (iii) North Carolina
General Statute Section 25-9-501 (1986) with respect to the "commercial
reasonableness" of any sale of collateral.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit or whether held
for safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part of
Lender or by any neglect to exercise such right of setoff or to enforce such
security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an instrument
in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
to assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Guaranty. No alteration of or amendment
to this Guaranty shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted
by Lender in the State of North Carolina. If there is a lawsuit,
Guarantor agrees upon Lender's request to submit to the jurisdiction of
the courts of CABARRUS County, State of North Carolina. This Guaranty
shalt be governed by and construed in accordance with the laws of the
State of North Carolina.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses. including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Guaranty. Lender may pay someone else to help enforce this
Guaranty, and Guarantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, including
reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment
collection services. Guarantor also shall pay all court costs and such
additional fees as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile,
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the
United States mail, first class postage prepaid, addressed to the party
to whom the notice is to be given at the address shown above or to such
other addresses as either party may designate to the other in writing.
If there is more than one Guarantor, notice to any Guarantor will
constitute notice to all Guarantors. For notice purposes, Guarantor
agrees to keep Lender informed at all times of Guarantor's current
address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall
be deemed to have been used in the plural where the context and
construction so require; and where there is more than one Borrower
named in this Guaranty or when this Guaranty is executed by more than
one Guarantor, the words "Borrower" and Guarantor" respectively shall
mean all and any one or more of them. The words "Guarantor,"
"Borrower," and 'Lender' include the heirs, successors, assigns, and
transferees of each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Guaranty. If a court of competent jurisdiction
finds any provision of this Guaranty to be invalid or unenforceable as
to any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not
necessary for Lender to inquire into the powers of Borrower or
Guarantor or of the officers, directors, partners, or agents acting or
purporting to act on their behalf, and any Indebtedness made or created
in reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Guaranty shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this Guaranty.
No prior waiver by Lender, nor any course of dealing between Lender and
Guarantor, shall constitute a waiver of any of Lender's rights or of
any of Guarantor's obligations as to any future transactions. Whenever
the consent of Lender is required under this Guaranty, the granting of
such consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
<PAGE>
05-30-1997 COMMERCIAL GUARANTY Page 3
Loan No (Continued)
================================================================================
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED MAY 30, 1997.
GUARANTOR:
HANSEN, LIND, MEYER, INC.
By: /s/ Joseph M. Harris (SEAL) /s/ Karen A. Kaplan
------------------------------ -------------------------------
JOSEPH M. HARRIS, PRESIDENT Karen A. Kaplan, Assistant Secretary
- --------------------------------------------------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF North Carolina )
)SS
COUNTY OF Gaston )
I, /s/ Doris F. Pearson, a Notary Public for said County and State, certify that
/s/ Karen A. Kaplan personally came before me this day and acknowledged that he
or she is Assistant Secretary of HANSEN, LIND, MEYER, INC. a corporation and
that by authority duly given and as the act of the corporation, the foregoing
instrument was signed in its name by its President, sealed with its corporate
seal, and attested by himself or herself as its Asst. Secretary.
Witness my hand and Notarial Seal this the 30th day of May, 1997.
/s/ Doris F. Pearson
------------------------
Notary Public
My Commission Expires:
7-4-99
- ---------------------------
(Affix Notarial Seal Here)
Hansen, Lind, Meyer, Inc. First Charter National Bank
121 W. Trade Street 22 Union St., N
Suite 2950 P. O. Box 228
Charlotte, NC 28202 Concord, NC 28026-0228
DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND
("I" means each Debtor who signs.) ADDRESS ("You" means the
Secured Party, its
successors and assigns.)
I am entering into this security agreement with you on June 2, 1997 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that (Check
one) X (name) Hansen, Lind, Meyer, Inc. owe(s) to you now or in the future:
(Check one below):
X SPECIFIC DEBT(S). The debt(s), liability or obligations
evidenced by (describe): Note dated December 10, 1996 for
$500,000.00 and all extensions, renewals, refinancings,
modifications and replacements of the debt, liability or
obligation.
X ALL DEBT(S). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and
obligation of every type and description (whether such debt,
liability or obligation now exists or is incurred or created
in the future and whether it is or may be direct or indirect,
due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or joint, several or
joint and several).
SECURITY INTEREST. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security interest in
all of the property described below that I now own and that I may own in the
future (including, but not limited to, all parts, accessories, repairs,
improvements, and accessions to the property), wherever the property is or may
be located, and all proceeds and products from the property.
INVENTORY: All inventory which I hold for ultimate sale or
lease, or which has been or will be supplied under contracts
of service, or which are raw materials, work in process, or
materials used or consumed in my business.
EQUIPMENT: All equipment including, but not limited to, all
machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment,.
office and recordkeeping equipment, and parts and tools. All
equipment described in a list or schedule which I give to you
will also be included in the secured property, but such a list
is not necessary for a valid security interest in my
equipment.
FARM PRODUCTS: All farm products including, but not limited
to:
(a) all poultry and livestock and their young, along with
their products, produce and replacements;
(b) all crops, annual or perennial, and all products of the
crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies
used or produced in my farming operations.
X ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER
RIGHTS TO PAYMENT: All rights I have now and that I may have
in the future to the payment of money including, but not
limited to:
(a) payment for goods and other property sold or leased or for
services rendered, whether or not I have earned such payment
by performance; and
(b) rights to payment arising out of all present and future
debt instruments, chattel paper and loans and obligations
receivable. The above include any rights and interests
(including all liens and security interests) which I may have
by law or agreement against any account debtor or obligor of
mine.
GENERAL INTANGIBLES: All general intangibles including, but
not limited to, tax refunds, applications for patents,
patents, copyrights, trademarks, trade secrets, good will,
trade names, customer lists, permits and franchises, and the
right to use my name.
GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts,
general intangibles, or other benefits (including, but not
limited to, payments in kind, deficiency payments, letters of
entitlement, warehouse receipts, storage payments, emergency
assistance payments, diversion payments, and conservation
reserve payments) in which I now have and in the future may
have any rights or interest and which arise under or as a
result of any preexisting, current or future Federal or state
governmental program (including, but not limited to, all
programs administered by the Commodity Credit Corporation and
the ASCS).
X THE SECURED PROPERTY INCLUDES, BUT IS NOT LIMITED BY, THE
FOLLOWING: All presently existing and future accounts,
accounts receivable, receivables, contracts, contract rights,
book debts, general intangibles, checks, notes, drafts,
instruments, chattel paper, documents, acceptances, choses in
action and all other obligations for the payment of money
created by the Debtor from the sale of inventory or deliver of
services and further proceeds thereof.
If this agreement covers timber to be cut, minerals (including oil and
gas) fixtures or crops growing or to be grown, the legal description is:
- --------------------------------------------------------------------------------
I am a(n) Individual Partnership Corporation
------ ------ ------
If checked, file this agreement in the real estate records.
- --------
Record Owner (if not me): ___________________________________________
_____________________________________________________________________
____________________________________________________________________.
The property will be used for Personal Business
----- -----
Agricultural Reasons.
----- -------------------------
By: /s/ illegible signature
________________________
Title: Vice President
________________________
I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I
have received a copy of this document on today's date.
Hansen, Lind, Meyer, Inc.
__________________________________________________
(Debtor's Name)
By: /s/ Vernon B. Brannon
________________________________________
Title: Senior Vice President
________________________________________
Continuing Guaranty:
__________________________________________________
Joseph M. Harris
______________________________
Vernon B. Blalock
______________________________
William J. Blalock
______________________________
(C)1986, 1990 BANKERS SYSTEMS, INC., ST. CLOUD, MN (1-800-397-2341) SECURITY
AGREEMENT FORM SA 8/5/91
<PAGE>
GENERALLY - "You" means the Secured Party identified on page 1 of this
agreement. "I", me" and "my" means each person who signs this security agreement
as Debtor and who agrees to give the property described in this agreement as
security for the Secured Debts. All terms and duties under this agreement are
joint and individual. No modification of this security agreement is effective
unless made in writing and signed by you and me. This security agreement remains
in effect, even if the note is paid and I owe no other debt to you, until
discharged in writing. Time is of the essence in this agreement.
APPLICABLE LAW - I agree that this security agreement will be governed by the
law of the state in which you are located. If property described in this
agreement is located in another state, this agreement may also, in some
circumstances, be governed by the law of the state in which the property is
located.
To the extent permitted by law, the terms of this agreement may vary
applicable law. If any provision of this agreement that does not comply with
that law will not be effective. If any provision of this agreement cannot be
enforced according to its terms, this fact will not affect the enforceability of
the remainder of this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the
property, or to the extent this is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan. I will defend
it against any other claim. I agree to do whatever you require to protect your
security interest. I will not do anything to harm your position.
I will keep books, records and accounts about the property and my business
in general. I will let you examine these records at any reasonable time. I will
prepare any report or accounting you request, which deals with the property.
I will keep the property in my possess and will keep it in good repair and
use it only for the purpose(s) described on page 1 of this agreement. I will not
change this specified use without your express written permission I represent
that I am the original owner of the property and, if I am not, that I have
provided you with a list of prior owners of the property.
I will keep the property at my address listed on page 1 of this agreement,
unless we agree I may keep it at another location. If the property is to be used
in another state, I will give you a list of those states. I will not try to sell
the property unless it is inventory or I receive your written permission to do
so. If I sell the property I will have the payment made payable to the order of
you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent (1) a beneficial interest
in the debtor is sold or transferred or (2) there is a change in either the
identity or number of members of a partnership or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the property as they become due. You
have the right of reasonable access in order to inspect the property. I will
immediately inform you of any loss or damage to the property.
LIMITATIONS - This agreement will not secure a debt described in the section
entitled "Secured Debts" on page 1:
1) if you fail to make any disclosure of the existence of this security
interest required by law for such other debt;
2) if this security interest is in my principal dwelling and you fail to
provide (to all persons entitled) any notice of right of rescission
required by law for such other debt;
3) to the extent that this security interest is in "household goods" and
the other debt to be secured is a "consumer" loan (as those terms are
defined in applicable federal regulations governing unfair and deceptive
credit practices);
4) if this security interest is in margin stock subject to the requirements
of 12 C.F.R. Section 207 or 221 and you do not obtain a statement of
purpose if required under these regulations with respect to that debt;
or
5) if this security interest is unenforceable by law with respect to that
debt.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any non-purchase money loan also secured by this
agreement will not be deemed to apply to the purchase money loan, and (b)
payments on the purchase money loan will deemed to apply first to the
non-purchase money portion of the loan, if any, and then to the purchase money
obligations in the order in which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase money loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations and
refinancings of such loan.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by you
in respect to the property. If I fail to pay such sums, you may do so for me,
adding the amount paid to the other amounts secured by this agreement. All such
sums will be due on demand and will bear interest at the highest rate provided
in any agreement, note or other instrument evidencing the Secured Debt(s) and
permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lien or other security interest, you may without notice
to me perform the duties or cause them to be performed. I understand that this
authorization includes, but is not limited to, permission to: (1) prepare, file,
and sign my name to any necessary reports or accountings; (2) notify any account
debtor of your interest in this property and tell the account debtor to make the
payments to you or someone else you name, rather than me; (3) place on any
chattel paper a note indicating your interest in the property; (4) in my name,
demand, collect, receive and give a receipt for, compromise, settle, and handle
any suits or other proceedings involving the collateral; (5) take any action you
feel is necessary in order to realize on the collateral, including performing
any part of a contract or endorsing it in my name; and (6) make an entry on my
books and records showing the existence of the security agreement. Your right to
perform for me shall not create an obligation to perform and your failure to
perform will not preclude you from exercising any of your other rights under the
law or this agreement.
INSURANCE - I agree to buy insurance on the property against the risks and for
the amounts you require and to furnish you continuing proof of coverage. I will
have the insurance company name you as loss payee on any such policy. You may
require added security if you agree that insurance proceeds may be used to
repair or replace the property. I will buy insurance from a firm licensed to do
business in the state where you are located. The firm will be reasonably
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS - I will collect all accounts until you tell me
otherwise. I will keep the proceeds from all the accounts and any goods which
are returned to me or which I take back intrust for you. I will deliver them to
you at your request. If you ask me to pay you the full price on any returned
items or items retaken by myself, I will do so.
If this agreement covers inventory, I will not dispose of it except in my
ordinary course of business at the fair market vale for the property, or at a
minimum price established between you and me.
If this agreement covers farm products I will provide you, at your request,
a written list of the buyers, commission merchants or selling agents to or
through whom I may sell my farm products. In addition to those parties named on
this written list, I authorize you to notify at your sole discretion any
additional parties regarding your security interest in my farm products. I
remain subject to all applicable penalties for selling my farm products in
violation of my agreement with you and the Food Security Act. In this paragraph
the terms farm products, buyers, commission merchants and selling agents have
the meanings given to them in the Federal Food Security Act of 1985.
DEFAULT - I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due and if not cured such
default within thirty (30) days; (2) I fail to keep the property insured, if
required; (3) I fail to pay, or keep any promise, on any debt or agreement I
have with you; (4) any other creditor of mine attempts to collect any debt I owe
him through court proceedings; (5) I die and a suitable replacement is not
approved by you within ninety (90) days , am declared incompetent, make an
assignment for the benefit of creditors, or become insolvent (either because my
liabilities exceed by assets or I am unable to pay my debts as they become due);
(6) I make any written statement or provide any financial information that is
untrue or inaccurate at the time it was provided; (7) I do or fail to do
something which causes you to believe that you will have difficulty collecting
the amount I owe you; (8) I change my name or assume an additional name without
first notifying you before making such a change; (9) failure to plant, cultivate
and harvest crops in due season; (10) if any loan proceeds are used for a
purpose that will contribute to excessive erosion of highly erodible land or to
the conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES - If I am in default on this agreement, you have the following
remedies:
1) You may demand immediate payment of all I owe you under any obligation
secured by this agreement.
2) You may set off any obligation I have to you against any right I have to
the payment of money from you.
3) You may demand more security or new parties obligated to pay any debt I
owe you as a condition of giving up any other remedy.
4) You may make use of any remedy you have under state or federal law.
5) If I default by failing to pay taxes or other charges, you may pay them
(but you are not required to do so). If you do, I will repay to you the
amount you paid plus interest at the highest contract rate.
6) You may require me to gather the property and make it available to you
in a reasonable fashion.
7) You may repossess the property and sell it as provided by law. You may
repossess the property so long as the repossession does not involve a
breach of the peace or an illegal entry onto my property. You may sell
the property as provided by law. You may apply what you receive form the
sale of the property to: your expenses; your reasonable attorneys' fees
and legal expenses (where not prohibited by law); any debt I owe you. If
what you receive from the sale of the property does not satisfy the
debts, you may take me to court to recover the difference (where
permitted by law).
I agree that 10 days written notice sent to my address listed on page 1
by first class mail will be reasonable notice to me under the Uniform
Commercial Code. If any items not otherwise subject to this agreement
are contained in the property when you take possession, you may hold
these items for me at my risk and you will not be liable for taking
possession of them.
8) In some cases, you may keep the property to satisfy the debt. You may
enter upon and take possession of all or any part of my property, so
long as you do not breach the peace or illegally enter onto the
property, including lands, plants, buildings, machinery, and equipment
as may be necessary to permit you to manufacture, produce, process,
store or sell or complete the manufacture, production, processing,
storing or sale of any of the property and to use and operate the
property for the length of time you feel is necessary to protect your
interest, all without payment or compensation to me.
By choosing any one or more of these remedies, you do not waive your right
to later use any other remedy. You do not waive a default if you choose not to
use any remedy, and, by electing not to use any remedy, you do not waive your
right to later consider the event a default and to immediately use any remedies
if it continues or occurs again.
FILING - A carbon, photographic or other reproduction of this security agreement
or the financing statement covering the property described in this agreement may
be used as a financing statement where allowed by law. Where permitted by law,
you may file a financing statement which does not contain my signature, covering
the property secured by this agreement.
CO-MAKERS - If more than one of us has signed this agreement, we are all
obligated equally under the agreement. You may sue any one of us or any of us
together if this agreement is violated. You do not have to tell me if any term
of the agreement has not been carried out. You may release any co-signer and I
will still be obligated under this agreement. You may release any of the
security and I will still be obligated under this agreement. Waiver by you of
any of your rights will not affect my duties under this agreement. Extending
this agreement or new obligations under this
<PAGE>
agreement, will not affect my duty under the agreement.
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<S> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,000,000.00 05-30-1997 05-30-1998
</TABLE>
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.
GRANTOR: Hansen, Lind, Meyer, Inc. (TIN: 561981021)
121 West Trade Street Suite 2950
Charlotte, NC 28202
LENDER: FIRST CHARTER NATIONAL BANK
COMMERCIAL
P.O. BOX 228
CONCORD, NC 28026-0228
- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN HANSEN, LIND, MEYER,
INC. (REFERRED TO BELOW AS"GRANTOR'); AND FIRST CHARTER NATIONAL BANK (REFERRED
TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A
SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT
LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word '"Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
ALL ACCOUNTS
In addition, the word "Collateral' includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All accessions, accessories, increases, and additions to
and all replacements of and substitutions for any property
described above.
(b) All products and produce of any of the
property described in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
Iease, or other disposition of any of the property described
in this Collateral section.
(d) All proceeds (including insurance
proceeds) from the sale, destruction, loss, or other
disposition of any of the property described in this
Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means Hansen, Lind, Meyer, Inc., its
successors and assigns
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with other
indebtedness and costs and expenses for which Grantor is responsible
under this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means FIRST CHARTER NATIONAL BANK, its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated May 30,
1997, in the principal amount of S1,000,000.00 from HLM Design Inc. to
Lender, together with all renewals of, extensions of, modifications of,
refinancing of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness, including that commercial guarantee May 30,
1997, given by grantor on behalf of HLM Designs, Inc.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts
Grantor 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. Grantor authorizes Lender, to the extend permitted by
applicable law, to charge or setoff all Indebtedness 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 in this
paragraph.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of North
Carolina. Grantor has its chief executive office at 121 West Trade
Street Suite 2950, Charlotte, NC 28202. Grantor wilt notify Lender of
any change in the location of Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental
regulation, court decree, or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time,
and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. THIS IS
A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH
ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR
A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
<PAGE>
05-30-1997 COMMERCIAL SECURITY AGREEMENT Page 2
LOAN NO (CONTINUED)
================================================================================
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral. At the time any account becomes
subject to a security interest in favor of Lender, the account shall be
a good and valid account representing an undisputed, bona fide
indebtedness incurred by the account debtor, for merchandise held
subject to delivery instructions or theretofore shipped or delivered
pursuant to a contract of sale, or for services theretofore performed
by Grantor with or for the account debtor; there shall be no setoffs or
counterclaims against any such account; and no agreement under which
any deductions or discounts may be claimed shall have been made with
the account debtor except those disclosed to Lender in writing.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of North Carolina, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or dispose
of the Collateral. Grantor shall not pledge, mortgage, encumber or
otherwise permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security interest
provided for in this Agreement, without the prior written consent of
Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement
shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require,
and insofar as the Collateral consists of accounts, Grantor shall
deliver to Lender schedules of such Collateral, including such
information as Lender may require, including without limitation names
and addresses of account debtors and aging of accounts. Such
information shall be submitted for Grantor and each of its subsidiaries
or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral, of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
reasonable attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse
judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99 499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnity shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days prior written notice to Lender and not including
any disclaimer of the insurer's liability for failure to give such a
notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance", which will cover only Lender's interest in
the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. It Lender
consents to repair or replacement of the damaged or destroyed
collateral, Lender shall, upon satisfactory proof of expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to
pay all of the Indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before the premium
due date, amounts at least equal to the insurance premiums to be paid.
If fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender.
The reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust tor Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of determining
that value; and (f) the expiration date of the policy. In addition,
Grantor shall upon request by Lender (however not more often than
annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
<PAGE>
05-30-1997 COMMERCIAL SECURITY AGREEMENT Page 3
LOAN NO (CONTINUED)
================================================================================
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantors right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when
due on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor, after Borrower shall have received written
notice of such default and not cured such default within thirty (30)
days.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws or against
Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies and a suitable replacement is not approved by Lender within ninety
(90) days or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's
financial condition, or Lender believes the prospect of payment or
performance of the indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the North Carolina Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and selling
the Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then
due. For these purposes, Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to Grantor; change
any address to which mail and payments are to be sent; and endorse
notes, checks, drafts, money orders, documents of title, instruments
and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
<PAGE>
05-30-1997 COMMERCIAL SECURITY AGREEMENT Page 4
LOAN NO (CONTINUED)
================================================================================
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of North Carolina. If there is a
lawsuit, Grantor agrees upon Lender's request to submit to the
jurisdiction of the courts of the State of North Carolina. This
Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, including
reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment
collection services. Grantor also shall pay all court costs and such
additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to
Grantor shall mean each and every Grantor. This means that each of the
persons signing below is responsible for all obligations in this
Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or; deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral,
and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the indebtedness, and
the authority hereby conferred is and shall be irrevocable and shall
remain in full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 30,1997.
GRANTOR:
HANSEN, LIND, MEYER, INC.
BY:_________________________________(SEAL) BY:_________________________(SEAL)
JOSEPH M. HARRIS, PRESIDENT VERNON B. BRANNON, SEC/TREAS
Exhibit 10.41
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "Agreement") is made and entered into
as of the 30th day of May, 1997 by and between BERTHEL FISHER & COMPANY LEASING,
INC. ("Berthel Fisher") and FIRST CHARTER NATIONAL BANK ("First Charter").
STATEMENT OF FACTS
Berthel Fisher has entered into a $2,800,000 lease arrangement with
Hansen Lind Meyer Inc. ("HLM") pursuant to a lease agreement and related loan
documents dated May 30, 1997 (the "Berthel Fisher Loan"). As security for the
Berthel Fisher Loan, HLM has granted to Berthel Fisher a security interest in
all of its assets, including, without limitation, all of its accounts
receivable.
HLM Design, Inc. ("Design") and First Charter propose to enter into a
loan agreement of even date herewith, together with related loan documents,
pursuant to which First Charter will advance to Design from time to time sums in
an aggregate principal amount up to $1,000,000 (the "First Charter Loan").
Design's obligation to repay the First Charter Loan is guaranteed by
<PAGE>
HLM, which guaranty is to be secured by a security interest in HLM's accounts
receivable due to HLM from its clients and customers, as may now or hereafter be
due to HLM, and in all proceeds thereof (the "First Charter Collateral").
NOW, THEREFORE, in consideration of the sum of $1.00 and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and in order to induce First Charter to enter into the First
Charter Loan and to advance the sums to Design pursuant to the terms thereof,
Berthel Fisher and First Charter do hereby agree with each other as follows:
1. Subordination of Security Interest. Berthel Fisher hereby agrees
that its security interest in the First Charter Collateral shall be subordinated
to the security interest of First Charter therein, buy only to the extent of the
first $1,250,000 of the accounts receivable of HLM. Berthel Fisher's security
interest in HLM's accounts receivable in excess of the first $1,250,000 of
accounts receivable is not subordinate to First Charter's security interest.
Further, the aforesaid subordination of Berthel Fisher's security interest shall
continue in the event of a renewal and/or extension of the First Charter Loan
for a period of up to five (5) years. The foregoing shall be applicable
regardless of the order of filing of any financing statements in any particular
jurisdiction.
2. Order of Filing. The parties agree to cause appropriate financing
statements to be filed in applicable jurisdictions in the following order.
First, Berthel Fisher shall file financing
2
<PAGE>
statements covering all assets of HLM, including, without limitation, HLM's
accounts receivable. Second, First Charter shall file financing statements
covering all accounts receivable of HLM. Upon the written request of Design,
HLM, Berthel Fisher and/or First Charter, Berthel Fisher and/or First Charter
will further execute and deliver to the other such further documents and
instruments as may be reasonably requested in order to evidence and confirm the
subordination of the Berthel Fisher security interest in the First Charter
Collateral as described in Paragraph 1 above.
3. Existing First Charter Loan. The parties acknowledge an existing
unsecured loan from First Charter to HLM in the amount of $500,000 made pursuant
to a Promissory Note dated December 10, 1996 (the "$500,000 Loan"). Berthel
Fisher hereby agrees and consents to the securing of the $500,000 Loan by the
security interest being granted by HLM to First Charter as of the date hereof.
4. Prior Consent. The parties hereto agree that Berthel Fisher's prior
written consent shall be required prior to any further borrowings by Design or
HLM from First Charter, other than the renewal from time to time of the $500,000
Loan and the First Charter Loan for a period of up to five (5) years from the
date hereof.
5. Binding Effect and Benefit. This Subordination Agreement shall be
binding upon and inure to the benefit of Berthel Fisher and First Charter, their
respective successors and assigns.
3
<PAGE>
6. Joinder of Design and HLM. Design and HLM join in the execution of
this Subordination Agreement as evidence of their consent and acknowledgment of
the terms hereof.
7. Governing Law. This Subordination Agreement shall be interpreted
under and enforced according to the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Subordination
Agreement to be duly executed and sealed as of the date first above written.
BERTHEL FISHER & COMPANY
LEASING, INC.
By:/s/ Nancy L. Lowenberg
--------------------------------------
NANCY L. LOWENBERG, Vice
President and Chief Operating Officer
FIRST CHARTER NATIONAL BANK
By: /s/ Gregory R. Silliman
-------------------------------------
Name: Gregory R. Silliman
-------------------------------------
Title: Vice President
-------------------------------------
HLM DESIGN, INC.
By: /s/ Joseph M. Harris
-------------------------------------
JOSEPH M. HARRIS, President
HANSEN LIND MEYER INC.
By: /s/ Joseph M. Harris
-------------------------------------
JOSEPH M. HARRIS, President
4
<PAGE>
NOTE AND SECURITY AGREEMENT
[Corporate Debtor with Individual Guarantors]
Note #063-2181 5-000
$500,000.00 Date: September 10, 1997
This Note and Security Agreement is entered into by and among HLM
Design, Inc. a Delaware corporation, ("Debtor"), Hansen Lind Meyer, Inc., and
Joseph M. Harris and Vernon B. Brannon and William J. Blalock (each individually
a "Guarantor" and collectively the "Guarantors"), and Berthel Fisher & Company
Leasing, Inc., an Iowa corporation, 100 Second Street SE, Cedar Rapids, Iowa
("Lender").
RECITALS
A. Debtor has requested that Lender provide Debtor with a working
capital loan.
B. The Guarantors each have an affiliated relationship or directly, or
indirectly own stock of the debtor.
C. Debtor and the Guarantors each individually perceive substantial
business advantage from the transactions contemplated by this Note and Security
Agreement.
D. Lender has, as a condition to making the Loan to Debtor required
that Debtor and the Guarantors each participate and that the parties execute and
deliver this Note and Security Agreement.
E. Lender has, as a condition to making the loan to Debtor required the
Debtor to execute a common stock purchase warrant and a Registration Rights
Agreement, as evidenced by Exhibit C, and Exhibit D, respectively, both of which
are attached hereto and made a part hereof.
The parties agree:
1. Definitions.
"Collateral" means all of Debtor'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 as defined hereinbelow) including insurance
proceeds, and including but not limited to all of Debtor'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 Debtor enters into with various architectural and engineering
firms, including without limitation, those certain management and services
agreements identified on Schedule I to Exhibit B attached hereto and
incorporated by reference, together with all renewals, modifications, amendments
and extensions thereof, and all existing and hereafter arising accounts and/or
rights to receive payments associated therewith, and any and all proceeds from
any of the foregoing (the foregoing collectively referred to herein as the
"Collateral").
"Obligations" shall mean (a) the unpaid principal amount of, and
accrued interest on, the loan to Debtor evidenced by this Note and Security
Agreement and (b) all other indebtedness, obligations, and liabilities of Debtor
to Lender, now existing or hereafter incurred under, arising out of, or in
connection with this Note and Security Agreement, whether for principal
interest, fees, expenses or otherwise.
<PAGE>
2. Payments. Debtor promises to pay to the order of Lender or its
assignee, monthly payments of interest at the rate of twelve percent (12%) per
annum on the unpaid balance remaining from time to time unpaid based upon a 360
day year. All accrued interest and principal shall be due and payable on May 1,
1998.
Debtor acknowledges and agrees that (i) all costs, expenses and
liabilities in connection with its operations shall be borne by Debtor, (ii)
Debtor's obligation to pay Lender all amounts due is absolute and unconditional,
and (iii) Debtor shall not be entitled to any abatement, reduction, set-off, or
counterclaim.
All payments called for under this Note and Security Agreement to be
made to Lender shall be made as designated by Lender or Lender's assignee.
Each such payment shall be applied first to interest due on the unpaid
principal and the remainder in reduction of the principal.
It is agreed that in no event and under no circumstances shall any
amount paid by the Debtor to Lender exceed the highest lawful rate permissible,
under applicable law. If in any circumstances whatsoever, it is determined that
performance under this Note and Security Agreement shall result in payment of
interest in excess of that allowed by applicable law, then such excess interest
collected shall not be applied to the payment of interest and interest shall be
at the highest rate allowed by applicable law.
In the event of default and acceleration or in the event Debtor prepays
the Obligations, the amount due upon payment after default or upon prepayment is
all unpaid interest plus the principle not yet paid.
3. Security Interest. Debtor grants to Lender a security interest in
the following described collateral (collectively the "Collateral") to secure the
Obligations.
(a) All Collateral as follows:
"Collateral" means all of Debtor'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 as defined hereinbelow) including insurance
proceeds, and including but not limited to all of Debtor'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 Debtor enters into with various architectural and engineering
firms, together with all renewals, modifications, amendments and extensions
thereof, and all existing and hereafter arising accounts and/or rights to
receive payments associated therewith, and any and all proceeds from any of the
foregoing (the foregoing collectively referred to herein as the "Collateral").
(b) The proceeds of all insurance polices covering the Collateral and
all proceeds of the Collateral.
4. Expenses. Debtor, upon demand, shall pay to Lender all expenses,
including, but not limited to, reasonable attorney's fees and legal expenses
incurred by Lender in seeking to collect the Obligations or to defend or enforce
any of Lender's rights in the Collateral. Such amounts shall be an Obligation
under this Note and Security Agreement and if not paid on demand shall bear
interest at a default rate of 1 1/2 times the rate specified in paragraph 2.
<PAGE>
5. Representations, Warranties and Covenants. Debtor and Guarantors
represent, warrant and agree (which shall survive until the Obligations are paid
in full):
(a) Corporate Authority. Debtor is duly organized and existing under
the laws of the state of its incorporation, is qualified and in good standing in
all states in which it is doing business, and the execution and performance of
this Note and Security Agreement are within the corporate powers, have been duly
authorized and are not in contravention of any law or Debtors charter or any
agreement or undertaking of which Debtor is party or by which it is bound.
(b) Title to Collateral. Debtor is the owner of the Collateral free and
clear of any and all adverse liens, security interest, except Pacific Capital,
L.P. and Equitas, L.P., claims, encumbrances and the like and has full authority
to use same as Collateral. Debtor will defend the Collateral against all other
persons who, at any time, may claim an interest in it.
(c) Outstanding Security Interests. Debtor warrants that there are no
outstanding security interests except Pacific Capital, L.P. and Equitas, L.P.,
in the Collateral.
(d) Negative Pledge. Except for the security interests created
hereunder, Debtor agrees that during the term of this Note and Security
Agreement and as long as any Obligations are outstanding, Debtor will not grant
a security interest in the Collateral to any other person.
(e) Adverse Lien. During the term of this Agreement, Debtor will keep
the Collateral free from any and all adverse liens or encumbrances.
(f) Sale of Collateral. Debtor will not sell, offer for sale, transfer
or dispose of the Collateral or any interest in the Collateral without the prior
written consent of Lender or Lender's assignee.
(g) Unlawful Uses of Collateral. Debtor will not use or permit any
person to use the Collateral in a manner prohibited by law, in violation of any
insurance policy or in any manner inconsistent with Lender's security interest.
(h) Care of Collateral. Debtor agrees to maintain the Collateral in
good order and repair at all times and will not waste or destroy the Collateral
or any part of it. Debtor shall make no material alterations in the Equipment
without the prior written consent of Lender or Lender's assignee.
(i) Taxes. If Debtor fails to pay any tax or assessment relating to the
Collateral as required when due, Lender may, at its option, pay or discharge
same, although it is not required to do so. Any payments made by Lender under
this Section shall become the Obligation of Debtor and shall be secured by the
Collateral.
(j) Insurance. Debtor shall either (i) procure insurance insuring the
Collateral against loss through theft, fire or casualty or (ii) may be
self-insured, if approved in advance by Lender. If insured, any insurance policy
shall name Lender as Loss Payee under the property damage provisions and
Additional Named Insured under the liability provisions where applicable and
provide evidence of insurance to the Lender and be satisfactory to Lender as to
the terms and duration and contain a term to the effect that notice of
termination will be sent to Lender at least thirty (30) days prior to any
contemplated termination and be delivered to Lender. If Debtor at any time adds
insurance covering the Collateral or changes policies, Debtor agrees that the
new policies will comply with the terms of this paragraph.
<PAGE>
(k) Reports. Debtor shall provide Lender at its address all quarterly
reports of Debtor's financial condition and annual financial reports audited by
an independent certified public accountant or more frequently as requested.
(l) Use of Equipment. Debtor will comply with all laws, regulations,
and ordinances, and all applicable requirements of the manufacturer of the
Equipment, applicable to the physical possession, operation, condition, use and
maintenance of the Equipment. Debtor agrees to obtain all permits and licenses
necessary for the operation of the Equipment.
(m) Corporate Changes. Debtor will not enter into any merger or
consolidation or effect any reorganization or recapitalization without the prior
written consent of Lender.
6. Financing Statements. Debtor agrees to execute one or more financing
statements in a form satisfactory to Lender who is authorized to file a
financing statement in any location deemed necessary or advisable to perfect
Lender's security interest in the Collateral. Debtor expressly agrees to sign
such financing statements on request of Lender. Debtor also agrees to cooperate
fully with Lender in executing additional financing statements, amendments to
financing statements and the like as may be deemed necessary or advisable by
Lender in order to maintain and continue Lender's security interest in the
Collateral.
7. Default. It is agreed that the following events shall constitute a
default under this Note and Security Agreement:
(a) Nonpayment. Any failure of Debtor to pay when due, after 10 days
written notice from Lender, any Obligations secured by this Note and Security
Agreement shall constitute a default. This includes, but is not limited to, any
failure to pay principal or interest when due, failure to pay taxes, failure to
pay insurance and failure to pay delinquent charges.
(b) Nonperformance. Any failure of Debtor to perform or observe fully
and in any satisfactory manner the material terms of any Obligations secured by
this Note and Security Agreements shall constitute a default.
(c) Warranties and Representations that Prove False. Any warranty or
representation made to Lender in order to induce the making of the Loan to
Debtor whether made by Debtor, or others on behalf of Debtor, including agents,
employees, sureties, guarantors, co-signors and the like, and whether such
representations are contained in this agreement or in related materials, such as
financial statements, loan applications, supporting documentation and
guarantees, or in any financial instrument, such as a promissory note, executed
in conjunction with this Note and Security Agreement, if incorrect in any
material respect shall operate as a default under this Note and Security
Agreement.
(d) Levy and Attachments. Seizure, attachment or levy on any property
of Debtor whether or not such property is the subject of the security interest
created by this Note and Security Agreement, shall operate as a default under
this Note and Security Agreement.
(e) Insolvency and the Like. It shall operate as a default under this
Note and Security Agreement if for any reason Debtor becomes insolvent or Debtor
becomes subject to any proceeding under the bankruptcy or insolvency laws,
including an assignment for the benefit of creditors or Debtor has its property
placed under the custody of receiver or trustee.
<PAGE>
(f) Alteration of Debtor's Operating Conditions. Without Lender's
written permission, dissolution or other termination of the existence of Debtor
or any forfeiture of its right to do business, as well as any merger,
consolidation or the like with another, shall constitute a default under this
Note and Security Agreement.
(g) Loss or Destruction of Collateral. The theft, loss, destruction,
substantial damage to or alteration of the Collateral, whether in whole or in
part, shall constitute a default under this Note and Security Agreement.
(h) Unauthorized Use of Collateral or Proceeds. The sale, transfer or
use of the Collateral or its proceeds except as authorized in this Note and
Security Agreement shall be a default under this Note and Security Agreement.
8. Acceleration. Upon the occurrence of an event of default or at any
other time Lender may deem itself insecure, Lender may, without notice to the
Debtor, declare all or any of the Obligations immediately due and payable.
9. Rights and Remedies on Default.
(a) Code Rights. Upon the occurrence of an event of default, Lender
shall have all rights and remedies provided by law, including but not limited to
those provided in the Uniform Commercial Code with respect to the Collateral.
(b) Right to Possession. Upon the occurrence of an event of default
lender shall have the right to take possession of the Collateral.
(c) Right to Sell. Upon the occurrence of an event of default lender
shall have the right to sell, assign, deliver, encumber or otherwise dispose of
any of the Collateral.
(d) Notice of Sale. Lender shall give Debtor notice of the time and
place of the public sale of the Collateral or of the time after which any
private sales or other intended disposition is to be made by sending a notice of
such sale to Debtor by regular mail at least ten (10) days before the sale or
disposition, which Debtor agrees shall be reasonable notice.
(e) Charges. In the event that Collateral is sold or otherwise disposed
of, the resale price or return shall be applied in the first instance to the
reasonable expenses retaking, holding, preparing for sale or lease, selling,
leasing and the like.
(f) Attorney's Fees. The proceeds of the disposition may be applied in
the first instance to Lender's attorney's fees and legal expenses.
(g) Attorney in Fact. Debtor appoints Lender the attorney in fact of
Debtor for the purpose of carrying out the provisions of this Note and Security
Agreement and taking any action and executing any instrument which the Lender
may deem necessary or advisable the accomplish the purposes hereof, which
appointment as attorney-in-fact is irrevocable and coupled with an interest.
Where allowed by law, Lender shall have the right to execute and file any
financing statements on behalf of Debtor to protect its interest in Collateral.
Lender shall also have the right to endorse the name of Debtor on any checks,
notes or any other instruments for the payment of money, to deposit the same in
bank accounts, in either Lender's own name or in the name of Debtor to
institute, prosecute, settle or compromise any summary or legal
<PAGE>
proceedings for the recovery of any of the gross receipts from the operation of
the Equipment and to initiate, prosecute, settle or compromise any other
proceedings for the protection of the Equipment, for the recovery of any damages
done to the Equipment or to defend any legal proceedings brought against Debtor
arising out of the operation of the Equipment. Lender, as Debtor's
attorney-in-fact, shall also have the right to make claim for, receive payment
or endorse all documents, checks or drafts for loss or damage or return premium
under insurance polices issued on collateral.
Debtor shall indemnify and hold Lender harmless from any loss, claim of
damage to persons or property arising out of Debtors use, possession or storage
of the Equipment.
10. Reimbursement of Fees. In the event Lender is a party to any
litigation affecting the security or the lien of its security interest in the
Collateral, including any suit by Lender to close its security interest in the
Collateral or any suit in which Lender may be named a party defendant in which
it is obligated to protect its right or lien, including bankruptcy proceedings,
Lender may incur expenses and advance payments for lien searches, costs,
expenses and reasonable attorney's fees, which amount shall be deemed additional
Obligations secured by the Collateral.
11. Miscellaneous.
(a) All rights and remedies of Lender inure to the benefit of its
successors, assigns, representatives, receivers and trustees.
(b) In the event any provision of this Note and Security Agreement
shall be found to be unenforceable in any legal proceeding, the remaining
provisions shall remain in force and effect.
(c) Prior to Funding this Note, Debtor shall deliver to Lender all
documents required by this Note and Security Agreement in a form satisfactory to
Lender.
(d) This Note and Security Agreement becomes effective when signed and
delivered to Lender.
(e) Debtor acknowledges receipt of a copy of this Note and Security
Agreement.
(f) This Note and Security Agreement is and shall be deemed to be
binding upon and shall inure to the benefit of the successors and assigns of
Lender and Debtor, provided however, Debtor may not assign any of its rights or
delegate any of its obligations hereunder without the prior written consent of
Lender. This Note and Security Agreement may be assigned by Lender without
notice to Debtor and the Guarantors, in which event the assignee shall be
entitled to exercise all rights and powers but not be chargeable with any
obligations or liabilities of Lender hereunder. Assignee may also grant a
security interest in the Collateral and this Note and Security Agreement. The
Assignee's rights or the rights of the Holder of a security interest in this
Note and Security Agreement shall be free from all defenses, set offs and
counterclaims which Debtor may be entitled to assert.
(g) This Note and Security Agreement is and shall be deemed to be
contract entered into and made pursuant to the laws of the State of Iowa and
shall in all respects be governed, construed, applied, and enforced in
accordance with the laws of said state and any action to enforce, construe,
invalidate or modify this Agreement shall be brought in a court of competent
jurisdiction in Linn County, Iowa. Debtor waive the right to demand a trial by
jury in any action hereunder.
<PAGE>
(h) Any demand or notice required or permitted to be given shall be
deemed effective when deposited in the United States mail addressed to the party
at the address shown or to such other address as may be provided in writing
prior to the giving of such notice by the party to be notified.
(i) This Note and Security Agreement constitutes the entire agreement
among the parties hereto and may not be changed or canceled orally, but only in
writing, signed by the party to be charged.
(j) Debtor agrees to deliver to Lender its successors and assigns, upon
request of Lender such certificates, acknowledgment, consents, opinions of
counsel and any other instruments, all in form and substance satisfactory to
Lender, which Lender may, in its sole discretion, determine to be necessary or
proper to confirm any or all of the representations and agreements made by
Debtor hereunder or to facilitate the assignment by Lender of its right, title
and interest in and to the Collateral and this Note and Security Agreement.
12. Guarantors. Lender has required the participation of the Guarantors
as a precondition to making the loan evidenced by this Note and Security
Agreement. The Guarantors by their execution of this Note and Security Agreement
acknowledge that the obligations of Debtor to Lender are enforceable in
accordance with their terms, that such obligations of Debtor to Lender
constitute guaranteed obligations of the Guarantors under the personal
guarantees executed by the Guarantors this same date and that the guarantees are
in full force and effect, without amendment or defense of any description.
BERTHEL FISHER LEASING, INC. HLM DESIGN, INC.
By: By: /s/ Vernon B. Brannon
--------------------------- -----------------------------
Title: Title: Senior Vice President
------------------------ ----------------------------
GUARANTORS
Hansen Lind Meyer, Inc.
By: /s/ Vernon B. Brannon
-----------------------------
Its: Senior Vice President
-----------------------------
/s/ Joseph Harris
-----------------------------
Joseph Harris, personally
/s/ Vernon B. Brannon
-----------------------------
Vernon Brannon, personally
-----------------------------
William Blalock, personally
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, Inc. Date:____________
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: HLM Design, Inc. OBLIGER
121 West Trade Street
Charlotte, NC 18102
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security agreement dated September 10, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereafter owning by Obligor to you under such Note and
Security Agreement and agree to indemnify you against any losses you may sustain
and expenses you may incur as a result of any wrongful act of Obligor in
connection therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, that obligations hereunder shall
not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you; amendments
extensions, modifications, renewals or waivers of default as to any
existing or future agreements or obligations of Obligor or third
parties with or to you, extensions of credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of Obligor,
the Undersigned or any other parties, or exchanges, releases or sales
of any security of Obligor, the Undersigned or any other parties;
(c) fictitious, incorrectness, invalidity or unenforceability, for any
reason, of any instrument, or acts of commission or omission by you or
Obligor;
(d) compositions, extensions, moraloria or other relief granted to
Obligor pursuant to any statute presently in force or hereafter
enacted, or
(e) interruption in the business rotations between you and Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and other matters of which
the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
indemnity shall not effect the liability hereunder of any signer hereof. The
death or release from liability hereunder of any of the Undersigned shall not
relieve the others from liability hereunder. Each of the Undersigned may
terminate any obligations hereunder as to any future obligations, as relates to
the Undersigned only, by giving notice
<PAGE>
to you of termination by certified mail at the address sated above, at least 30
days prior to the effective date of such termination (hereinafter "Termination
Date"). Such termination will have no effect on any previous or present
obligations which are covered by this guaranty before the Termination Date. Such
termination will have no effect on the future obligations of any of the other
Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obliger's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed the Guaranty
or caused same to be executed by the proper corporate officers.
- -------------------------- HANSEN LIND MEYER INC.
Witness
/s/ Shirley J. Linn /s/ Vernon B. Brannon
- --------------------------- -----------------------------
Witness Senior Vice President
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, Inc. Date:____________
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: Vernon Brannon, Guarantor
HLM Design, Inc., Obligor
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security agreement dated September 10, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereafter owing by Obligor to you under such Note and Security
Agreement and agree to indemnify you against any losses you may sustain and
expenses you may incur as a result of any wrongful act of Obligor in connection
therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, that obligations hereunder shall
not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you; amendments
extensions, modifications, renewals or waivers of default as to any
existing or future agreements or obligations of Obligor or third
parties with or to you, extensions of credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of Obligor,
the Undersigned or any other parties, or exchanges, releases or sales
of any security of Obligor, the Undersigned or any other parties;
(c) fictitious, incorrectness, invalidity or unenforceability, for any
reason, of any instrument, or acts of commission or omission by you or
Obligor;
(d) compositions, extensions, moraloria or other relief granted to
Obligor pursuant to any statute presently in force or hereafter
enacted, or
(e) interruption in the business rotations between you and Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and other matters of which
the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
indemnity shall not effect the liability hereunder of any signer hereof. The
death or release from liability hereunder of any of the Undersigned shall not
relieve the others from liability hereunder. Each of the
<PAGE>
Undersigned may terminate any obligations hereunder as to any future
obligations, as relates to the Undersigned only, by giving notice to you of
termination by certified mail at the address sated above, at least 30 days prior
to the effective date of such termination (hereinafter "Termination Date"). Such
termination will have no effect on any previous or present obligations which are
covered by this guaranty before the Termination Date. Such termination will have
no effect on the future obligations of any of the other Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obliger's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed the Guaranty
or caused same to be executed by the proper corporate officers.
- --------------------------- -------------------------------
Witness
/s/ Shirley J. Linn /s/ Vernon B. Brannon
- --------------------------- -------------------------------
Witness Vernon B. Brannon
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, inc. Date:____________
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: William Blalock, Guarantor
HLM Design, Inc., Obligor
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security agreement dated September 10, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereafterowingn by Obligor to you under such Note and Security
Agreement and agree to indemnify you against any losses you may sustain and
expenses you may incur as a result of any wrongful act of Obligor in connection
therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, that obligations hereunder shall
not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you; amendments
extensions, modifications, renewals or waivers of default as to any
existing or future agreements or obligations of Obligor or third
parties with or to you, extensions of credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of Obligor,
the Undersigned or any other parties, or exchanges, releases or sales
of any security of Obligor, the Undersigned or any other parties;
(c) fictitious, incorrectness, invalidity or unenforceability, for any
reason, of any instrument, or acts of commission or omission by you or
Obligor;
(d) compositions, extensions, moraloria or other relief granted to
Obligor pursuant to any statute presently in force or hereafter
enacted, or
(e) interruption in the business rotations between you and Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and other matters of which
the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
indemnity shall not effect the liability hereunder of any signer hereof. The
death or release from liability hereunder of any of the Undersigned shall not
relieve the others from liability hereunder. Each of the
<PAGE>
Undersigned may terminate any obligations hereunder as to any future
obligations, as relates to the Undersigned only, by giving notice to you of
termination by certified mail at the address sated above, at least 30 days prior
to the effective date of such termination (hereinafter "Termination Date"). Such
termination will have no effect on any previous or present obligations which are
covered by this guaranty before the Termination Date. Such termination will have
no effect on the future obligations of any of the other Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obliger's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed the Guaranty
or caused same to be executed by the proper corporate officers.
- --------------------------- -------------------------------
Witness
/s/ Shirley J. Linn
- --------------------------- -------------------------------
Witness William Blalock
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, inc. Date:____________
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: Joseph Harris, Guarantor
HLM Design, Inc., Obligor
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security agreement dated September 10, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereafter owning by Obligor to you under such Note and
Security Agreement and agree to indemnify you against any losses you may sustain
and expenses you may incur as a result of any wrongful act of Obligor in
connection therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, that obligations hereunder shall
not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you; amendments
extensions, modifications, renewals or waivers of default as to any
existing or future agreements or obligations of Obligor or third
parties with or to you, extensions of credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of Obligor,
the Undersigned or any other parties, or exchanges, releases or sales
of any security of Obligor, the Undersigned or any other parties;
(c) fictitious, incorrectness, invalidity or unenforceability, for any
reason, of any instrument, or acts of commission or omission by you or
Obligor;
(d) compositions, extensions, moraloria or other relief granted to
Obligor pursuant to any statute presently in force or hereafter
enacted, or
(e) interruption in the business rotations between you and Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and other matters of which
the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
indemnity shall not effect the liability hereunder of any signer hereof. The
death or release from liability hereunder of any of the Undersigned shall not
relieve the others from liability hereunder. Each of the
<PAGE>
Undersigned may terminate any obligations hereunder as to any future
obligations, as relates to the Undersigned only, by giving notice to you of
termination by certified mail at the address sated above, at least 30 days prior
to the effective date of such termination (hereinafter "Termination Date"). Such
termination will have no effect on any previous or present obligations which are
covered by this guaranty before the Termination Date. Such termination will have
no effect on the future obligations of any of the other Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obliger's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed the Guaranty
or caused same to be executed by the proper corporate officers.
- --------------------------- -------------------------------
Witness
/s/ Shirley J. Linn /s/ Joseph Harris
- --------------------------- -------------------------------
Witness Joseph Harris
<PAGE>
AMENDMENT TO NOTE AND SECURITY AGREEMENT
#079-21815-001
Berthel Fisher & Company Leasing, Inc., (Lender) having executed and delivered a
certain Note and Security Agreement dated 9-10-97, in the amount of Five Hundred
Thousand Dollars ($500,000.00), to HLM Design, Inc. (Debtor).
It is now mutually covenanted and agreed by Lender and Debtor of said
Note and Security Agreement, that the ENDING DATE of said Note and Security
Agreement shall be amended to read as follows:
All accrued interest and principal shall be due and payable on July 1, 1998.
Other than the above amendment, all other provisions of the Note and Security
Agreement shall remain unchanged.
This agreement shall be fining upon the Lender and Debtor, their
successors, administrators, executors and assigns.
Dated: 4-27-98
Debtor: HLM Design, Inc.
/s/ Vernon B. Brannon
Accepted:
By:/s/ Nancy L. Lowenberg VP & COO
Date: 4-30-98
Lender: Berthel Fisher & Company Leasing, Inc.
<PAGE>
NOTE AND SECURITY AGREEMENT
[Corporate Debtor with Individual Guarantors]
Note #063-21815-001
$250,000.00 Date: September 16, 1997
This Note and Security Agreement is entered into by and among HLM
Design, Inc. a Delaware corporation, ("Debtor"), Hansen Lind Meyer, Inc., and
Joseph M. Harris and Vernon B. Brannon and William J. Blalock (each individually
a "Guarantor" and collectively the "Guarantors"), and Berthel Fisher & Company
Leasing, Inc., an Iowa corporation, 100 Second Street SE, Cedar Rapids, lowa
("Lender").
RECITALS
A. Debtor has requested that Lender provide Debtor with a working
capital loan.
B. The Guarantors each have an affiliated relationship or directly, or
indirectly own stock of the debtor.
C. Debtor and the Guarantors each individually perceive substantial
business advantage from the transactions contemplated by this Note and Security
Agreement.
D. Lender has, as a condition to making the Loan to Debtor required
that Debtor and the Guarantors each participate and that the parties execute and
deliver this Note and Security Agreement.
E. Lender has, as a condition to making the loan to Debtor required the
Debtor to execute a common stock purchase warrant and a Registration Rights
Agreement, as evidenced by Exhibit C, and Exhibit D, respectively, both of which
are attached hereto and made a part hereof.
The parties agree:
1. Definitions.
"Collateral" means all of Debtor'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 as defined hereinbelow) including insurance
proceeds, and including but not limited to all Debtors 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 Debtor enters into with various architectural and engineering
firms, including without limitation, those certain management and services
agreements identified on Schedule I to Exhibit B attached hereto and
incorporated by reference, together with all renewals, modifications, amendments
and extensions thereof, and all existing and hereafter arising accounts and/or
rights to receive payments associated therewith, and any and all proceeds from
any of the foregoing (the foregoing collectively referred to herein as the
"Collateral").
"Obligations" shall mean (a) the unpaid principal amount of, and
accrued interest on, the loan to Debtor evidenced by this Note and Security
Agreement and (b) all other indebtedness, obligations, and
<PAGE>
liabilities of Debtor to Lender, now existing or hereafter incurred under,
arising out of, or in connection with this Note and Security Agreement, whether
for principal interest, fees, expenses or otherwise.
2. Payments. Debtor promises to pay to the order of Lender or its
assignee, monthly payments of interest at the rate of twelve percent (12%) per
annum on the unpaid balance remaining from time to time unpaid based upon a 360
day year. All accrued interest and principal shall be due and payable on May 1,
1998.
Debtor acknowledges and agrees that (i) all costs, expenses and
liabilities in connection with its operations shall be borne by Debtor, (ii)
Debtor's obligation to pay Lender all amounts due is absolute and unconditional,
and (iii) Debtor shall not be entitled to any abatement, reduction, set-off, or
counterclaim.
All payments called for under this Note and Security Agreement to be
made to Lender shall be made as designated by Lender or Lender's assignee.
Each such payment shall be applied first to interest due on the unpaid
principal and the remainder in reduction of the principal.
It is agreed that in no event and under no circumstances shall any
amount paid by the Debtor to Lender exceed the highest lawful rate permissible,
under applicable law. If in any circumstances whatsoever, it is determined that
performance under this Note and Security Agreement shall result in payment of
interest in excess of that allowed by applicable law, then such excess interest
collected shall not be applied to the payment of interest and interest shall be
at the highest rate allowed by applicable law.
In the event of default and acceleration or in the event Debtor prepays
the Obligations, the amount due upon payment after default or upon prepayment is
all unpaid interest plus the principle not yet paid.
3. Security Interest. Debtor grants to Lender a security interest in
the following described collateral (collectively the "Collateral") to secure the
Obligations.
(a) All Collateral as follows:
"Collateral" means all of Debtors 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 as defined hereinbelow) including insurance
proceeds, and including but not limited to all of Debtor's presently existing
and hereafter arising contract rights arising from, or related or incidental to,
management and service agreements (and all amendments and modifications thereof)
which Debtor enters into with various architectural and engineering firms,
together with all renewals, modifications, amendments and extensions thereof,
and all existing and hereafter arising accounts and/or rights to receive
payments associated therewith, and any and all proceeds from any of the
foregoing (the foregoing collectively referred to herein as the "Collateral")
2
<PAGE>
(b) The proceeds of all insurance polices covering the
Collateral and all proceeds of the Collateral.
4. Expenses. Debtor, upon demand, shall pay to Lender all expenses,
including, but not limited to' reasonable attorney's fees and legal expenses
incurred by Lender in seeking to collect the Obligations or to defend or enforce
any of Lender's rights in the Collateral. Such amounts shall be an Obligation
under this Note and Security Agreement and if not paid on demand shall bear
interest at a default rate of 1 1/2 times the rate specified in paragraph 2.
5. Representations, Warranties and Covenants. Debtor and Guarantors
represent, warrant and agree (which shall survive until the Obligations are paid
in full):
(a) Corporate Authority. Debtor is duly organized and existing
under the laws of the state of Its incorporation, is qualified and in good
standing in all states in which it is doing business, and the execution and
performance of this Note and Security Agreement are within the corporate powers,
have been duly authorized and are not in contravention of any law or Debtor's
charter or any agreement or undertaking of which Debtor is party or by which it
is bound.
(b) Title to Collateral. Debtor is the owner of the Collateral
free and clear of any and all adverse liens, security interest, except Pacific
Capital, L.P. and Equitas, L.P., claims, encumbrances and the like and has full
authority to use same as Collateral. Debtor will defend the Collateral against
all other persons who, at any time, may claim an interest in it.
(c) Outstanding Security Interests. Debtor warrants that there
are no outstanding security interests except Pacific Capital, L.P. and Equitas,
L.P., in the Collateral.
(d) Negative Pledge. Except for the security interests created
hereunder, Debtor agrees that during the term of this Note and Security
Agreement and as long as any Obligations are outstanding, Debtor will not grant
a security interest in the Collateral to any other person.
(e) Adverse Lien. During the term of this Agreement, Debtor
will keep the Collateral free from any and all adverse liens or encumbrances.
(f) Sale of Collateral Debtor will not sell, offer for sale,
transfer or dispose of the Collateral or any interest in the Collateral without
the prior written consent of Lender or Lender's assignee.
(g) Unlawful Uses of Collateral. Debtor will not use or permit
any person to use the Collateral in a manner prohibited by law, in violation of
any insurance policy or in any manner inconsistent with Lender's security
interest.
(h) Care of Collateral. Debtor agrees to maintain the
Collateral in good order and repair at all times and will not waste or destroy
the Collateral or any part of it. Debtor shall make no material alterations in
the Equipment without the prior written consent of Lender or Lender's assignee.
(i) Taxes. If Debtor fails to pay any tax or assessment
relating to the Collateral as required when due, Lender may, at its option, pay
or discharge same, although it is not required to do
3
<PAGE>
so. Any payments made by Lender under this Section shall become the Obligation
of Debtor and shall be secured by the Collateral.
(j) Insurance. Debtor shall either (i) procure insurance
insuring the Collateral against loss through theft, fire or casualty or (ii) may
be self-insured, if approved in advance by Lender. If insured, any insurance
policy shall name Lender as Loss Payee under the property damage provisions and
Additional Named Insured under the liability provisions where applicable and
provide evidence of insurance to the Lender and be satisfactory to Lender as to
the terms and duration and contain a term to the effect that notice of
termination will be sent to Lender at least thirty (30) days prior to any
contemplated termination and be delivered to Lender. Debtor at any time adds
insurance covering the Collateral or changes policies, Debtor agrees that the
new policies will comply with the terms of this paragraph.
(k) Reports. Debtor shall provide Lender at its address all
quarterly reports of Debtor's financial condition and annual financial reports
audited by an independent certified public accountant or more frequently as
requested.
(l) Use of Equipment. Debtor will comply with all laws,
regulations' and ordinances, and all applicable requirements of the manufacturer
of the Equipment, applicable to the physical possession, operation, condition,
use and maintenance of the Equipment. Debtor agrees to obtain all permits and
licenses necessary for the operation of the Equipment.
(m) Corporate Changes. Debtor will not enter into any merger
or consolidation or effect any reorganization or recapitalization without the
prior written consent of Lender.
6. Financing Statements. Debtor agrees to execute one or more financing
statements in a form satisfactory to Lender who is authorized to file a
financing statement in any location deemed necessary or advisable to perfect
Lender's security interest in the Collateral. Debtor expressly agrees to sign
such financing statements on request of Lender. Debtor also agrees to cooperate
fully with Lender in executing additional financing statements, amendments to
financing statements and the like as may be deemed necessary or advisable by
Lender in order to maintain and continue Lender's security interest in the
Collateral.
7. Default. It is agreed that the following events shall constitute a
default under this Note and Security Agreement:
(a) Nonpayment. Any failure of Debtor to pay when due, after
10 days written notice from Lender, any Obligations secured by this Note and
Security Agreement shall constitute a default. This includes, but is not limited
to, any failure to pay principal or interest when due, failure to pay taxes,
failure to pay insurance and failure to pay delinquent charges.
(b) Nonperformance. Any failure of Debtor to perform or
observe fully and in any satisfactory manner the material terms of any
Obligations secured by this Note and Security Agreement shall constitute a
default.
(c) Warranties and Representations that Prove False. Any
warranty or representation made to Lender in order to induce the making of the
Loan to Debtor whether made by Debtor, or others
4
<PAGE>
on behalf of Debtor, including agents, employees, sureties, guarantors,
co-signors and the like, and whether such representations are contained in this
agreement or in related materials, such as financial statements, loan
applications, supporting documentation and guarantees, or in any financial
instrument, such as a promissory note, except in conjunction with this Note and
Security Agreement, if incorrect in any material respect shall operate as a
default under this Note and Security Agreement.
(d) Levy and Attachments. Seizure, attachment or levy on any
property of Debtor whether or not such property is the subject of the security
interest created by this Note and Security Agreement, shall operate as a default
under this Note and Security Agreement.
(e) Insolvency and the Like. It shall operate as a default
under this Note and Security Agreement if for any reason Debtor becomes
insolvent or Debtor becomes subject to any proceeding under the bankruptcy or
insolvency laws, including an assignment for the benefit of creditors or Debtor
has its property placed under the custody of a receiver or trustee.
(f) Alteration of Debtor's Operating Conditions. Without
Lender's written permission, dissolution or other termination of the existence
of Debtor or any forfeiture of its right to do business, as well as any merger,
consolidation or the like with another, shall constitute a default under this
Note and Security Agreement.
(g) Loss or Destruction of Collateral. The theft, loss,
destruction, substantial damage to or alteration of the Collateral, whether in
whole or in part, shall constitute a default under this Note and Security
Agreement.
(h) Unauthorized Use of Collateral or Proceeds. The sale,
transfer or use of the Collateral or its proceeds except as authorized in this
Note and Security Agreement shall be a default under this Note and Security
Agreement.
8. Acceleration. Upon the occurrence of an event of default or at any
other time Lender may deem itself insecure, Lender may, without notice to the
Debtor, declare all or any of the Obligations immediately due and payable.
9. Rights and Remedies on Default.
(a) Code Rights. Upon the occurrence of an event of default,
Lender shall have all rights and remedies provided by law, including but not
limited to those provided in the Uniform Commercial Code with respect to the
Collateral.
(b) Right to Possession. Upon the occurrence of an event of
default lender shall have the right to take possession of the Collateral.
(c) Right to Sell. Upon the occurrence of an event of default
lender shall have the right to sell, assign, deliver, encumber or otherwise
dispose of any of the Collateral.
(d) Notice of Sale. Lender shall give Debtor notice of the
time and place of the public sale of the Collateral or of the time after which
any private sale or other intended disposition is to be
5
<PAGE>
made by sending a notice of such sale to Debtor by regular mail at least ten
(10) days before the sale or disposition, which Debtor agrees shall be
reasonable notice.
(e) Charges. In the event that Collateral is sold or otherwise
disposed of, the resale price or return shall be applied in the first instance
to the reasonable expenses retaking, holding, preparing for sale or lease,
selling, leasing and the like.
(f) Attorney's Fees. The proceeds of tho disposition may be
applied in the first instance to Lender's attorney's's fees and legal expenses.
(g) Attorney in Fact. Debtor appoints Lender the attorney's in
fact of Debtor for the purpose of carrying out the provisions of this Note and
Security Agreement and taking any action and executing any instrument which the
Lender may deem necessary or advisable the accomplish the purposes hereof, which
appointment as attorney-in-fact is irrevocable and coupled with an interest.
Where allowed by law, Lender shall have the right to execute and file any
financing statements on behalf of Debtor to protect its interest in Collateral.
Lender shall also have the right to endorse the name of Debtor on any checks,
notes or any other instruments for the payment of money, to deposit the same in
bank accounts, in either Lender's own name or in the name of Debtor to
institute, prosecute, settle or compromise any summary or legal proceedings for
the recovery of any of the gross receipts from the operation of the Equipment
and to initiate, prosecute, settle or compromise any other proceedings for the
protection of the Equipment, for the recovery of any damages done to the
Equipment or to defend any legal proceedings brought against Debtor arising out
of the operation of the Equipment. Lender, as Debtors attorney-in-fact, shall
also have the right to make claim for, receive payment or endorse all documents,
checks or drafts for loss or damage or return premium under insurance policies
issued on collateral.
Debtor shall indemnify and hold Lender harmless from any loss, claim of
damage to persons or property arising out of Debtors use, possession or storage
of the Equipment.
10. Reimbursement of Fees. In the event Lender is a party to any
litigation affecting the security or the lien of its security interest in the
Collateral including any suit by Lender to close its security interest in the
Collateral or any suit in which Lender may be named a party defendant in which
it is obligated to protect its right or lien, including bankruptcy proceedings,
Lender may incur expenses and advance payments for lien searches, costs,
expenses and reasonable attorneys fees, which amount shall be deemed additional
Obligations secured by the Collateral.
11. Miscellaneous.
(a) All rights and remedies of Lender inure to the benefit of
its successors, assigns, representatives, receivers and trustees.
(b) In the event any provision of this Note and Security
Agreement shall be found to be unenforceable in any legal proceeding, the
remaining provisions shall remain in force and effect.
(c) Prior to Funding this Note, Debtor shall deliver to Lender
all documents required by this Note and Security Agreement in a form
satisfactory to Lender.
6
<PAGE>
(d) This Note and Security Agreement becomes effective when
signed and delivered to Lender.
(e) Debtor acknowledges receipt of a copy of this Note and
Security Agreement.
(f) This Note and Security Agreement is and shall be deemed to
be binding upon and shall inure to the benefit of the successors and assigns of
Lender and Debtor, provided however, Debtor may not assign any of its rights or
delegate any of its obligations hereunder without the prior written consent of
Lender. This Note and Security Agreement may be assigned by Lender without
notice to Debtor and the Guarantors, in which event the assignee shall be
entitled to exercise all rights and powers but not be chargeable with any
obligations or liabilities of Lender hereunder. Assignee may also grant a
security interest in the Collateral and this Note and Security Agreement. The
Assignee's rights or the rights of the Holder of a security interest in this
Note and Security Agreement shall be free from all defenses, set offs and
counterclaims which Debtor may be entitled to assert.
(g) This Note and Security Agreement is and shall be deemed to
be contract entered into and made pursuant to the laws of the State of Iowa and
shall in all respects be governed, construed, applied, and enforced in
accordance with the laws of said state and any action to enforce, construe,
invalidate or modify this Agreement shall be brought in a court of competent
jurisdiction in Linn County, lowa. Debtor waive the right to demand a trial by
jury in any action hereunder.
(h) Any demand or notice required or permitted to be given
shall be deemed effective when deposited in the United States mail addressed to
the party at the address shown or to such other address as may be provided in
writing prior to the giving of such notice by the party to be notified.
(i) This Note and Security Agreement constitutes the entire
agreement among the parties hereto and may not be changed or canceled orally,
but only in writing, signed by the party to be charged.
(j) Debtor agrees to deliver to Lender its successors and
assigns, upon request of Lender, such certificates, acknowledgment, consents,
opinions of counsel and any other instruments, all in form and substance
satisfactory to Lender, which Lender may, in its sole discretion, determine to
be necessary or proper to confirm any or all of the representations and
agreements made by Debtor hereunder or to facilitate the assignment by Lender of
its right, title and interest in and to the Collateral and this Note and
Security Agreement.
12. Guarantors. Lender has required the participation of the Guarantors
as a precondition to making the loan evidenced by this Note and Security
Agreement. The Guarantors by their execution of this Note and Security Agreement
acknowledge that the obligations of Debtor to Lender are enforceable in
accordance with their terms, that such obligations of Debtor to Lender
constitute guaranteed obligations of the Guarantors under the personal
guarantees executed by the Guarantors this same date and that the guarantees are
in full force and effect, without amendment or defense of any description.
7
<PAGE>
BERTHEL FISHER LEASING, INC. HLM DESIGN, INC.
By: By: /s/ Joseph Harris
------------------------------- ---------------------
Title: Title: President
------------------------------- ---------------------
GUARANTORS
Hansen Lind Meyer, Inc.
By: /s/ Joseph Harris
------------------------------
Its: President
------------------------------
/s/ Joseph Harris
-------------------------------------
Joseph Harris, personally
-------------------------------------
Vernon Brannon, personally
-------------------------------------
William Blalock, personally
8
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, Inc. DATE:
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: William Blalock, Guarantor
HLM Design, Inc., Obligor
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security Agreement dated September 16, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereinafter owing by Obligor to you under such Note and
Security Agreement, and agree to indemnify you against any losses you may
sustain and expenses you may incur as a result of any wrongful act of Obligor in
connection therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, their obligations hereunder
shall not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you;
amendments, extensions, modifications, renewals or waivers of
default as to any existing or future agreements or obligations
of Obligor or third parties with or to you, or extensions of
credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of
Obligor, the Undersigned or any other parties, or exchanges,
releases or sales of any security of Obligor, the Undersigned
or any other parties;
(c) fictitiousness, incorrectness, invalidity or unenforceability,
for any reason, of any instrument, or acts of commission or
omission by you or Obligor;
(d) compositions, extensions, moratoria or other relief granted to
Obligor pursuant to any statute presently in force or
hereafter enacted, or
(e) interruptions in the business relations between you and
Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and all other matters of
which the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
indemnity shall not affect the liability hereunder of any signer hereof. The
death or release from liability hereunder
<PAGE>
of any of the Undersigned shall not relieve the others from liability hereunder.
Each of the Undersigned may terminate any obligations hereunder, as to any
future obligations, as relates to the Undersigned only, by giving notice to you
of termination by certified mail at the address stated above, at least 30 days
prior to the effective date of such termination (hereinafter "Termination
Date"). Such termination will have no effect on any previous or present
obligations which are covered by this guaranty before the Termination Date. Such
termination will have no effect on the future obligations of any of the other
Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obligor's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed this
Guaranty or caused same to be executed by its proper corporate officers.
- --------------------------- -----------------------------------
Witness
/s/ Shirley J. Linn
- --------------------------- -----------------------------------
Witness William Blalock
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, Inc. DATE:
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: HLM Design, Inc., Obligor
121 West Trade Street
Charlotte, NC 28202
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security Agreement dated September 16, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereinafter owing by Obligor to you, and agree to indemnify
you against any losses you may sustain and expenses you may incur as a result of
any wrongful act of Obligor in connection therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, their obligations hereunder
shall not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you;
amendments, extensions, modifications, renewals or waivers of
default as to any existing or future agreements or obligations
of Obligor or third parties with or to you, or extensions of
credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of
Obligor, the Undersigned or any other parties, or exchanges,
releases or sales of any security of Obligor, the Undersigned
or any other parties;
(c) fictitiousness, incorrectness, invalidity or unenforceability,
for any reason, of any instrument, or acts of commission or
omission by you or Obligor;
(d) compositions, extensions, moratoria or other relief granted to
Obligor pursuant to any statute presently in force or
hereafter enacted, or
(e) interruptions in the business relations between you and
Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and all other matters of
which the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
<PAGE>
indemnity shall not affect the liability hereunder of any signer hereof. The
death or release from liability hereunder of any of the Undersigned shall not
relieve the others from liability hereunder. Each of the Undersigned may
terminate any obligations hereunder, as to any future obligations, as relates to
the Undersigned only, by giving notice to you of termination by certified mail
at the address stated above, at least 30 days prior to the effective date of
such termination (hereinafter "Termination Date"). Such termination will have no
effect on any previous or present obligations which are covered by this guaranty
before the Termination Date. Such termination will have no effect on the future
obligations of any of the other Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obligor's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed this
Guaranty or caused same to be executed by its proper corporate officers.
HANSEN LIND MEYER INC.
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Witness
/s/ Shirley J. Linn /s/ Joseph Harris
- --------------------------- -----------------------------------
Witness President
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, Inc. DATE:
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: Joseph Harris, Guarantor
HLM Design, Inc., Obligor
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security Agreement dated September 16, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereinafter owing by Obligor to you under such Note and
Security Agreement, and agree to indemnify you against any losses you may
sustain and expenses you may incur as a result of any wrongful act of Obligor in
connection therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, their obligations hereunder
shall not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you;
amendments, extensions, modifications, renewals or waivers of
default as to any existing or future agreements or obligations
of Obligor or third parties with or to you, or extensions of
credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of
Obligor, the Undersigned or any other parties, or exchanges,
releases or sales of any security of Obligor, the Undersigned
or any other parties;
(c) fictitiousness, incorrectness, invalidity or unenforceability,
for any reason, of any instrument, or acts of commission or
omission by you or Obligor;
(d) compositions, extensions, moratoria or other relief granted to
Obligor pursuant to any statute presently in force or
hereafter enacted, or
(e) interruptions in the business relations between you and
Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and all other matters of
which the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
indemnity shall not affect the liability hereunder of any signer hereof. The
death or release from liability hereunder
<PAGE>
of any of the Undersigned shall not relieve the others from liability hereunder.
Each of the Undersigned may terminate any obligations hereunder, as to any
future obligations, as relates to the Undersigned only, by giving notice to you
of termination by certified mail at the address stated above, at least 30 days
prior to the effective date of such termination (hereinafter "Termination
Date"). Such termination will have no effect on any previous or present
obligations which are covered by this guaranty before the Termination Date. Such
termination will have no effect on the future obligations of any of the other
Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obligor's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed this
Guaranty or caused same to be executed by its proper corporate officers.
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Witness
/s/ Shirley J. Linn /s/ Joseph Harris
- --------------------------- -----------------------------------
Witness Joseph Harris
<PAGE>
GUARANTY
TO: Berthel Fisher & Company Leasing, Inc. DATE:
100 Second Street SE
Cedar Rapids, Iowa 52401
RE: Vernon Brannon, Guarantor
HLM Design, Inc., Obligor
GENTLEMEN:
For valuable consideration, the receipt of which is acknowledged, the
Undersigned jointly and severally unconditionally guarantee to you the full and
prompt performance by the above named Obligor (herein called "Obligor"), of all
obligations currently under Note & Security Agreement dated September 16, 1997
which Obligor presently or hereafter may have to you and payment when due of all
sums presently or hereinafter owing by Obligor to you under such Note and
Security Agreement, and agree to indemnify you against any losses you may
sustain and expenses you may incur as a result of any wrongful act of Obligor in
connection therewith.
For the purposes of this guaranty and indemnity, in connection herewith sums
owing to you by Obligor shall be deemed to have become immediately due and
payable if (a) Obligor defaults in any of its obligations to you; (b) a petition
under any Chapter of the Bankruptcy Act, as amended, or for the appointment of a
receiver of any part of the property of Obligor be filed against Obligor, and
not be dismissed within thirty (30) days; (c) such a petition be filed by
Obligor; (d) Obligor makes a general assignment for the benefit of creditors,
suspends business or commits any act amounting to a business failure, or (e) an
attachment be levied or tax lien be filed against any Obligor's property.
This shall be a continuing guaranty and indemnity and, irrespective of the lack
of any notice to or consent of the Undersigned, their obligations hereunder
shall not be impaired in any manner whatsoever by any:
(a) new agreements or obligations of Obligor with or to you;
amendments, extensions, modifications, renewals or waivers of
default as to any existing or future agreements or obligations
of Obligor or third parties with or to you, or extensions of
credit by you to Obligor;
(b) adjustments, compromises or releases of any obligations of
Obligor, the Undersigned or any other parties, or exchanges,
releases or sales of any security of Obligor, the Undersigned
or any other parties;
(c) fictitiousness, incorrectness, invalidity or unenforceability,
for any reason, of any instrument, or acts of commission or
omission by you or Obligor;
(d) compositions, extensions, moratoria or other relief granted to
Obligor pursuant to any statute presently in force or
hereafter enacted, or
(e) interruptions in the business relations between you and
Obligor.
Notice of your acceptance hereof, or default and non-payment by Obligor or any
other parties, of presentment, protest and demand, and all other matters of
which the Undersigned otherwise might be entitled, is waived.
The obligations hereunder of each of the Undersigned are independent and
several, and shall be binding upon their respective successors, heirs and
personal representatives. The failure of any person to sign this guaranty and
indemnity shall not affect the liability hereunder of any signer hereof. The
death or release from liability hereunder
<PAGE>
of any of the Undersigned shall not relieve the others from liability hereunder.
Each of the Undersigned may terminate any obligations hereunder, as to any
future obligations, as relates to the Undersigned only, by giving notice to you
of termination by certified mail at the address stated above, at least 30 days
prior to the effective date of such termination (hereinafter "Termination
Date"). Such termination will have no effect on any previous or present
obligations which are covered by this guaranty before the Termination Date. Such
termination will have no effect on the future obligations of any of the other
Undersigned.
The Undersigned shall reimburse you, on demand, for all expenses incurred by you
in the enforcement or attempted enforcement of any of your rights hereunder
against any of the Undersigned.
This guaranty and indemnity is assignable, shall be construed liberally in your
favor and shall inure to the benefit of your successors and assigns. If Obligor
should default in the performance of any of Obligor's obligations to you, and if
any third party makes any payments to you with respect thereto, such third party
shall, to the extent thereof, be subrogated to all of your rights against the
Undersigned hereunder. Legal rights and obligations hereunder shall be
determined in accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, each of the Undersigned has personally executed this
Guaranty or caused same to be executed by its proper corporate officers.
- --------------------------- -----------------------------------
Witness
/s/ Shirley J. Linn
- --------------------------- -----------------------------------
Witness Vernon B. Brannon
<PAGE>
AMENDMENT TO NOTE AND SECURITY AGREEMENT
#079-21815-001
Berthel Fisher & Company Leasing, Inc., (Lender) having executed and delivered a
certain Note and Security Agreement dated 10-2-97, in the amount of Two Hundred
Fifty Thousand Dollars ($250,000.00), to HLM Design, Inc. (Debtor).
It is now mutually covenanted and agreed by Lender and Debtor of said
Note and Security Agreement, that the ENDING DATE of said Note and Security
Agreement shall be amended to read as follows:
All accrued interest and principal shall be due and payable on July 1, 1998.
Other than the above amendment, all other provisions of the Note and Security
Agreement shall remain unchanged.
This agreement shall be fining upon the Lender and Debtor, their
successors, administrators, executors and assigns.
Dated: 4-27-98
Debtor: HLM Design, Inc.
/s/ Vernon B. Brannon
Accepted:
By:/s/ Nancy L. Lowenberg VP & COO
Date: 4-30-98
Lender: Berthel Fisher & Company Leasing, Inc.
Exhibit 10.44
INTERCREDITOR AGREEMENT
THIS AGREEMENT is made and entered into as of this 10th day of
September, 1997, by, between and among Berthel Fisher & Company Leasing, Inc.,
an Iowa corporation ("Subordinated Lender") as the subordinate lender, and
Pacific Capital, L.P., a Delaware limited partnership ("Pacific Capital") and
Equitas, L.P., a Delaware limited partnership ("Equitas") as the senior lenders.
Pacific Capital and Equitas together with their respective successors and
assigns are herein collectively referred to as the "Senior Lenders".
RECITALS
A. Senior Lenders have previously entered into a Note Purchase
Agreement dated as of May 30, 1997 among HLM Design, Inc., a Delaware
corporation ("Borrower"), Hansen Lind Meyer Inc., an Iowa corporation as
guarantor (the "Guarantor") and the Senior Lenders (said Note Purchase
Agreement, together with any amendments hereafter made thereto, being referred
to collectively as the "Senior Loan Agreement") pursuant to which the Senior
Lenders agreed to extend certain credit to Borrower as set forth in said Senior
Loan Agreement (the "Senior Loan"). The obligations of Borrower to Senior
Lenders are guaranteed by the Guarantor and the contingent personal guaranties
of Joseph M. Harris and Vernon B. Brannon pursuant to guaranty agreements of
even date therewith.
B. The obligation of Borrower to pay the Senior Loan, with interest
therein, is evidenced by that certain Promissory Note dated May 30, 1997 in the
original principal amount of $1,200,000 made payable to Pacific Capital (the
"Pacific Capital Note"), and that certain Promissory Note dated May 30, 1997 in
the original principal amount of $800,000 made payable to Equitas (the "Equitas
Note") (the Pacific Capital Note and the Equitas Note, together with all
extensions, renewals, modifications and assignments thereof, are hereinafter
collectively referred to as the "Senior Notes" and each individually is referred
to as a "Senior Note").
C. The amounts now or hereafter owed under the Senior Loan Agreement
and the Senior Notes, including without limitation principal, interest (that
accrues before and after any petition under any chapter of the Bankruptcy Code
or any other law affecting creditor's rights), bank fees, reasonable costs of
collection and attorneys fees incurred in connection therewith, and reasonable
amounts expended to preserve, protect, maintain or resell the collateral, are
collectively referred to as the "Senior Debt".
D. The obligations of Borrower to Senior Lenders are secured by liens
on and security interests in the collateral described in the Senior Loan
Agreement (the "Senior Collateral").
E. Subordinated Lender has entered into two Note and Security
Agreements, dated as of September 10, 1997, and September 16, 1997,
respectively, by, between and among Borrower, Subordinated Lender, Guarantor and
the Personal Guarantors (said Note and Security Agreements, together with any
amendments, extensions, modifications or renewals hereinafter
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<PAGE>
made thereto, being referred to herein collectively as the "Subordinated Loan
Agreements" and sometimes as the "Subordinate Notes") pursuant to which
Subordinated Lender has agreed to make two subordinated term loans to Borrower
in the original principal amounts of $500,000 and $250,000, respectively
(collectively, the "Subordinated Loan"). The obligations of Borrower to
Subordinated Lender are guaranteed by the Guarantor and the personal guaranties
of Joseph M. Harris, Vernon B. Brannon, and William J. Blalock (Mr. Harris, Mr.
Brannon and Mr. Blalock being collectively referred to herein as the "Personal
Guarantors").
F. The obligations of Borrower and Guarantor to Subordinated Lender are
secured by certain collateral referenced in the Subordinated Loan Agreements and
the financing statements filed in connection therewith (the "Subordinated
Collateral").
G. Senior Lenders and Subordinated Lender desire to confirm as among
themselves, the rights and priorities with respect to certain matters arising in
connection with the Senior Loan Agreement and the Subordinated Loan Agreements
which are of mutual importance to them, without affecting their respective
rights against Borrower, the Guarantor and the Personal Guarantors under those
agreements and the other agreements, instruments, and other writings executed
and delivered in connection therewith, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Senior Lenders and Subordinated Lender, intending to be legally bound
hereby, agree as follows:
1. Priorities Regarding Collateral. Notwithstanding anything to the
contrary contained in or arising from any note, agreement, instrument or
document now or hereafter executed and delivered by Senior Lenders, Subordinated
Lender, Borrower, Guarantor or any of the Personal Guarantors in connection with
the Senior Loan or the Subordinated Loan, including without limitation the terms
and conditions of any promissory note, security agreement, guaranty agreement or
mortgage executed and delivered by Borrower, Guarantor or any of the Personal
Guarantors to the Senior Lenders or Subordinated Lender, or any instrument or
document executed and delivered in connection therewith, or otherwise, any prior
perfection of a security interest, mortgage, deed of trust, lien, or the
provisions of the Uniform Commercial Code, or other law of any jurisdiction
which is applicable, or the existence of any present or future filing of
financing statements under the Uniform Commercial Code, or other law of any
jurisdiction which is applicable, or other filings or recordings under any other
law of any jurisdiction which is applicable or in which such filing or recording
has been made:
(a) the priorities of the liens and security interests of the
Senior Lenders in the Senior Collateral (including proceeds of casualty and
title insurance) securing the Senior Debt, shall be senior and prior to any
liens and security interests of Subordinated Lender at any time obtained on such
collateral, and the liens and security interests of Subordinated Lender at any
time obtained in such Senior Collateral shall be junior liens and security
interests subject to the liens and security interests of the Senior Lenders.
(b) in the event of any insolvency or bankruptcy proceedings,
and any receivership, liquidation, reorganization, arrangement or other similar
proceedings in connection therewith, relative to Borrower, Guarantor or any
Personal Guarantor, or to their property, and in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of
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Borrower, Guarantor or any Personal Guarantor, whether or not involving
insolvency or bankruptcy, (i) the Senior Lenders shall be entitled to receive
payment in full of the Senior Debt before Subordinated Lender shall be entitled
to receive any payment on the Subordinated Notes, and to that end the Senior
Lenders shall be entitled to receive for application in payment thereof any
payment or distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of the Subordinated Notes and (ii) after all the Senior Debt has been
paid in full, Subordinated Lender shall be entitled to receive full payment on
the Subordinated Notes. Subordinated Lender hereby irrevocably authorizes and
empowers any Senior Lender to file claims in the Senior Lender's own name or
names or naming and claiming through the Subordinated Lender, as may be
necessary or advisable for the enforcement of this agreement in any bankruptcy,
receivership, liquidation, insolvency or winding up of Borrower, Guarantor, or
any Personal Guarantor and to collect and receive any and all payments or
distributions which may be payable or deliverable at any time upon or with
respect to the Subordinated Notes until the Senior Debt has been paid in full.
Senior Lenders will provide Subordinate Lender with copies of any documents
filed naming and claiming through the Subordinated Lender. Subordinated Lender
shall retain the right to vote and otherwise act in any such proceeding,
including without limitation, the right to file claims in its own behalf, and to
vote to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition, or extension.
2. Payments on Subordinated Notes. The indebtedness under the
Subordinated Notes is hereby made subordinate, junior and subject to the prior
payment in full in cash of all Senior Debt in accordance with the terms of this
Agreement. Until the Senior Debt has been paid in full, Borrower, Guarantor and
the Personal Guarantors shall not, directly or indirectly, make any payment of
any kind, of principal, interest or otherwise, on or on account of the
Subordinate Notes, and the Subordinated Lender shall not accept from Borrower,
Guarantor or the Personal Guarantors, any such payment. Notwithstanding the
immediately preceding sentence, any regularly scheduled payment of accrued
interest and/or principal required under the Subordinated Notes as in effect on
the date hereof made by Borrower, Guarantor or any Personal Guarantor to
Subordinated Lender prior to the receipt by Subordinated Lender of a Senior
Default Notice under Paragraph 3, shall be for the benefit and account of
Subordinated Lender ("Permitted Payment"). In connection with the foregoing, no
prepayments of interest and/or principal under the Subordinated Notes shall be
permitted without the prior written consent of the Senior Lenders. Any payment
received by Subordinated Lender which is not a Permitted Payment or if any such
payment is made to Subordinated Lender after receipt of a Senior Default Notice,
such payment(s) shall be held by Subordinated Lender in trust for the benefit of
Senior Lenders and promptly forwarded to Senior Lenders for application to the
Senior Debt. Upon receipt of a notice of waiver or cure under Paragraph 3 by the
Subordinated Lender from the Senior Lenders, Subordinated Lender may retain any
Permitted Payments received after the receipt of the notice of waiver or cure.
3. Senior Default Notice and Payment Blockage. Upon the occurrence and
continuance of any Event of Default (under and as defined in the Senior Loan
Agreement), and upon a declaration of an Event of Default by any one of the
Senior Lenders with written notice specifying the nature thereof (the "Senior
Default Notice") to the Subordinated Lender, then unless and until said Event of
Default shall be cured or waived to the sole satisfaction of the Senior Lenders,
with written notice of such waiver or cure to be given to the Subordinated
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<PAGE>
Lender (i) Senior Lenders shall be entitled to thereafter receive payment in
full of all Senior Debt before Subordinated Lender shall be entitled to receive
any payment on account of principal or interest or otherwise upon the
Subordinated Notes and (ii) after all Senior Debt has been paid in full,
Subordinated Lender shall be entitled to receive full payment on the
Subordinated Notes.
4. Additional Provisions Regarding Collateral and Payments. Under the
terms and conditions of this Agreement:
(a) If Subordinated Lender shall receive any payment or
distribution out of any of the assets of Borrower, Guarantor or any of the
Personal Guarantors, whether or not arising out of or as a result of any event
described in Paragraph 3 of this Agreement, and such payment or distribution is
not in accordance with the provisions of this Agreement, then Subordinated
Lender shall hold such payment or distribution in trust as trustee of an express
trust, for the benefit of the Senior Lenders, shall not commingle such payment
or distribution with its other assets, and shall promptly take all action
necessary to cause such payment or distribution to be allocated or paid in
accordance with this Agreement.
(b) With respect to the collection of any proceeds of any
policy of insurance covering any collateral, or any part thereof, the proceeds
of which are assigned to Senior Lenders and/or Subordinated Lender as additional
collateral to secure the obligations of Borrower, Guarantor and the Personal
Guarantors under the Senior Notes or the Subordinated Notes, the Senior Lenders
and Subordinated Lender shall join in any instructions to the insurance
companies involved so that the proceeds of such insurance shall be payable in
full to Senior Lenders and then, to the extent of any excess, to Subordinated
Lender.
5. Senior Loan Agreement: Default and Acceleration Notices.
(a) When Senior Lenders give Subordinated Lender, as provided
in Paragraph 3 hereof, a Senior Default Notice, Subordinated Lender shall have
the right, but not the obligation, to undertake to cure such an Event of
Default. If Subordinated Lender determines to undertake to cure such Event of
Default, it will so notify Senior Lenders within ten (10) Business Days after
receipt of Senior Lenders' notice or it will be deemed to have waived this
right. Senior Lenders may exercise any and all remedies available to them
consistent with the provisions of this Agreement while Subordinated Lender is
considering whether to cure such Event of Default. If Subordinated Lender elects
to cure such Event of Default, Subordinated Lender must cure within twenty (20)
Business Days of the receipt of such notice such Event of Default as it exists
on the date of cure and not on the date of the Senior Default Notice delivered
to Subordinated Lender; provided, however, Subordinated Lender shall have no
obligation to then cure any other Event of Default not stated in the Senior
Default Notice.
(b) Upon any acceleration of the Senior Debt, a written notice
of acceleration (the "Senior Acceleration Notice") shall be given by the Senior
Lenders to Subordinated Lender within five (5) Business Days (a Business Day for
the purposes of this Agreement being a day which national banks located in
Nashville, Tennessee are open for business) of such acceleration or concurrently
with the giving of notice of acceleration to Borrower, whichever first occurs.
The Senior Lenders shall be entitled to send out Senior Default Notices and
Senior Acceleration Notices simultaneously, and the Subordinated Lender hereby
acknowledges this right.
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<PAGE>
6. Default Under Subordinated Loan Agreement: Standstill Periods.
(a) Subordinated Lender hereby agrees with the Senior Lenders
not to declare an Event of Default, accelerate the Subordinated Notes, or pursue
any remedies available under the Subordinated Loan Agreements or other financing
agreements, if any, related thereto so long as the Senior Debt is outstanding,
except as hereinafter provided. Concurrently with declaring an event of default
and/or accelerating the Subordinated Notes and prior to pursuing any other
remedies, Subordinated Lender shall immediately give Senior Lenders written
notice of the occurrence of a Default under the Subordinated Loan Agreements
specifying the nature of such default. During the "Standstill Period" as defined
below, the Subordinated Lender shall not pursue any remedy available to it
(including without limitation, foreclosing on any collateral) upon the
occurrence of such default, said Standstill Period to begin on the date such
notice is given by Subordinated Lender to Senior Lenders. At the expiration of
said Standstill Period, if the default is still in effect, Subordinated Lender
may exercise such remedies and take such actions as it deems advisable, subject
to the other provisions contained herein. The Standstill Period shall be the
following:
(i) in the case of a voluntary bankruptcy
proceeding instituted by Borrower, Guarantor or any Personal Guarantor or an
involuntary bankruptcy proceeding instituted against Borrower, Guarantor or any
Personal Guarantor that is not dismissed within sixty (60) days of filing, there
shall be not Standstill Period and if a Standstill Period is otherwise in effect
the same shall cease immediately;
(ii) in the case of a default in the payment of
any amount required to be paid under the Subordinated Loan Agreements and the
continuation of such default for ten (10) days, the Standstill Period shall be
one hundred twenty (120) days commencing on the date of Subordinated Lender's
notice to Senior Lenders as provided in this Paragraph 6(a) or the Senior
Default Notice to Subordinated Lender as provided in Paragraph 5 hereof,
whichever first occurs;
(iii) in the case of any other default, the
Standstill Period shall be one hundred twenty (120) days following the
occurrence of such default and Senior Lenders' notice thereof as provided
herein.
(b) Upon the declaration of a default (under and as defined in
the Subordinated Loan Agreements), Subordinated Lender shall immediately give
written notice to the Senior Lenders of such Default specifying the nature
thereof. The Senior Lenders shall have the right, but not the obligation, to
undertake to cure such Default. If the Senior Lenders determine to undertake to
cure such Default, they will notify Subordinated Lender within ten (10) Business
Days after receipt of Subordinated Lender's Notice or they will be deemed to
have waived this right. If Senior Lenders elect to cure such default, Senior
Lenders must cure within twenty (20) Business Days of the receipt of such notice
such default as it exists on the date of cure and not on the date of the notice
of default delivered to Senior Lenders; provided, however, Senior Lenders shall
have no obligation to then cure any other default not stated in the notice of
default.
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7. Subordinated Notes Owed Only to Subordinated Lender. Subordinated
Lender warrants and represents that it has not previously assigned any interest
in the Subordinated Notes and that no party other than Subordinated Lender owns
an interest in the Subordinated Notes. Notwithstanding the foregoing,
Subordinated Lender shall have the right to assign or transfer all or any part
of its interest in the Subordinated Notes or sell or participate all or any part
of the Subordinated Loan; provided, that any assignee of the Subordinated Notes
assumes the obligations of the Subordinated Lender under this Agreement. The
attempted assignment of the Subordinated Notes to a party who does not assume
the obligations hereunder shall be void.
8. Legend on Subordinated Notes. Subordinated Lender agrees that as
long as this Agreement, and/or any amendment, modification, substitution or
replacement thereof, is in effect, the Subordinated Notes shall bear the
following legend:
PURSUANT TO THE TERMS OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED AS OF
SEPTEMBER 10, 1997, BY AND BETWEEN SUBORDINATED LENDER AND SENIOR LENDERS (EACH
AS DEFINED IN THE INTERCREDITOR AGREEMENT), THE PAYMENT OF THIS NOTE IS
SUBORDINATE TO THE PAYMENT OF CLAIMS ON THE PART OF SENIOR LENDERS AGAINST HLM
DESIGN, INC., HANSEN LIND MEYER INC., JOSEPH M. HARRIS, VERNON B. BRANNON AND
WILLIAM J. BLALOCK TO THE EXTENT SET FORTH IN SUCH INTERCREDITOR AGREEMENT.
9. Subordinated Loan Agreement Provisions. The Subordinated Lender
agrees that it will not now or in the future include any provision in any
agreement between the Borrower and Subordinated Lender that requires the consent
of the Subordinated Lender to any renewal, extension, or modification of any
agreement between the Borrower and the Senior Lenders. The Subordinated Lender
further agrees that is shall not amend, modify, renew or extend the Subordinated
Loan Agreements or related transaction documents without the prior consent of
the Senior Lenders.
10. Subordinated Lender's Sale-Leaseback Arrangement with Guarantor.
For purposes of this Agreement, Senior Lenders acknowledge and agree that the
indebtedness of Borrower, Guarantor and the Personal Guarantors arising under
the Subordinated Loan Agreements and related transaction documents does not
include any indebtedness of obligations of Guarantor under that certain
sale-leaseback arrangement between Subordinated Lender and Guarantor pursuant to
that certain Lease Agreement between Subordinated Lender and Guarantor dated May
29, 1997.
11. Miscellaneous.
(a) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
given when actually delivered, if personally delivered, or when mailed, if
mailed by registered or certified mail, return receipt requested, to the
following addresses or to such other address as either party may subsequently
designated in writing:
6
<PAGE>
As to Subordinated Lender:
Berthel Fisher & Company Leasing, Inc.
100 Second Street SE
Cedar Rapids, Iowa 52401
As to Senior Lenders:
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
Attention: Shannon LeRoy
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, Tennessee 37219
Attention: John W. Titus
(b) Governing Law and Jurisdiction. This Agreement shall be
deemed to be a contract under the laws of the State of Tennessee and for all
purposes shall be governed by and construed and enforced in accordance with the
laws of such State.
(c) Prior Understandings. this Agreement supersedes all prior
understandings and agreements, whether written or oral, among the parties
relating to the subject matter hereof.
(d) Successors and Assigns. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
(e) Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement is held invalid or
unenforceable in whole or in part in any jurisdiction such provision will, as to
such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
of such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
(f) Section Headings. The section headings in this Agreement
are for convenience only and do not limit, define or construe the contents of
the sections.
7
<PAGE>
(g) Rights of Third Parties. This Agreement is intended to
establish the relative priorities among Senior Lenders and Subordinated Lender
and shall not be deemed to create any rights or priorities in any other Person,
including, without limitation, Borrower, Guarantor or any Personal Guarantor or
any party claiming by, through or under them.
(h) Liabilities of Parties to One Another. Except as provided
herein for breach of contract, neither Subordinated Lender nor Senior Lenders
shall have any liability to one another except for gross negligence or willful
misconduct.
(i) Amendments and Waivers. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated except by a writing
signed by all of the parties hereto.
(j) Injunctive Relief. Each party hereto acknowledges that the
breach by it of any of the provisions of this Agreement is likely to cause
irreparable damage to the other parties. Therefore, the relief to which any
party shall be entitled in the event of any such breach or threatened breach
shall include, but not be limited to, a mandatory injunction for specific
performance, judicial relief to prevent a violation of any of the provisions of
this Agreement, damages and any other relief to which it may be entitled at law
or in equity.
8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Intercreditor Agreement to be executed by its duly authorized officer on the day
and year first above written.
SENIOR LENDERS:
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
Its: General Partner
By: /s/ Clay R. Caroland
------------------------------------
Title: President
---------------------------------
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.
Its: General Partner
By:
------------------------------------
Title:
---------------------------------
SUBORDINATED LENDER:
BERTHEL FISHER & COMPANY LEASING, INC.
By: /s/ Nancy L. Lowenberg
-----------------------------------------
Title: Vice President & COO
--------------------------------------
9
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Intercreditor Agreement to be executed by its duly authorized officer on the day
and year first above written.
SENIOR LENDERS:
PACIFIC CAPITAL, L.P.
By: Pacific Capital Corporation
Its: General Partner
By: /s/ Illegible Signature
------------------------------------
Title: Vice Chairman
---------------------------------
EQUITAS, L.P.
By: Tennessee Business Investments, Inc.
Its: General Partner
By: /s/ Shannon LeRoy
------------------------------------
Title: President
---------------------------------
SUBORDINATED LENDER:
BERTHEL FISHER & COMPANY LEASING, INC.
By:
-----------------------------------------
Title:
--------------------------------------
10
<PAGE>
JOINDER
Borrower, Guarantor and each of the Personal Guarantors, hereby join in
the execution of this Intercreditor Agreement by and between Berthel Fisher &
Company Leasing, Inc., Pacific Capital, L.P., and Equitas, L.P., for the purpose
of consenting and agreeing to all of the terms and provisions hereof, but this
Intercreditor Agreement shall not create any rights in Borrower, Guarantor or
any of the Personal Guarantors respecting the matters and transactions which are
the subject hereof.
BORROWER:
HLM DESIGN, INC.
BY: /s/ Vernon B. Brannon
-----------------------
TITLE: Sr. Vice President
--------------------
GUARANTOR:
HANSEN LIND MEYER INC.
BY: /s/ Vernon B. Brannon
-----------------------
TITLE: Sr. Vice President
--------------------
PERSONAL GUARANTORS:
/s/ Joseph Harris
---------------------------
Joseph M. Harris
/s/ Vernon B. Brannon
---------------------------
Vernon B. Brannon
/s/ William Blalock
---------------------------
William J. Blalock
11
<TABLE>
<CAPTION>
<S> <C>
COMMERCIAL GUARANTY
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Maturity Loan No Call 004A Collateral 905 Account Officer Initials
Date GRS
- ------------------------------------------------------------------------------------------------------------------------------------
References in shaded area are for the 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
Guarantor: JOSEPH M. HARRIS
2110 BLAKELY SHORES DRIVE
DAVIDSON, NC 28036
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment to the Note, including without
limitation the principal Note amount of One Million & No/100 Dollars
($1,000,000.00).
GUARANTY. For good and valuable consideration, JOSEPH M. HARRIS ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to FIRST CHARTER
NATIONAL BANK ("Lender") or its order, in legal tender of the United States of
America, the Indebtedness (as that term is defined below) of HLM DESIGN INC.
("Borrower") to Lender on the terms and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means HLM DESIGN INC..
Guarantor. The word "Guarantor" means JOSEPH M. HARRIS.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated May 30, 1997.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan lees
and loan charges, and (e) all collection costs and expenses relating to
the Note or to any collateral for the Note. Collection costs and
expenses include without limitation all to Lender's reasonable
attorneys' fees and Lender's legal expenses, whether or not suit is
instituted, and 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.
Lender. The word "Lender" means FIRST CHARTER NATIONAL BANK, its
successors and assigns.
Note. The word "Note" means the promissory note or credit agreement
dated May 30, 1997. In the original principal amount of $1,000,000.00
from Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions
for the promissory note or agreement. Notice to Guarantor: The Note
evidences a revolving line of credit from Lender to Borrower.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds to trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale to any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount to the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights to Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability to Guarantor under the terms to
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason to
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. This Guaranty covers a revolving line of
credit and guarantor understands and agrees that this guarantee shall be open
and continuous until the line of credit is terminated and the Indebtedness is
paid in full, as provided below.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination to any other guaranty to the Indebtedness shall not
affect the liability to Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. This Guaranty covers a revolving line
of credit and it is specifically anticipated that fluctuations will occur in the
aggregate amount of Indebtedness owing from Borrower to Lender. Grantor
specifically acknowledges and agrees that fluctuations in the amount of
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination
of this Guaranty. Guarantor's liability under this Guaranty shall terminate only
upon (a) termination in writing by Borrower and Lender of the line of credit,
(b) payment of the Indebtedness in full in legal tender, and (c) payment in full
in legal tender of all other obligations of Guarantor under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases to the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment to this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fall or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more to Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application to payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms to the controlling security agreement or
deed to trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been and all future financial
information which will be
<PAGE>
provided to Lender is and will be true and correct in all material respects and
fairly present the financial condition of Guarantor as of the dates the
financial information is provided; (g) no material adverse change has occurred
in Guarantor's financial condition since the date of the most recent financial
statements provided to Lender and no event has occurred which may materially
adversely affect Guarantor's financial condition; (h) no litigation, claim,
investigation, administrative proceeding or similar action (including those for
unpaid taxes) against Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and (j)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower, (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness to Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. It payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any simliar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty. In addition
to the waivers set forth above, Guarantor expressly waives, to the extent
permitted by North Carolina law, all of Guarantor's rights under (i) North
Carolina General Statute Section 26-7 to Section 26-9 (1986) to require Lender
to take action, (ii) North Carolina General Statute Section 25-3-606 (1965 and
Supplement 1985) relating to impairment of collateral, and (iii) North Carolina
General Statute Section 25-9-501 (1986) with respect to the "commercial
reasonableness" of any sale of collateral.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights to setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit or whether held
for safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part of
Lender or by any neglect to exercise such right of setoff or to enforce such
security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an instrument
in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Guaranty. No alteration of or amendment to this Guaranty shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of North Carolina. It there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of CABARRUS
County, State of North Carolina. This Guaranty shall be governed by and
construed in accordance with the laws of the State of North Carolina.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of Lender's
costs and expenses, including reasonable attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty. Lender
may pay someone else to help enforce this Guaranty, and Guarantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
reasonable attorneys' fees and legal expenses whether or not there is a lawsuit,
including reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
Notices. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally recognized
overnight courier, or when deposited in the United States mail, first class
postage prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may designate to
the other in writing. If there is more than one Guarantor, notice to any
Guarantor will constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of Guarantor's current
address.
Interpretation. In all cases where there is more than on Borrower or Guarantor,
then all words used in this Guaranty in the singular shall be deemed to have
been used in the plural where the context and construction so require; and where
there is more than one Borrower named in this Guaranty or when this Guaranty is
executed by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and any one or more to them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and transferees
of each of them. Caption headings in this Guaranty are for convenience purposes
only and are not to be used to interpret or define the provisions of this
Guaranty. If a court of competent jurisdiction finds any provision of this
Guaranty to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are
2
<PAGE>
corporations or partnerships, it is not necessary for Lender to inquire into the
powers of Borrower or Guarantor or of the officers, directors, partners, or
agents acting or purporting to act on their behalf, and any Indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this Guaranty
unless such waiver is given in writing and signed by Lender. No delay or
omission on the part of Lender in exercising any right shall operate as a waiver
of such right or any other right. A waiver by Lender of a provision of this
Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise
to demand strict compliance with that provision or any other provision of this
Guaranty. No prior waiver by Lender, nor any course of dealing between Lender
and Guarantor, shall constitute a waiver of any of Lender's rights or of any of
Guarantor's obligations as to any future transactions. Whenever the consent of
Lender is required under this Guaranty, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED MAY 30,1997.
GUARANTOR:
X /s/ Joseph M. Harris (SEAL)
- -----------------------------
Joseph M. Harris
INDIVIDUAL ACKNOWLEDGMENT
STATE OF North Carolina )
) ss
COUNTY OF Gaston )
I, Doris J. Pearson , a Notary Public for said County and State, certify that
----------------
JOSEPH M. HARRIS personally came before me this and acknowledged the due
execution of the foregoing instrument.
Witness my hand and Notarial Seal this the 30 day of May , 1997.
-- -----------------
/s/ Doris J. Pearson
--------------------
Notary Public
My Commission Expires: 7-4-99
(Affix Notarial Seal here)
3
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
<S><C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
004A 905 GRS
</TABLE>
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.
<TABLE>
<CAPTION>
<S><C>
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
Guarantor: VERNON B. BRANNON
5301 MIRABELL ROAD
CHARLOTTE, NC 28226
</TABLE>
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without
limitation the principal Note amount of One Million & 00/100 Dollars
($1,000,000.00)
GUARANTY. For good and valuable consideration, VERNON B. BRANNON ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to FIRST CHARTER
NATIONAL BANK ("Lender") or its order, in legal tender of the United States of
America, the Indebtedness (as that term is defined below) of HLM DESIGN INC.
("Borrower") to Lender on the terms and conditions set forth In this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means HLM DESIGN INC.
GUARANTOR. The word "Guarantor" means VERNON B. BRANNON.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated May 30, 1997.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's reasonable attorneys' fees and
Lender's legal expenses, whether or not suit is instituted, and 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.
LENDER. The word "Lender" means FIRST CHARTER NATIONAL BANK, its
successors and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
May 30, 1997, In the original principal amount of $1,000,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions
for the promissory note or agreement. Notice to Guarantor: The Note
evidences a revolving line of credit from Lender to Borrower.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. This Guaranty covers a revolving line of
credit and guarantor understands and agrees that this guarantee shall be open
and continuous until the line of credit is terminated and the Indebtedness is
paid in full, as provided below.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. This Guaranty covers a revolving line
of credit and it is specifically anticipated that fluctuations will occur in the
aggregate amount of Indebtedness owing from Borrower to Lender. Grantor
specifically acknowledges and agrees that fluctuations in the amount of
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination
of this Guaranty. Guarantor's liability under this Guaranty shall terminate only
upon (a) termination in writing by Borrower and Lender of the line of credit,
(b) payment of the Indebtedness in full in legal tender, and (c) payment in full
in legal tender of all other obligations of Guarantor under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participation in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein, (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened:
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
<PAGE>
05-30-1997 COMMERCIAL GUARANTY Page 2
Loan No (Continued)
- --------------------------------------------------------------------------------
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (9) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement. including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrowers
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness (e) any
statute of limitations, if at any time any action or suit brougnt by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty. In addition
to the waivers set forth above, Guarantor expressly waives, to the extent
permitted by North Carolina law, all of Guarantor's rights under (i) North
Carolina General Statute Section 26-7 to Section 26-9 (1986) to require Lender
to take action, (ii) North Carolina General Statute Section 25-3-606 (1965 and
Supplement 1985) relating to impairment of collateral, and (iii) North Carolina
General Statute Section 25-9-501 (1986) with respect to the "commercial
reasonableness" of any sale of collateral.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with
Guarantor's full knowledge of its significance and consequences and that, under
the circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit or whether held
for safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part of
Lender or by any neglect to exercise such right of setoff or to enforce such
security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an instrument
in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and tile financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Guaranty. No alteration of or amendment to
this Guaranty shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of North Carolina. If there is a lawsuit, Guarantor
agrees upon Lender's request to submit to the jurisdiction of the courts
of CABARRUS County, State of North Carolina. This Guaranty shall be
governed by and construed in accordance with the laws of the State of
North Carolina.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Guaranty. Lender may pay someone else to help enforce this Guaranty,
and Guarantor shall pay the costs and expenses of such enforcement. Costs
and expenses include Lender's reasonable attorneys' fees and legal
expenses whether or not there is a lawsuit, including reasonable
attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated postjudgment collection services. Guarantor
also shalt pay all court costs and such additional fees as may be directed
by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one
or more of them. The words "Guarantor," "Borrower," and "Lender" include
the heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance. such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not
necessary tor Lender to inquire into the powers of Borrower or Guarantor
or of the officers, directors, partners, or agents acting or purporting to
act on their behalf, and any Indebtedness made or created in reliance upon
the professed exercise of such powers shall be guaranteed under this
Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Guaranty shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Guaranty. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor, shall
constitute a waiver of any of Lender's rights or of any of Guarantors
obligations as to any future transactions. Whenever the consent of Lender
is required under this Guaranty, the granting of such consent by Lender in
any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may
be granted or withheld in the sole discretion of Lender.
<PAGE>
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED MAY 30,1997.
GUARANTOR:
X /s/ Vernon B. Brannon (SEAL)
------------------------------------------------------------------------
Vernon B. Brannon
INDIVIDUAL ACKNOWLEDGMENT
STATE OF North Carolina )
------------------------------------------------
) ss
COUNTY OF Gaston )
-----------------------------------------------
I, Doris F. Pearson , a Notary Public for said County and State,
---------------------------------
certify that VERNON B. BRANNON personally came before me this day and
acknowledged the due execution of the foregoing instrument.
Witness my hand and Notarial Seal this the 30 day of May, 1997.
---- ------
/s/ Doris F. Pearson
------------------------------
Notary Public
My Commission Expires: 7-4-99
(Affix Notarial Seal here)
<TABLE>
<CAPTION>
<S> <C>
FIRST
CHARTER
NATIONAL
BANK
Account Number: 548255
MODIFICATION AND EXTENSION AGREEMENT
STATE OF NORTH CAROLINA
COUNTY OF: Cabarrus Effective Date: May 30 , 19 98
-------------------------------------- ------------------ ------
This Modification and Extension Agreement is made and entered into, this 20 day of May , 19 98 by
----- ------------------------ ----
and between First Charter National Bank, a national banking corporation (hereinafter referred to as "BANK");
HLM Design, Inc. (hereinafter referred to as maker(s) or
- ------------------------------------------------------------------------------------
co-maker(s) on the Note described below individually and collectively as "BORROWER");
----------------------------------------------
the trustee or successor trustee under the Deed of Trust described below (hereinafter referred to as
- --------------------------------
"TRUSTEE"); and William J. Blalock, Joseph M. Harris and Vernon B. Brannon the guarantor(s), endorser(s)
-----------------------------------------------------------------------------------
or other obligor(s) (if any) on the Note described below, or the owner(s) other than the BORROWER (if any) of any property
pledged to secure performance of BORROWER'S obligation to BANK (hereinafter referred to individually and collectively as
"THIRD PARTY").
WITNESSETH:
WHEREAS, BORROWER is indebted to BANK in the original principal sum of:
One Million and no/100 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ($1,000,000.00 )
- ---------------------------------------------------------------------------------------
which Note has a current principal balance of:
One Million and no/100 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ($1,000,000.00 )
as evidenced by a:
|_| Note dated , made payable to
----------------------------------------------- ------------------------------
|X| Note and Security Agreement dated May 30, 1997 , which Note is made payable
-------------------------------------------------------
to First Charter National Bank
-------------------------------------------------------------------------------------------------------------------
|_| Note and Deed of Trust dated , which Note is made payable
----------------------------------------------------
to
--------------------------------------------------------------------------------------------------------------------
and which Deed of Trust is recorded in Book , Page , in the
------- ---------------- -----------------
County Registry and relates to the real property described therein;
said Note, Note and Security Agreement, or Note and Deed of Trust. including any renewals, extensions, or modifications
thereof being hereinafter referred to as "CONTRACT" and said CONTRACT being incorporated and made a part hereof by
reference; and
</TABLE>
<PAGE>
WHEREAS, BORROWER and BANK mutually desire to modify and amend the
provisions of the CONTRACT in the manner hereinafter set forth, it being
specifically understood that, except as herein modified and amended, the terms
and provisions of the CONTRACT shall remain unchanged and continue in full force
as therein written; and
WHEREAS, THIRD PARTY. if different from BORROWER, and TRUSTEE have
agreed to the terms of this modification;
NOW, THEREFORE, by mutual agreement of the parties and in mutual
consideration of the premises and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree that said
CONTRACT by modified and amended to provide as follows:
INTEREST RATE
|_| Interest will be paid at the rate of ____% per annum. This rate will
be effective the date this CONTRACT is executed.
|_| Interest will be paid at a variable rate of interest known as the
"Contract Rate." This rate will be effective the date this CONTRACT is
executed. BORROWER acknowledges that the Contract Rate may increase or
decrease based on changes in the Prime Rate published by BANK.
The Contract Rate will be the BANK'S Prime Rate plus ____ Percentage
Points (the "Margin"). The initial Contract Rate is ______ %. The
Minimum Contract Rate shall be ____%, and the Maximum Contract Rate
shall be ______%, provided that at no time shall the Contract Rate
exceed the maximum interest rate allowed by law to be charged by BANK.
Increases or decreases in the Contract Rate of interest will: |_|
increase or decrease the amount of each payment due thereafter; |_|
increase or decrease the final payment due. The Contract Rate will |_|
be the Prime Rate in effect on the last day of the preceding month,
plus the Margin and changes in the Contract Rate during a month will
take effect as of the first business day of the following month; OR
|_| change daily assuming there is a change in the Prime Rate; OR |_|
as often _______. The BANK'S Prime Rate is not intended or represented
to be the lowest or most favorable rate of interest charged or offered
by the BANK to its customers.
|_| Other:
PRINCIPAL AND INTEREST PAYMENT TERMS:
|_| Principal and Interest is payable in full at maturity on __________,
_____.
|_| Payable in consecutive ______ installments of: |_| principal, or |_|
principal and interest, commencing on _________, 19___; and continuing
on the same day of each calendar period thereafter, in _______ equal
payments of $____________ , with one final payment of all remaining
principal principal and interest due on _________,______.
|_| Interest is payable _____, commencing on ________, 19__, and
continuing on the same day of each calendar period thereafter, with
one final payment of all remaining principal and interest due on
_________,______.
|X| Other: The maturity date on this loan shall be extended to July 30,
----------------------------------------------------------------------
1998
----
In the event periodic accruals of interest shall exceed any periodic fixed
payment amount described above, the fixed payment amount shall be immediately
increased, or additional supplemental interest payments required on the same
periodic basis as specified above (increased fixed payments or supplemental
payments to be determined in the BANK'S sole discretion), in such amounts and at
such times as shall be necessary to pay all accruals of interest for the period
and all accruals of unpaid interest from previous periods. Such adjustments to
the fixed payment amount or supplemental payments shall remain in effect for so
long as the interest accruals shall exceed the original fixed payment amount and
shall be further adjusted upward or downward to reflect changes in the variable
interest rate. In no event shall the fixed payment amount be reduced below the
original fixed payment amount specified above.
<PAGE>
COLLATERAL:
Unless otherwise provided herein, it is expressly understood and agreed by the
parties hereto that any and all collateral given as security to insure faithful
performance by BORROWER and any THIRD PARTY of any and all obligations to BANK,
however created, whether now existing or hereafter arising, shall remain as
security for the previously described CONTRACT as modified hereby.
It is expressly understood and agreed by and between the parties hereto that any
security agreement, deed of trust, chattel mortgage, trust receipt, assignment,
contract or other writing granting BANK security for performance of any
obligation to BANK is, to the extent inconsistent herewith, modified and changed
to be consistent with the terms of this Modification and Extension Agreement.
|_| If marked, the aforesaid CONTRACT, as herein modified, and the
performance of any loan agreement between the parties shall be
additionally secured by collateral hereinafter described, and a new
security instrument shall be executed by the BORROWER and/or THIRD
PARTY:
<TABLE>
<S> <C>
Date: Type of Agreement: From:
----------------------- -------------------------------------- ---------------------------
Collateral:
-------------------------------------------------------------------------------------------------------------------
Date: Type of Agreement: From:
------------------------------------- ------------------------------------- ----------------
Collateral:
-------------------------------------------------------------------------------------------------------------------
|_| If marked, the collateral hereinafter described shall be and hereby is deleted as security for payment of the aforesaid
CONTRACT:
----------------------------------------------------------------------------------------------------------------
However, it is understood and agreed that BANK shall not be required
or obligated to take any further steps to release said collateral from
any lien or security unless BANK determines, in its sole discretion,
that it may do so without consequence to its secured position and
relative priority in other collateral, and unless BORROWER bears the
reasonable cost of such action.
OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If the CONTRACT being modified by this Agreement is signed by more than one
person or entity, the modified CONTRACT shall be the joint and several
obligation of all signers, and each provision of the CONTRACT as modified shall
apply to each and all of the signers and to the property and liability of each
and all of them.
This Modification and Extension Agreement shall bind and inure to the benefit of
the successors in interest hereto, and it is expressly understood and agreed
that this Agreement is a modification only and not a novation. The original
obligation of the BORROWER, as evidenced by the above-described CONTRACT is not
extinguished hereby. It is also understood and agreed that, except for the
above-indicated modifications said CONTRACT, and/or any other loan documents or
agreements and all singular terms and conditions thereof, shall be and remain in
force and effect and that this Modification and Extension Agreement shall not
release or affect the liability of any co-makers, guarantors, obligors, or
endorsers of said CONTRACT. BORROWER specifically consents to the terms of this
Modification and Extension Agreement and waives any objection thereto, and
further affirms any obligation to BANK previously created. BANK expressly
reserves all rights as to any party with right of recourse on the aforesaid
CONTRACT.
<PAGE>
IN WITNESS WHEREOF, this instrument has been executed by the parties
hereto and delivered on the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
Attest: First Charter National Bank
- ---------------------------------- By: /s/ Illegible Signature
-------------------------
ASSISTANT SECRETARY VICE PRESIDENT
(CORPORATE SEAL) BORROWER:
--------------------------------------------------(Seal)
BORROWER - INDIVIDUAL
--------------------------------------------------(Seal)
BORROWER - INDIVIDUAL
HLM Design, Inc. (Seal)
--------------------------------------------------
NAME OF CORPORATION
Attest:
/s/ Karen A. Kaplan By: /s/ Joseph M. Harris
- ------------------- ----------------------------------------------
Karen A. Kaplan, Asst. Secretary Joseph M. Harris, President
(CORPORATE SEAL) By:
----------------------------------------------
TITLE
TRUSTEE:
.
(Seal)
--------------------------------------------------
THIRD PARTY (Guarantor, Endorser, Etc.):
------------------------------------------------- (Seal)
William J. Blalock
/s/ Joseph M. Harris (Seal)
-------------------------------------------------
Joseph M. Harris
/s/ Vernon B. Brannon (Seal)
-------------------------------------------------
Vernon B. Brannon
(Seal)
-------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FIRST
CHARTER
NATIONAL
BANK
Account Number: 543736
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MODIFICATION AND EXTENSION AGREEMENT
STATE OF NORTH CAROLINA
COUNTY OF: Cabarrus Effective Date: May 30 , 19 98
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This Modification and Extension Agreement is made and entered into, this 20 day of May , 19 98
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by and between First Charter National Bank, a national banking corporation (hereinafter referred to as "BANK");
HLM Design of Iowa, Inc. (hereinafter referred to as maker(s) or
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co-maker(s) on the Note described below individually and collectively as "BORROWER");
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the trustee or successor trustee under the Deed of Trust described below (hereinafter referred to as
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"TRUSTEE"); and Joseph M. Harris, William J. Blalock, Vernon B. Brannon the guarantor(s), endorser(s)
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or other obligor(s) (if any) on the Note described below, or the owner(s) other than the BORROWER (if any) of any property
pledged to secure performance of BORROWER'S obligation to BANK (hereinafter
referred to individually and collectively as "THIRD PARTY").
WITNESSETH:
WHEREAS, BORROWER is indebted to BANK in the original principal sum of:
Five hundred thousand and no/100 - - - - - - - - - - - - - - - - - - - - - ($500,000.00 )
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which Note has a current principal balance of:
Four hundred ninety nine thousand one hundred eleven and 10/100 - - - - - - ($499,111.10 )
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as evidenced by a:
|_| Note dated , made payable to
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|X| Note and Security Agreement dated December 10, 1996 , which Note is made payable
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to First Charter National Bank
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|_| Note and Deed of Trust dated , which Note is made payable
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to
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and which Deed of Trust is recorded in Book , Page , in the
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County Registry and relates to the real property described therein;
said Note, Note and Security Agreement, or Note and Deed of Trust. including any renewals, extensions, or modifications
thereof, being hereinafter referred to as "CONTRACT" and said CONTRACT being incorporated and made a part hereof by
reference; and
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WHEREAS, BORROWER and BANK mutually desire to modify and amend the
provisions of the CONTRACT in the manner hereinafter set forth, it being
specifically understood that, except as herein modified and amended, the terms
and provisions of the CONTRACT shall remain unchanged and continue in full force
as therein written; and
WHEREAS, THIRD PARTY, if different from BORROWER, and TRUSTEE have
agreed to the terms of this modification;
NOW, THEREFORE, by mutual agreement of the parties and in mutual
consideration of the premises and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree that said
CONTRACT by modified and amended to provide as follows:
INTEREST RATE
|_| Interest will be paid at the rate of % per annum. This rate will be
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effective the date this CONTRACT is executed.
|_| Interest will be paid at a variable rate of interest known as the
"Contract Rate." This rate will be effective the date this CONTRACT is
executed. BORROWER acknowledges that the Contract Rate may increase or
decrease based on changes in the Prime Rate published by BANK.
The Contract Rate will be the BANK'S Prime Rate plus _____ Percentage
Points (the "Margin"). The initial Contract Rate is _____%. The
Minimum Contract Rate shall be _____%, and the Maximum Contract Rate
shall be ______%, provided that at no time shall the Contract Rate
exceed the maximum interest rate allowed by law to be charged by BANK.
Increases or decreases in the Contract Rate of interest will: |_|
increase or decrease the amount of each payment due thereafter; |_|
increase or decrease the final payment due. The Contract Rate will |_|
be the Prime Rate in effect on the last day of the preceding month,
plus the Margin and changes in the Contract Rate during a month will
take effect as of the first business day of the following month; OR
|_| change daily assuming there is a change in the Prime Rate; OR |_|
as often ___________. The BANK'S Prime Rate is not intended or
represented to be the lowest or most favorable rate of interest
charged or offered by the BANK to its customers.
|_| Other:
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PRINCIPAL AND INTEREST PAYMENT TERMS:
|_| Principal and Interest is payable in full at maturity on , .
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|_| Payable in consecutive installments of: |_| principal, or |_| principal and interest, commencing on
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, 19 ; and continuing on the same day of each calendar
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period thereafter, in equal payments of $ , with one final payment
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of all remaining principal principal and interest due on , .
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|_| Interest is payable , commencing on , 19 , and continuing on
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the same day of each calendar period thereafter, with one final payment of all remaining principal and interest due on
, .
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|X| Other: The maturity date on this loan shall be extended to July 30, 1998
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In the event periodic accruals of interest shall exceed any periodic fixed
payment amount described above, the fixed payment amount shall be immediately
increased, or additional supplemental interest payments required on the same
periodic basis as specified above (increased fixed payments or supplemental
payments to be determined in the BANK'S sole discretion), in such amounts and at
such times as shall be necessary to pay all accruals of interest for the period
and all accruals of unpaid interest from previous periods. Such adjustments to
the fixed payment amount or supplemental payments shall remain in effect for so
long as the interest accruals shall exceed the original fixed payment amount and
shall be further adjusted upward or downward to reflect changes in the variable
interest rate. In no event shall the fixed payment amount be reduced below the
original fixed payment amount specified above.
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COLLATERAL:
Unless otherwise provided herein, it is expressly understood and agreed by the
parties hereto that any and all collateral given as security to insure faithful
performance by BORROWER and any THIRD PARTY of any and all obligations to BANK,
however created, whether now existing or hereafter arising, shall remain as
security for the previously described CONTRACT as modified hereby.
It is expressly understood and agreed by and between the parties hereto that any
security agreement, deed of trust, chattel mortgage, trust receipt, assignment,
contract or other writing granting BANK security for performance of any
obligation to BANK is, to the extent inconsistent herewith, modified and changed
to be consistent with the terms of this Modification and Extension Agreement.
|_| If marked, the aforesaid CONTRACT, as herein modified, and the
performance of any loan agreement between the parties shall be
additionally secured by collateral hereinafter described, and a new
security instrument shall be executed by the BORROWER and/or THIRD
PARTY:
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<S> <C>
Date: Type of Agreement: From:
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Collateral:
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Date: Type of Agreement: From:
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Collateral:
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|_| If marked, the collateral hereinafter described shall be and hereby is deleted as security for payment of the aforesaid
CONTRACT:
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However, it is understood and agreed that BANK shall not be required or
obligated to take any further steps to release said collateral from any
lien or security unless BANK determines, in its sole discretion, that it
may do so without consequence to its secured position and relative priority
in other collateral, and unless BORROWER bears the reasonable cost of such
action.
OTHER
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If the CONTRACT being modified by this Agreement is signed by more than one
person or entity, the modified CONTRACT shall be the joint and several
obligation of all signers, and each provision of the CONTRACT as modified shall
apply to each and all of the signers and to the property and liability of each
and all of them.
This Modification and Extension Agreement shall bind and inure to the benefit of
the successors in interest hereto, and it is expressly understood and agreed
that this Agreement is a modification only and not a novation. The original
obligation of the BORROWER, as evidenced by the above-described CONTRACT is not
extinguished hereby. It is also understood and agreed that, except for the
above-indicated modifications said CONTRACT, and/or any other loan documents or
agreements and all singular terms and conditions thereof, shall be and remain in
force and effect and that this Modification and Extension Agreement shall not
release or affect the liability of any co-makers, guarantors, obligors, or
endorsers of said CONTRACT. BORROWER specifically consents to the terms of this
Modification and Extension Agreement and waives any objection thereto, and
further affirms any obligation to BANK previously created. BANK expressly
reserves all rights as to any party with right of recourse on the aforesaid
CONTRACT.
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IN WITNESS WHEREOF, this instrument has been executed by the parties
hereto and delivered on the day and year first above written.
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<S> <C>
Attest: First Charter National Bank
By: /s/ Illegible Signature
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ASSlSTANT SECRETARY VICE PRESIDENT
(CORPORATE SEAL) BORROWER:
------------------------------- (Seal)
BORROWER - INDIVIDUAL
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BORROWER - INDIVIDUAL
HLM Design of Iowa, Inc. (Seal)
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NAME OF CORPORATION
Attest:
/s/ Karen A. Kaplan By: /s/ Joseph M. Harris
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TITLE
ASSlSTANT SECRETARY
(CORPORATE SEAL) By:
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TITLE
TRUSTEE:
.
(Seal)
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THIRD PARTY (Guarantor, Endorser, Etc.):
(Seal)
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William J. Blalock
/s/ Joseph M. Harris (Seal)
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Joseph M. Harris
/s/ Vernon B. Brannon (Seal)
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Vernon B. Blalock
(Seal)
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</TABLE>
STATE OF NORTH CAROLINA
LEASE
COUNTY OF MECKLENBURG
THIS LEASE AGREEMENT, made and entered into this 18th day of December,
1995, by and between CTHL PROPERTIES hereinafter called "Lessor"), and Hansen
Lind Meyer Inc. an Iowa corporation, (hereinafter called "Lessee");
WITNESSETH:
1. Demise of Premises. Lessor leases unto Lessee the premises
(hereinafter called "Premises") located in Mecklenburg County, North Carolina,
and being a portion of the real property and improvements thereon known as 2521
Lucena Street. The premises consists of approximately 10,000 square feet.
2. Term. The term of this Lease Agreement shall be for a period of ten
years, to commence on the 1st day of January, 1996 and to terminate on the 31st
day of December, 2005.
3. Rentals. Lessee shall pay rentals to Lessor at the rate of $3,500.00
per month. The first such payment shall cover the first full calendar month of
the lease term and any fractional portion of the preceding month of the lease
term and shall be payable in advance prior to the commencement of such term. All
subsequent rental installments shall be paid on or before the first day of each
calendar month.
A late payment of two percent (2%) of the amount due will be assessed
Lessee for any rent payment not received within ten (10) days of due date.
4. Security Deposit. The Lessor acknowledges receipt of $7,000.00 paid
by the Lessee as a non-interest-bearing security deposit. Upon termination of
this lease by either party hereto, the Lessor will refund the said security
deposit to the Lessee subject to the following adjustments thereto:
(a) Lessor shall deduct any rent owed to the Lessor by the Lessee;
(b) Lessor shall deduct any funds expended by the Lessor during the
period of occupancy by the Lessee or after the termination of the Lessee's
occupancy to place or maintain the Premises in the condition it was in at the
initial date of occupancy by the Lessee, ordinary wear and tear expected.
(c) If the Lessee fails to occupy the premises for the full term of the
lease, the deposit
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will be forfeited in full.
5. Use of Premises. Lessee will use the Premises for Office/Warehouse.
Lessee agrees that the Premises will be used for no other purpose without
Lessor's consent in writing.
6. Acceptance of Premises. Lessee acknowledges that the act of taking
possession to the Premises shall constitute acceptance thereof and conclusive
evidence that Lessee has inspected and examined the entire Premises and utility
installations and that the same were, and are, in good and satisfactory
condition.
7. Assignment or Subletting. Lessee shall not have the right to assign
the within Lease or to sublet the Premises, in whole or in part, without the
prior written consent of Lessor which will not be unreasonably withheld. Passage
of control of any Lessee which is a corporation to parties other than those who
presently control Lessee shall constitute an assignment of this Lease. However,
so long as Lessee's current shareholders in the aggregate hold a majority of
Lessee's voting stock, as assignment shall not be deemed to occur under the
preceding sentence.
8. Compliance with Legal Requirements. Lessee shall comply with all
legal requirements of any governmental or quasi-governmental body including
City, County, State or Federal boards having jurisdiction thereof, respecting
any operation conducted or any equipment, installations, or other property
placed upon, in, or about the Premises. Lessee shall neither create nor permit
the creation of any nuisance upon, in, or about the Premises, and Lessee shall
not make any offensive use thereof.
9. Fire and Casualty Insurance. Lessor shall carry at Lessee's expense
fire insurance with extended coverage insuring Lessor against loss or damage to
the buildings or other improvements located on the Premises. Lessee's expense
shall be pro-rated to be 50 percent of the annual premium for this insurance
coverage. Lessee, at Lessee's own expense shall be responsible for procuring any
insurance coverage Lessee desires insuring Lessee against loss or damage to
Lessee's furnishings, fixtures, inventory, equipment, and other property
situated or placed upon, in, or about the Premises with companies and in amounts
acceptable to Lessor.
10. Taxes and Assessments. Lessee shall pay all city, county or other
ad valorem taxes or assessments levied upon the real property. The Lessee's
pro-rated share for this tax property shall be 50 percent of the annual tax
bill. Lessee shall pay any ad valorem taxes or assessments levied upon Lessee's
personal property installed or located on the premises.
11. Utilities. Lessee at its expense shall provide all utilities.
12. Additions, Alterations, Changes, and Improvements. Lessee shall not
make and shall not have the right to make any alterations, changes or
improvements, structural or otherwise, in or to the Premises without Lessor's
prior written consent, which will not be unreasonably withheld, provided that if
such consent is given, all such alterations, changes and improvements shall be
promptly made in a workmanlike manner, be promptly paid for allowing no liens to
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attach either to the Premises or to Lessee's interest therein and shall become
the property of Lessor at the termination of this Lease Agreement. Lessor shall
have the right to require Lessee to provide such assurances as Lessor shall
reasonably require (such as bonds, escrows, etc.) to protect Lessor against
unpaid work
13. Repairs. Lessor, at its own expense, shall repair, maintain, and
replace as necessary the exterior and structural portions of the Premises
(including without limitation foundation, building floors and supporting walls).
Lessee agrees that it will be responsible for all interior maintenance to the
Premises, including the mechanical, plumbing, heating, air conditioning,
ventilating and electrical equipment and systems, and all other fixtures and
grounds maintenance, and the roof. All repairs shall be performed in a prompt,
workmanlike manner, and no liens shall be allowed to attach either to the
Premises or lessee's interest therein.
14. Safe and Sanitary Condition. Lessee shall not permit, allow, or
cause any act or deed to be performed upon, in, or about the Premises which
shall cause or be likely to cause injury to any person or to the Premises, the
building or improvements located thereon, or to any adjoining property. Lessee
shall at all times keep the Premises in a neat and orderly condition and keep
the Premises and the entryways, parking areas, sidewalks, and delivery areas (if
any) adjoining the Premises clean and free from rubbish, dirt, snow, standing
water and ice.
15. Trade Fixtures. Lessee shall be permitted to install trade fixtures
on the Premises. In addition, Lessee shall be permitted to remove said trade
fixtures from the Premises upon the termination of this Lease Agreement,
provided that if Lessee does so remove such trade fixtures, Lessee shall return
the Premises to the same condition as existed at the time of original entry,
ordinary wear and tear expected. This provision is not intended to allow Lessee
to remove approved improvements made by Lessee to the premises. All such
improvements belong to Lessor at the termination hereof and shall not be removed
nor damaged by Lessee's removal of trade fixtures. If Lessee does not remove the
trade fixtures at termination, Lessor shall have the option either to declare
such fixtures abandoned and Lessor the owner thereof or to demand Lessee remove
same at Lessee's expense, returning the Premises to the condition required
herein.
16. Lessor Not Liable for Damages or Injuries. Lessor shall not be
responsible to Lessee or to any other person, firm, partnership, association, or
corporation for damages or injuries by virtue of or arising out of busted water
pipes, leaks from sprinkler or air conditioning systems, leaks from the roof, or
by virtue of earthquakes, riots, windstorms, overflow of water from surface
drainage, rains, water, fire, or by the elements or acts of God or by the
neglect of any person, firm, partnership, association, or corporation, except
that Lessor shall be responsible for, and shall indemnify Lessee from and
against any such damages or injuries caused by acts or omissions of Lessor or
Lessor's agents. Lessee shall indemnify and hold Lessor harmless from any and
all claims for damages to person or property to the full extent permitted by
law, except to the extent such damages are caused by acts or omissions of Lessor
or Lessor's agents.
17. Indemnification and Liability Insurance. Lessee covenants to
indemnify and hold Lessor harmless from the claims of any and all persons,
firms, partnerships, associations and
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corporations for personal injury or damage to property or both arising out of or
in connection with Lessee's use and/or occupancy of the Premises. In addition,
Lessee shall carry public liability insurance in the minimum amount of
$500,000.00 for death or bodily injury to one person and $1,000,000.00 for death
or injury to two or more persons plus $100,000.00 property damage per
occurrence, and Lessee shall deliver to Lessor memorandum policies of such
coverage with companies satisfactory to Lessor and naming Lessor as additional
insured therein, prior to the time of taking possession of the Premises.
18. Fire or Casualty. If the Premises shall be partially or completely
damaged or destroyed by fire or other casualty, Lessor or Lessee shall have the
right to terminate this Lease Agreement, if the damage cannot be reasonably
repaired within a period of one hundred twenty (120) days to substantially the
same condition as the same shall have enjoyed prior to such damage. Such right
of termination must be exercised within 30 days of damage occurrence. If said
option to terminate is not exercised by either party, Lessee shall, as soon as
reasonably possible, effect the required repairs and reconstruction of the
Premises to place them in substantially the same condition as existed
immediately prior to such damage or destruction but during such time as said
repairs or reconstruction are being made, the rentals hereinabove provided shall
not abate.
19. Waiver of Subrogation. Neither Lessee nor anyone claiming by,
through, under, or in Lessee's behalf shall have any claim, right of action, or
right of subrogation against the Lessor for or based upon any loss or damage
caused by fire, explosion, or other casualty (not limited to the foregoing)
relating to the Premises or to any property upon, in, or about the Premises
whether such fire, explosion, or other casualty shall arise from the negligence
of Lessor, its agents, representatives or employees, or otherwise.
20. Condemnation. In the event that the whole or any part of the
Premises shall be taken (or transfer is made under threat of condemnation) by
any authority under the power of eminent domain, Lessor shall have the option to
terminate this Lease Agreement, but notwithstanding whether Lessor exercises
such option, the Term hereof shall terminate as to the part of the Premises
taken, effective as of the date of possession thereof shall be required to be
delivered pursuant to the final order, judgment, or decree entered in the
exercise of such power. All damages or awards for any taking of the Premises or
part thereof or of Lessee's interest therein or in this Lease or in any
leasehold improvements or fixtures shall be payable in full to Lessor and shall
be the property of Lessor. Interest therein shall be negotiated with the Lessee.
21. Subordination to Mortgages. This Lease Agreement and the rights of
Lessee are subordinate to and shall be subordinate to the lien of any mortgage
or deed of trust (hereinafter called "Mortgage"), whether such Mortgage is
currently a lien on the Premises or hereafter becomes a lien on the Premises and
no further agreements or documents shall be required to render this Lease and
the Lessee's rights subordinate to such Mortgage. At Lessee's request and at
Lessee's expense, Lessor shall endeavor to obtain for Lessee a non-disturbance
agreement in recordable form providing in substance that Lessee's tenancy shall
not be disturbed nor affected by any default under the Mortgage provided the
Lessee is not in default under any of the terms,
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conditions and covenants hereof. Lessee shall at all times upon request of
Lessor promptly furnish documents stating that this Lease is in full force and
effect, that no defaults of the Lessor exists, and such other matters as are
customarily contained in what is known as an "estoppel letter" or a
"good-standing letter". Should Lessee fail to deliver such documents within 10
days of Lessor's request therefor, Lessor shall be deemed Lessee's attorney in
fact for the purpose of executing such documents in the name of Lessee.
22. Inspection. Lessor shall have the right at all reasonable times to
enter and inspect the Premises.
23. Condition of Premises Upon Termination. Upon the termination of
this Lease Agreement, Lessee shall return the Premises to Lessor substantially
in the same condition as received, ordinary wear and tear and approved
improvements excepted.
24. Holding Over. In the event Lessee remains in possession after the
expiration of the Term without the execution of a new lease, Lessee shall not
acquire any right title, or interest in or to the Premises. In such event,
Lessee shall occupy the Premises as a tenant from month-to-month at double the
then current rent and shall otherwise be subject to all of the conditions,
provisions, and obligations of this Lease Agreement insofar as the same shall be
applicable.
25. Default.
(a) Any one and all of the following events shall constitute an Event
of Default:
(i) if Lessee files a petition in bankruptcy or insolvency
or for reorga nizatio n under any bankru ptcy act or
voluntarily takes advant age of any such act or makes
an assign ment for the benefit of creditors;
(ii) if voluntary proceedings under any bankruptcy law,
insolvency, receivership action shall be instituted
against Lessee, or if a receiver or trustee shall be
appointed for all or substantially all of the property
of Lessee and such proceedings are not dismissed or the
receivership or trusteeship vacated, within ten (10)
days after the institution or appointment;
(iii) if Lessee fails to pay any sum due from it in strict
accordance with the provisions of this Lease and does
not make the payment within ten (10) days after written
notice thereof. For the purpose hereof, all sums due
from Lessee shall constitute rentals whether
denominated as rentals or otherwise elsewhere herein;
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(iv) if Lessee fails to fully perform and comply with each
and every condition and covenant of this Lease
Agreement, and such failure of performance continues
for a period of ten (10) days after notice thereof;
(v) if Lessee vacates or abandons the Premises;
(vi) if the interest of Lessee is transferred, levied upon,
or assigned to any other person, firm, or corporation,
whether voluntarily or involuntarily, except as herein
permitted;
(vii) if Lessor, in any three months of any lease year, gives
any notice to Lessee pursuant to subparagraphs (iii) or
(iv) above, notwithstanding Lessee's cure of default
within the allowable period or periods.
(b) Upon the occurrence of any Event of Default as set forth above,
Lessor shall have the right, at its option, to utilize any one or
more of the following rights:
(i) to cancel and terminate this Lease Agreement and all
interest of the Lessee hereunder by giving notice of
such cancellation and termination not less than ten
(10) days prior to the effective date of such
termination. Upon the expiration of said ten (10) day
period the Lessee shall have no other rights under this
Lease Agreement (but such cancellation shall not serve
to release or discharge the damages Lessee owes ro
Lessor); and/or
(ii) to make any payment required of Lessee herein or
correct any condition required to be corrected by
Lessee, and Lessor shall have the right to enter the
Premises for the purpose of correcting any such
condition and to remain on the Premises until the
complete correction of such condition. However, no
expenditure by Lessor on behalf of Lessee shall be
deemed to waive or release Lessee's breach hereof and
Lessor shall retain all rights to proceed against
Lessee as set forth herein; and/or
(iii) to re-enter the Premises immediately with or without
order of court and without being guilty of trespass
remove the property and personnel of Lessee and store
such property in a public warehouse or such other
location selected by Lessor, all at the expense of
Lessee. However, the right of re-entry shall accrue
after the Lessee has provided a 10-day notice to cure
the default via certified mail. After such re-entry,
Lessor shall have the right to terminate this
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Lease Agreement by giving ten (10) days notice of
termination to Lessee, but without such notice, the
re-entry by Lessor shall not terminate this Lease
Agreement. On termination, Lessor may recover from
Lessee all damages resulting from Lessee's breach,
including the cost of recovery of the Premises and
placing them in satisfactory condition, the value of
the balance of this Lease over the reasonable rental
value of the Premises for the remainder of the Term,
all of which sums shall be immediately payable to
Lessor from Lessee; and/or
(iv) to relet the Premises or any part thereof for any term,
with or without terminating the Lease, and at such
rentals and on such other terms as Lessor may elect,
including the right to grant free rental, and to alter
and repair the Premises as Lessor deems necessary.
Should Lessor relet the Premises, Lessee shall pay all
expenses of reletting, including broker's or finders'
fees and such reasonable attorneys' fees as Lessor may
incur. Lessor shall apply the rent received from
reletting in the following order: (1) to expenses of
reletting; (2) to sums due from Lessee other than sums
denominated in Section 3 above as rentals; and (3) to
sums denominated as rental in Section 3 above
previously due; and (4) to sums which were to become
due in the future; and/or
(v) to accelerate the rentals with or without entry; and/or
(vi) all other rights and remedies provided by law to a
Lessor with a defaulting lessee, including all such
money damages as Lessor shall be entitled pursuant to
the law of damages.
(c) In the event of any conflict between any of the provisions hereof
regarding the amount of time that must elapse after notice before
the same constitutes an Event of Default whereby Lessor may
exercise its rights pursuant to Section 25(b), the provisions
establishing the least amount of time after notice shall prevail.
(d) Upon any breach hereof, regardless of whether such breach is, or
becomes, an Event of Default, Lessor shall be reimbursed by Lessee
for any reasonable attorney's fees incurred by Lessor in
connection with such breach.
26. Waiver. No failure by Lessor to exercise any rights hereunder to
which Lessor may be entitled shall be deemed a waiver of Lessor's right to
subsequently exercise same. Lessee shall gain no rights nor become vested with
any power to remain in default under the terms hereof by
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virtue of Lessor's failure to timely assert these rights. No acceleration of
rentals, regardless of how often occurring, which Lessor chooses to ignore by
thereafter accepting rental or other performance by Lessee shall constitute a
waiver of the right to thereafter accelerate rentals.
27. Law Applicable. This Lease is entered into in North Carolina and
shall be construed under the laws, statutes, and ordinances of such
jurisdiction.
28. Severability. The provisions hereof are independent covenants and
should any provision or provisions contained in this Lease be declared by a
court or other tribunal of competent jurisdiction to be void, unenforceable, or
illegal, then such provision or provisions shall be severable and the remaining
provisions hereof shall remain at Lessor's option in full force and effect.
29. Stamp Tax or Sales Tax on Lease. Should a governmental authority
having jurisdiction over the Premises declare or otherwise assess any tax or
leases or leaseholds, whether designated as a stamp tax, sales tax, or
otherwise, then in any such events, all taxes so declared or charged shall be
the obligation of the Lessee and shall be paid by Lessee to such authority or
shall be promptly paid to Lessor in reimbursement and as additional rental.
30. Easements, Restrictions, and Rights-of-Way. The Premises are
demised subject to all easements, restrictions, and rights-of-way legally
affecting the Premises.
31. Binding Effect and Complete Terms. The terms, covenants,
conditions, and agreements herein contained shall be binding upon and inure to
the benefit of and shall be enforceable by Lessor and Lessee and by their
respective heirs, successors and assigns. All negotiations and agreements of
Lessor and Lessee are merged herein. No modification hereof or other purported
agreement of the parties shall be enforceable unless the same is in writing and
signed by the Lessor and Lessee.
32. Notices and Written Consents. All notices and written consents
required under this Lease shall be in writing and shall only be deemed properly
served if mailed by certified United States Mail, postage prepaid return receipt
requested, addressed to the party to whom directed at the following address or
at such other address as may be from time to time designated in writing:
To Lessor: Jane D. Harris, Partner
CTHL PROPERTIES
Post Office Box 11628
Charlotte, NC 28220
To Lessee: Hansen Lind Meyer Inc.
121West Trade Street
Suite 2950
Charlotte, NC 28202
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Notices shall be deemed served upon mailing.
33. Rental Payments. All rental payments, unless otherwise designated
in writing, shall be made to Lessor at the above address.
34. Lessor's Performance of Lessee's Covenants. Should Lessee, after
seven (7) days notice from the Lessor, fail to do any of the things required to
be done by it under the provisions of this Lease, Lessor, in addition to any and
all other rights and remedies, may (but shall not be required to) do the same or
cause the same to be done; and the reasonable amount of any money expended by
Lessor in connection therewith shall constitute additional rental due from
Lessee to Lessor and shall be payable as rental on the date for payment of
rentals immediately following such expenditure.
35. Covenant of Title and Quiet Environment. Lessor covenants and
warrants to Lessee that Lessor has full right and lawful authority to enter into
this lease for the Term hereof and that provided Lessee is not in default
hereunder, Lessee's quiet and peaceable enjoyment of the Premises shall not be
disturbed by anyone claiming through Lessor.
36. Lessor's Liability. Notwithstanding anything to the contrary
herein, Lessee agrees that it shall look solely to Lessor's interest in the
Premises and to any liability insurance coverage maintained by Lessor for the
collection or satisfaction of any judgment or other judicial process requiring
the payment of money by Lessor for any breach or default by Lessor of any of its
obligations under this Lease. No other assets of Lessor shall be subject to
levy, execution or other judicial process for the satisfaction of Lessee's
claim.
37. Interest. Any sums due to be paid by Lessee to or for the benefit
of Lessor which are not paid when due shall bear interest from the due date of
the date of payment at the highest rate allowed by law or if no such rate is
numerically defined, then at the rate of eighteen percent (18%) per annum.
38. Construction. This Lease shall not be construed more strictly
against either party regardless of which party is responsible for the
preparation of the same.
39. Memorandum. Promptly upon the request of either party, a memorandum
of this Lease shall be executed and recorded.
9
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have signed and sealed this Lease
Agreement, the day and year first above written.
LESSOR:
Jane D. Harris, Partner
CTHL PROPERTIES
Post Office Box 11628
Charlotte, NC 28220
/s/ Jane D. Harris (SEAL)
--------------------------------------
LESSEE:
Hansen Lind Meyer Inc.
121 West trade Street
Suite 2950
Charlotte, NC 28202
/s/ Vernon B. Brannon (SEAL)
--------------------------------------
WITNESS:
--------------------------------------
WITNESS:
---------------------------------------
10
<TABLE>
<CAPTION>
<S> <C>
SATISFACTION: The debt evidenced by
this Note has been satisfied in full this PROMISSORY NOTE
________ day of _________, 19 ___ Charlotte , N.C.
Signed: _________________________
$ 160,000.00 March 20, 1997
FOR VALUE RECEIVED the undersigned, jointly and severally, promise to pay to Joseph M. Harris
-----------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
or order, the principal sum of One Hundred and Sixty
- --------------------------------------------------------------------- -----------------------------
Thousand DOLLARS ($ 160,000.00 ), with interest from March 20, 1997 , at the rate of
- ---------------------------------- ------------------ --------------------------
fifteen per cent ( 15 %) per annum on the unpaid balance until paid or until default, both principal and interest
- -------------------- ----
payable in lawful money of the United States of America, at the office of HLM, 121 West Trade Street, Suite 2950, Charlotte, NC
---------------------------------------------------------
28202 or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts
- -----
may be advanced by the holder hereof as provided in the instruments, if any, securing this Note and such advances will be added to
the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. The
principal and interest shall be due and payable as follows:
On demand
If not sooner paid, the entire remaining indebtedness shall be due and payable on December 31, 1997 .
---------------------------
</TABLE>
If payable in installments, each such installment shall, unless otherwise
provided, be applied first to payment of interest then accrued and due on the
unpaid principal balance, with the remainder applied to the unpaid principal.
Unless otherwise provided, this Note may be prepaid in full or in part at any
time without penalty or premium. Partial prepayments shall be applied to
installments due in reverse order of this maturity.
In the event of (a) default in payment of any installment of principal or
interest hereof as the same becomes due and such default is not cured within ten
(10) days from the due date, or (b) default under the terms of any instrument
securing this Note, and such default is not cured within fifteen (15) days after
written notice to maker, then in either such event the holder may without
further notice, declare the remainder of the principal sum, together with all
interest accrued thereon and, the prepayment premium, if any, at once due and
payable. Failure to exercise this option shall not constitute a wavier of the
right to exercise the same at any other time. The unpaid principal of this Note,
and any part thereof, accrued interest and all other sums due under this Note
and the Deed of Trust, if any, shall bear interest at the rate of Fifteen per
cent ( 15 %) per annum after default until paid.
All parties to this Note, including maker and any sureties, endorsers, or
guarantors hereby waive protest, presentment, notice of dishonor, and notice of
acceleration of maturity and agree to continue to remain bound for the payment
of principal, interest and all other sums due under this Note and the Deed of
Trust notwithstanding any change or changes by way of release, surrender,
exchange, modification or substitution of any security for this Note or by way
of any extension or extensions of time for the payment of principal and
interest; and all such parties waive all and every kind of notice of such change
or changes and agree that the same may be made without notice or consent of any
of them.
Upon default the holder of this Note may employ an attorney to enforce the
holder's rights and remedies and the maker, principal, surety, guarantor and
endorsers of this Note hereby agree to pay to the holder reasonable attorneys
fees not exceeding a sum equal to fifteen percent (15%) of the outstanding
balance owing on said Note, plus all other reasonable expenses incurred by the
holder in exercising any of the holder's rights and remedies upon default. The
rights and remedies of the holder as provided in this Note and any instrument
securing this Note shall be cumulative and may be pursued singly, successively,
or together against the property described in the Deed of Trust or any other
funds, property or security held by the holder for payment or security, in the
sole discretion of the holder. The failure to exercise any such right or remedy
shall not be a waiver or release of such rights or remedies or the right to
exercise any of them at another time.
This note is to be governed and construed in accordance with the laws of
the State of North Carolina.
This Note is given , and is secured by a
--------------------- -----------
Unsecured
- --------------------------------------------------------------------------------
which is a lien upon the property therein
----------------------------
described.
IN TESTIMONY WHEREOF, each corporate maker has caused this Instrument to be
executed in its corporate name by its , President, attested by its
-------
Secretary, and its corporate seal to be hereto affixed, all
- -------------------
by order of its Board of Directors first duly given, the day and year first
above written,
Hansen Lind Meyer Inc.
- --------------------------------------------------------------------------------
(Corporate Name)
By: /s/ Vernon B. Brannon
- --------------------------------------------------------------------------------
- ----------------------------------------------------- , President
ATTEST:
- --------------------------------------------------------Secretary
(Corporate Seal)
- --------------------------------------------------------------------------------
(Corporate Name)
By:
---------------------------------------------------------------------------
- ------------------------------------------------------, President
ATTEST:
- -----------------------------Secretary (Corporate Seal)
IN TESTIMONY WHEREOF, each individual maker has hereunto set his hand and
adopted as his seal the word "SEAL" appearing beside his name, the day and year
first above written.
(SEAL)
- ----------------------------------------------
(SEAL)
- ----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
<PAGE>
June 1, 1998
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
Ladies and Gentlemen:
This is to acknowledge that the due date of the March 20, 1997 note payable
by HLM Design, Inc. to the undersigned is hereby extended to July 31, 1998.
Very truly yours,
/s/ Joseph M. Harris
_______________________
Joseph M. Harris
<TABLE>
<CAPTION>
<S> <C>
SATISFACTION: The debt evidenced by
this Note has been satisfied in full this PROMISSORY NOTE
________ day of _________, 19 ___ Charlotte , N.C.
Signed: _________________________
$ 25,000,00 March 20, 1997
FOR VALUE RECEIVED the undersigned, jointly and severally, promise to pay to Vernon B. Brannon
-----------------------------------------------------
- -------------------------------------------------------------------------- or order, the principal sum of Twenty-five Thousand
-------------------------
DOLLARS ($ 25,000 ), with interest from March 20, 1997 , at
- ----------------------------------------------------- --------------------- ---------------------
the rate of fifteen per cent ( 15 %) per annum on the unpaid balance until paid or until default, both principal and interest
------- ----
payable in lawful money of the United States of America, at the office of HLM, 121 West Trade Street, Suite 2950, Charlotte, NC
28202 or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may
be advanced by the holder hereof as provided in the instruments, if any, securing this Note and such advances will be added to the
principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. The
principal and interest shall be due and payable as follows:
On demand
If not sooner paid, the entire remaining indebtedness shall be due and payable on December 31, 1997 .
---------------------------------------
</TABLE>
If payable in installments, each such installment shall, unless otherwise
provided, be applied first to payment of interest then accrued and due on the
unpaid principal balance, with the remainder applied to the unpaid principal.
Unless otherwise provided, this Note may be prepaid in full or in part at any
time without penalty or premium. Partial prepayments shall be applied to
installments due in reverse order of this maturity.
In the event of (a) default in payment of any installment of principal or
interest hereof as the same becomes due and such default is not cured within ten
(10) days from the due date, or (b) default under the terms of any instrument
securing this Note, and such default is not cured within fifteen (15) days after
written notice to maker, then in either such event the holder may without
further notice, declare the remainder of the principal sum, together with all
interest accrued thereon and, the prepayment premium, if any, at once due and
payable. Failure to exercise this option shall not constitute a wavier of the
right to exercise the same at any other time. The unpaid principal of this Note,
and any part thereof, accrued interest and all other sums due under this Note
and the Deed of Trust, if any, shall bear interest at the rate of Fifteen per
cent ( 15 %) per annum after default until paid.
All parties to this Note, including maker and any sureties, endorsers, or
guarantors hereby waive protest, presentment, notice of dishonor, and notice of
acceleration of maturity and agree to continue to remain bound for the payment
of principal, interest and all other sums due under this Note and the Deed of
Trust notwithstanding any change or changes by way of release, surrender,
exchange, modification or substitution of any security for this Note or by way
of any extension or extensions of time for the payment of principal and
interest; and all such parties waive all and every kind of notice of such change
or changes and agree that the same may be made without notice or consent of any
of them.
Upon default the holder of this Note may employ an attorney to enforce the
holder's rights and remedies and the maker, principal, surety, guarantor and
endorsers of this Note hereby agree to pay to the holder reasonable attorneys
fees not exceeding a sum equal to fifteen percent (15%) of the outstanding
balance owing on said Note, plus all other reasonable expenses incurred by the
holder in exercising any of the holder's rights and remedies upon default. The
rights and remedies of the holder as provided in this Note and any instrument
securing this Note shall be cumulative and may be pursued singly, successively,
or together against the property described in the Deed of Trust or any other
funds, property or security held by the holder for payment or security, in the
sole discretion of the holder. The failure to exercise any such right or remedy
shall not be a waiver or release of such rights or remedies or the right to
exercise any of them at another time.
This note is to be governed and construed in accordance with the laws of
the State of North Carolina.
This Note is given , and is secured by a
--------------------- -----------
Unsecured
- --------------------------------------------------------------------------------
which is a lien upon the property therein
----------------------------
described.
IN TESTIMONY WHEREOF, each corporate maker has caused this Instrument to be
executed in its corporate name by its , President, attested by its
-------
Secretary, and its corporate seal to be hereto affixed, all
- -------------------
by order of its Board of Directors first duly given, the day and year first
above written,
Hansen Lind Meyer Inc.
- --------------------------------------------------------------------------------
(Corporate Name)
By: /s/ Joseph Harris
- --------------------------------------------------------------------------------
- ----------------------------------------------------- , President
ATTEST:
- ----------------------------------------------------- Secretary
(Corporate Seal)
- --------------------------------------------------------------------------------
(Corporate Name)
By:
---------------------------------------------------------------------------
- ------------------------------------------------------, President
ATTEST:
- -----------------------------Secretary (Corporate Seal)
IN TESTIMONY WHEREOF, each individual maker has hereunto set his hand and
adopted as his seal the word "SEAL" appearing beside his name, the day and year
first above written.
(SEAL)
- ----------------------------------------------
(SEAL)
- ----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
(SEAL)
- -----------------------------------------------
<PAGE>
June 1, 1998
HLM Design, Inc.
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
Ladies and Gentlemen:
This is to acknowledge that the due date of the March 20, 1997 note payable
by HLM Design, Inc. to the undersigned is hereby extended to July 31, 1998.
Very truly yours,
/s/ Vernon B. Brannon
_______________________
Vernon B. Brannon
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph M. Harris First Charter National Bank Hansen Lind Meyer Inc.
21120 Blakely Shores Drive Post Office Box 228 Suite 2950
Davidson, NC 28036 Concord, NC 28025 121 West Trade Street
Charlotte, NC 28202
GUARANTOR'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS BORROWER'S NAME AND ADDRESS
"I" indicates each guarantor above, "You" means the Lender, its successors and assigns. "Borrower" means each person above
jointly and severally.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GUARANTY
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce you, at your option, to make loans or engage
in any other transactions with borrower from time to time, I absolutely and
unconditionally guarantee the full payment of the following debts (as defined
herein) when due (whether at maturity or upon acceleration):
PRESENT DAY GUARANTY
[X] I absolutely and unconditionally guarantee to you the payment and
performance of the following described debt (including all renewals,
extensions, refinancings and modifications) of the
borrower: NOTE DATED 12/10/96 for $500,000.00 .
----------------------------------------------------------------------
PRESENT AND FUTURE DEBT GUARANTY
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description, that
the borrower may not or at any time in the future owe you including,
but not limited to, the following described debt(s):___________________
-----------------------------------------------------------------------
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description, that
the borrower may now or at any time in the future owe you, up to the
principal amount of $____________ plus accrued interest, attorney's
fees and collection costs referable thereto (when permitted by law),
and all other amounts agreed to be paid under all agreements evidencing
the debt and securing the payment of the debt. You may, without notice,
apply this guaranty to such debts of the borrower as you may select
from time to time.
DEFINITIONS - As used in this agreement, the terms "I," "we," and "my" mean all
persons signing this guaranty agreement, individually and jointly, and their
heirs, executors, administrators and assigns.
The term "debt" means all debts, liabilities, and obligations of the
borrower (including, but not limited to, all amounts agreed to be paid under the
terms of any notes or agreements securing the payment of any debt, liability or
obligation, overdrafts, letters of credit, guaranties, advances for taxes,
insurance, repairs and storage, and all extensions, renewals, refinancings and
modification of the debts) whether now existing or created or incurred in the
future, due or to become due, or absolute or contingent, except for any
obligations incurred by borrower after the date of this guaranty for which the
borrower meets your standard of creditworthiness based on the borrower's own
assets and income without the addition of a guaranty, or to which, although you
require the addition of a guaranty, the borrower chooses someone other than me
to guaranty the obligation.
APPLICABLE LAW - This agreement is governed by the law of the state in which you
are located. Any term of this agreement that does not comply with applicable law
will not be effective if that law does not expressly or impliedly permit
variations by agreement. If any part of this agreement cannot be enforced
according to its terms, this fact will not affect the balance of this agreement.
REVOCATION - I agree that this is an absolute and continuing guaranty. If this
guaranty is limited to the payment of a specific debt of the borrower described
above, this agreement cannot be revoked and will remain in effect until the debt
is paid in full. If this guaranty covers both the borrower's present and future
debts, I agree that this guaranty will remain binding on me, whether or not
there are any debts outstanding, until you have actually received written notice
of my revocation or written notice of my death or incompetence.
Notice of revocation or notice of my death or incompetence will not
affect my obligations under this guaranty with respect to any debts incurred by
or for which you have made a commitment to borrower before you actually receive
such notice, and all renewals, extensions, refinancings, and modifications of
such debts. I agree that if any other person signing this agreement provides a
notice of revocation to you, I will still be obligated under this agreement
until I provide a notice of revocation to you. If any other person signing this
agreement dies or is declared incompetent, such fact will not affect my
obligations under this agreement.
OBLIGATIONS INDEPENDENT - I agree that I am obligated to pay according to the
terms of this guaranty even if any other person has agreed to pay the borrower's
debt. My obligation to pay according to the terms of this guaranty shall not be
affected by the illegality, invalidity or unenforceability of any notes or
agreements evidencing the debt, the violation of any applicable usury laws,
forgery, or any other circumstances which make the indebtedness unenforceable
against the borrower.
I will remain obligated to pay on this guaranty even if any other
person who is obligated to pay the borrower's debt, including the borrower, has
such obligation discharged in bankruptcy, foreclosure, or otherwise discharged
by law. In such situations, my obligations shall include post-bankruptcy
petition interest and attorneys' fees and any other amounts which borrower is
discharged from paying or which do not otherwise accrue to borrower's
indebtedness due to borrower's discharge. I will also be obligated to pay you,
to the fullest extent permitted by law, any deficiency remaining after
foreclosure of any mortgage or security interest securing borrower's debt,
whether or not the liability of borrower or any other obligor for such
deficiency is discharged by statute or judicial decision. If any payments by
borrower to you are thereafter set aside, recovered, rescinded, in whole or in
part, are settled by you at your discretion, or are in any way recouped or
recovered from you for any reason (including, without limitation, the
bankruptcy, insolvency, or reorganization of borrower or any other obligor),
then I am obligated to reimburse or indemnify you for the full amount you so pay
together with costs, interest, attorneys' fees and all other expenses which you
incur in connection therewith. I also agree that if my liability is limited to a
stated principal amount (plus other agreed charges), you may allow the borrower
to incur debt in excess of the specified amount and apply to the payment of such
excess any amounts you receive for payment of the debt from the borrower or any
other person, any amounts resulting from any collateral, or amounts received
from any other source, without affecting my obligations under this agreement.
No modification of this agreement is effective unless in writing and
signed by you and me, except that you may, without notice to me and without the
addition of a signed writing or my approval: (1) release any borrower or other
person who may be liable for borrower's debt, (2) release or substitute any
collateral, (3) fail to perfect any security interest or otherwise impair any
collateral, (4) waive or impair any right you may have against any borrower or
other person who may be liable for borrower's debt, (5) settle or compromise any
claim against the borrower or any person who may be liable for the borrower's
debt, (6) procure any additional security or persons who agree to be liable for
borrower's debt, (7) delay or fail to pursue enforcement of the debt, (8) apply
amounts you receive from the borrower or other persons to payment of the debt in
any order you select, (9) make any election with respect to the debt provided by
law or any agreement with any person liable for the debt, (10) exercise or fail
to exercise any rights you have with respect to the debt, (11) extend new credit
to the borrower, or (12) renew, extend, refinance or modify the borrower's debt
on any terms agreed to by you and the borrower (including, but not limited to,
changes in the interest rate or in the method, time, place or amount of payment)
without affecting my obligation to pay under this guaranty.
<PAGE>
WAIVER - I waive presentment, demand, protest, notice of dishonor, and notice of
acceptance of this guaranty. I also waive, to the extent permitted by law, all
notices, all defenses and claims that the borrower could assert, any right to
require you to pursue any remedy or seek payment from any other person before
seeking payment under this agreement, and all other defenses to the debt, except
payment in full. You may without notice to me and without my consent, enter into
agreements with the borrower from time to time for purposes of creating or
continuing the borrower's debt as allowed by this guaranty. I agree that I will
be liable, to the fullest extent permitted by applicable law, for any deficiency
remaining after foreclosure (or repossession) and sale of any collateral without
regard to whether borrower's obligation to pay such deficiency is discharged by
law. If any payments on the debt are set aside, recovered or required to be
returned in the event of the insolvency, bankruptcy or reorganization of the
borrower, my obligations under this agreement will continue as if such payments
had never been made.
I also waive and relinquish all present and future claims, rights,
and remedies against borrower or any other obligated party arising out of the
creation or my performance of this guaranty. My waiver includes, but is not
limited to, the right of contribution, reimbursement, indemnification,
subrogation, exoneration, and any right to participate in any claim or remedy
you may have against the borrower, collateral, or other party obligated for
borrower's debts, whether or not such claim, remedy, or right arises in equity,
or under contract, statute or common law.
REMEDIES - If I fail to keep any promise contained in this agreement or any
agreement securing this agreement, you may, make this agreement and the
borrower's debt immediately due and payable, you may set-off this obligation
against any right I have to receive money from you (however, you may not set-off
against any accounts in which my rights are only as a fiduciary or my IRA or
other tax-deferred retirement account), you may use any remedy you have under
state or federal law, and you may use any remedy given to you by any agreement
securing this agreement. If I die, am declared incompetent, or become insolvent
(either because my liabilities exceed my assets or because I am unable to pay my
debts as they become due), you may make the debt immediately due and payable.
COLLECTION COSTS - Except when prohibited by law, I agree to pay the reasonable
costs and expenses you incur to enforce and collect this agreement, including
attorneys' fees and court costs.
SECURITY - This guaranty is [X] unsecured [ ] secured by .
-----------------------
- --------------------------------------------------------------------------------
NOTICE TO COSIGNER
You are being asked to guarantee the debts described above. If you are
making a "Present and Future Debt Guaranty" as identified above, you are being
asked to guarantee PRESENT as well as FUTURE debts of the borrower entered into
with this lender. Think carefully before you do. If the borrower doesn't pay
these debts, you will have to. Be sure you can afford to pay if you have to, and
that you want to accept this responsibility.
You may have to pay up to the full amount of these debts if the borrower
does not pay. You may also have to pay late fees or collection costs, which
increase this amount.
The lender can collect these debts from you without first trying to collect
from the borrower. The lender can use the same collection methods against you
that can be used against the borrower, such as suing you, garnishing your wages,
etc. If these (SEAL) debts are ever in default, that fact may become part of
YOUR credit record.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In witness whereof, I have signed my name and affixed my seal on this 10 day of
DECEMBER, 1996 , and, by doing so, agree to the terms of this guaranty and
acknowledge having read the Notice to Cosigner.
\s\ Joseph M. Harris (SEAL)
- ------------------------------------------------------------------------------
Joseph M. Harris
###-##-####
- ------------------------------------------------------------------------------
(SEAL)
- ------------------------------------------------------------------------------
(SEAL)
- --------------------------------------------------------------------------------
2
<PAGE>
STATE OF North Carolina
------------------------------------
COUNTY OF Mecklenburg
------------------------------------
I, Dianne E. McNeff , a notary public for said state and county,
---------------------------------
(NAME OF NOTARY PUBLIC)
do hereby certify that Joseph M. Harris personally appeared
----------------------------
before me this day and acknowledged the due execution of the foregoing
instrument in writing.
WITNESS my hand and notarial seal, this 13th day of December , 1996 .
------ ------------- -----
/s/ Dianne E. McNeff
---------------------------------------
(SIGNATURE OF NOTARY PUBLIC)
My Commission Expires:
March 2, 1999
- ----------------------------------
(NOTARY SEAL)
STATE OF __________________________
COUNTY OF _________________________
This the day of , 19 ,
--------- --------------------------------- --------
personally appeared before me
__________________________________________ , who, being by me first duly sworn,
(NAME OF (VICE) PRESIDENT OF CORPORATE GUARANTOR)
says that he is the (Vice) President of ______________________________________;
(NAME OF CORPORATE GUARANTOR)
that the seal affixed to the foregoing instrument in writing is the corporate
seal of said corporation, and that the said writing was signed and sealed by
him/her on behalf of said corporation by its authority duly given. And the said
(Vice) President acknowledged the said writing to be the act and deed of said
corporation.
----------------------------------------
(SIGNATURE OF NOTARY PUBLIC)
My Commission Expires:
______________________________
(NOTARY SEAL)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Vernon B. Brannon First Charter National Bank Hansen Lind Meyer Inc.
5301 Mirabell Road Post Office Box 228 Suite 2950
Charlotte, NC 28226 Concord, NC 28025 121 West Trade Street
Charlotte, NC 28202
GUARANTOR'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS BORROWER'S NAME AND ADDRESS
"I" indicates each guarantor above, "You" means the Lender, its successors and assigns. "Borrower" means each person above
jointly and severally.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GUARANTY
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce you, at your option, to make loans or engage
in any other transactions with borrower from time to time, I absolutely and
unconditionally guarantee the full payment of the following debts (as defined
herein) when due (whether at maturity or upon acceleration):
PRESENT DAY GUARANTY
[X] I absolutely and unconditionally guarantee to you the payment and
performance of the following described debt (including all renewals,
extensions, refinancings and modifications) of the
borrower: NOTE DATED 12/10/96 for $500,000.00
---------------------------------------------------------------------
PRESENT AND FUTURE DEBT GUARANTY
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description, that
the borrower may not or at any time in the future owe you including,
but not limited to, the following described debt(s): _________________
- -------------------------------------------------------------------------------
[ ] I absolutely and unconditionally guarantee to you the payment and
performance of each and every debt, of every type and description, that
the borrower may now or at any time in the future owe you, up to the
principal amount of $______ plus accrued interest, attorney's fees and
collection costs referable thereto (when permitted by law), and all
other amounts agreed to be paid under all agreements evidencing the
debt and securing the payment of the debt. You may, without notice,
apply this guaranty to such debts of the borrower as you may select
from time to time.
DEFINITIONS - As used in this agreement, the terms "I," "we," and "my" mean all
persons signing this guaranty agreement, individually and jointly, and their
heirs, executors, administrators and assigns.
The term "debt" means all debts, liabilities, and obligations of the
borrower (including, but not limited to, all amounts agreed to be paid under the
terms of any notes or agreements securing the payment of any debt, liability or
obligation, overdrafts, letters of credit, guaranties, advances for taxes,
insurance, repairs and storage, and all extensions, renewals, refinancings and
modification of the debts) whether now existing or created or incurred in the
future, due or to become due, or absolute or contingent, except for any
obligations incurred by borrower after the date of this guaranty for which the
borrower meets your standard of creditworthiness based on the borrower's own
assets and income without the addition of a guaranty, or to which, although you
require the addition of a guaranty, the borrower chooses someone other than me
to guaranty the obligation.
APPLICABLE LAW - This agreement is governed by the law of the state in which you
are located. Any term of this agreement that does not comply with applicable law
will not be effective if that law does not expressly or impliedly permit
variations by agreement. If any part of this agreement cannot be enforced
according to its terms, this fact will not affect the balance of this agreement.
REVOCATION - I agree that this is an absolute and continuing guaranty. If this
guaranty is limited to the payment of a specific debt of the borrower described
above, this agreement cannot be revoked and will remain in effect until the debt
is paid in full. If this guaranty covers both the borrower's present and future
debts, I agree that this guaranty will remain binding on me, whether or not
there are any debts outstanding, until you have actually received written notice
of my revocation or written notice of my death or incompetence.
Notice of revocation or notice of my death or incompetence will not
affect my obligations under this guaranty with respect to any debts incurred by
or for which you have made a commitment to borrower before you actually receive
such notice, and all renewals, extensions, refinancings, and modifications of
such debts. I agree that if any other person signing this agreement provides a
notice of revocation to you, I will still be obligated under this agreement
until I provide a notice of revocation to you. If any other person signing this
agreement dies or is declared incompetent, such fact will not affect my
obligations under this agreement.
OBLIGATIONS INDEPENDENT - I agree that I am obligated to pay according to the
terms of this guaranty even if any other person has agreed to pay the borrower's
debt. My obligation to pay according to the terms of this guaranty shall not be
affected by the illegality, invalidity or unenforceability of any notes or
agreements evidencing the debt, the violation of any applicable usury laws,
forgery, or any other circumstances which make the indebtedness unenforceable
against the borrower.
I will remain obligated to pay on this guaranty even if any other
person who is obligated to pay the borrower's debt, including the borrower, has
such obligation discharged in bankruptcy, foreclosure, or otherwise discharged
by law. In such situations, my obligations shall include post-bankruptcy
petition interest and attorneys' fees and any other amounts which borrower is
discharged from paying or which do not otherwise accrue to borrower's
indebtedness due to borrower's discharge. I will also be obligated to pay you,
to the fullest extent permitted by law, any deficiency remaining after
foreclosure of any mortgage or security interest securing borrower's debt,
whether or not the liability of borrower or any other obligor for such
deficiency is discharged by statute or judicial decision. If any payments by
borrower to you are thereafter set aside, recovered, rescinded, in whole or in
part, are settled by you at your discretion, or are in any way recouped or
recovered from you for any reason (including, without limitation, the
bankruptcy, insolvency, or reorganization of borrower or any other obligor),
then I am obligated to reimburse or indemnify you for the full amount you so pay
together with costs, interest, attorneys' fees and all other expenses which you
incur in connection therewith. I also agree that if my liability is limited to a
stated principal amount (plus other agreed charges), you may allow the borrower
to incur debt in excess of the specified amount and apply to the payment of such
excess any amounts you receive for payment of the debt from the borrower or any
other person, any amounts resulting from any collateral, or amounts received
from any other source, without affecting my obligations under this agreement.
No modification of this agreement is effective unless in writing and
signed by you and me, except that you may, without notice to me and without the
addition of a signed writing or my approval: (1) release any borrower or other
person who may be liable for borrower's debt, (2) release or substitute any
collateral, (3) fail to perfect any security interest or otherwise impair any
collateral, (4) waive or impair any right you may have against any borrower or
other person who may be liable for borrower's debt, (5) settle or compromise any
claim against the borrower or any person who may be liable for the borrower's
debt, (6) procure any additional security or persons who agree to be liable for
borrower's debt, (7) delay or fail to pursue enforcement of the debt, (8) apply
amounts you receive from the borrower or other persons to payment of the debt in
any order you select, (9) make any election with respect to the debt provided by
law or any agreement with any person liable for the debt, (10) exercise or fail
to exercise any rights you have with respect to the debt, (11) extend new credit
to the borrower, or (12) renew, extend, refinance or modify the borrower's debt
on any terms agreed to by you and the borrower (including, but not limited to,
changes in the interest rate or in the method, time, place or amount of payment)
without affecting my obligation to pay under this guaranty.
<PAGE>
WAIVER - I waive presentment, demand, protest, notice of dishonor, and notice of
acceptance of this guaranty. I also waive, to the extent permitted by law, all
notices, all defenses and claims that the borrower could assert, any right to
require you to pursue any remedy or seek payment from any other person before
seeking payment under this agreement, and all other defenses to the debt, except
payment in full. You may without notice to me and without my consent, enter into
agreements with the borrower from time to time for purposes of creating or
continuing the borrower's debt as allowed by this guaranty. I agree that I will
be liable, to the fullest extent permitted by applicable law, for any deficiency
remaining after foreclosure (or repossession) and sale of any collateral without
regard to whether borrower's obligation to pay such deficiency is discharged by
law. If any payments on the debt are set aside, recovered or required to be
returned in the event of the insolvency, bankruptcy or reorganization of the
borrower, my obligations under this agreement will continue as if such payments
had never been made.
I also waive and relinquish all present and future claims, rights,
and remedies against borrower or any other obligated party arising out of the
creation or my performance of this guaranty. My waiver includes, but is not
limited to, the right of contribution, reimbursement, indemnification,
subrogation, exoneration, and any right to participate in any claim or remedy
you may have against the borrower, collateral, or other party obligated for
borrower's debts, whether or not such claim, remedy, or right arises in equity,
or under contract, statute or common law.
REMEDIES - If I fail to keep any promise contained in this agreement or any
agreement securing this agreement, you may, make this agreement and the
borrower's debt immediately due and payable, you may set-off this obligation
against any right I have to receive money from you (however, you may not set-off
against any accounts in which my rights are only as a fiduciary or my IRA or
other tax-deferred retirement account), you may use any remedy you have under
state or federal law, and you may use any remedy given to you by any agreement
securing this agreement. If I die, am declared incompetent, or become insolvent
(either because my liabilities exceed my assets or because I am unable to pay my
debts as they become due), you may make the debt immediately due and payable.
COLLECTION COSTS - Except when prohibited by law, I agree to pay the reasonable
costs and expenses you incur to enforce and collect this agreement, including
attorneys' fees and court costs.
SECURITY - This guaranty is [X] unsecured [ ] secured by
-----------------------
- --------------------------------------------------------------------------------
NOTICE TO COSIGNER
You are being asked to guarantee the debts described above. If you are
making a "Present and Future Debt Guaranty" as identified above, you are being
asked to guarantee PRESENT as well as FUTURE debts of the borrower entered into
with this lender. Think carefully before you do. If the borrower doesn't pay
these debts, you will have to. Be sure you can afford to pay if you have to, and
that you want to accept this responsibility.
You may have to pay up to the full amount of these debts if the borrower
does not pay. You may also have to pay late fees or collection costs, which
increase this amount.
The lender can collect these debts from you without first trying to collect
from the borrower. The lender can use the same collection methods against you
that can be used against the borrower, such as suing you, garnishing your wages,
etc. If these (SEAL) debts are ever in default, that fact may become part of
YOUR credit record.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In witness whereof, I have signed my name and affixed my seal on this 10 day of
DECEMBER, 1996 , and, by doing so, agree to the terms of this guaranty and
acknowledge having read the Notice to Cosigner.
/s/ Vernon B. Brannon (SEAL)
- -----------------------------------------------------------------------------
Vernon B. Brannon
###-##-####
- -----------------------------------------------------------------------------
(SEAL)
- -----------------------------------------------------------------------------
(SEAL)
- --------------------------------------------------------------------------------
2
<PAGE>
STATE OF North Carolina
--------------------------------------
COUNTY OF Mecklenburg
--------------------------------------
I, Dianne E. McNeff , a notary public for said state and county,
--------------------------------
(NAME OF NOTARY PUBLIC)
do hereby certify that Vernon B. Brannon personally appeared
-----------------------------
before me this day and acknowledged the due execution of the foregoing
instrument in writing.
WITNESS my hand and notarial seal, this 16th day of December , 1996 .
--------- ---------- -----
/s/ Dianne E. McNeff
------------------------------------------
(SIGNATURE OF NOTARY PUBLIC)
My Commission Expires:
March 2, 1999
- ----------------------------------
(NOTARY SEAL)
STATE OF _______________________________
COUNTY OF ______________________________
This the day of , 19 ,
-------- ---------------------------------- --------
personally appeared before me
_____________________________________________ who, being by me first duly sworn,
(NAME OF (VICE) PRESIDENT OF CORPORATE GUARANTOR),
says that he is the (Vice) President of _______________________________________;
(NAME OF CORPORATE GUARANTOR)
that the seal affixed to the foregoing instrument in writing is the corporate
seal of said corporation, and that the said writing was signed and sealed by
him/her on behalf of said corporation by its authority duly given. And the said
(Vice) President acknowledged the said writing to be the act and deed of said
corporation.
---------------------------------------------
(SIGNATURE OF NOTARY PUBLIC)
My Commission Expires:
- -----------------------------
(NOTARY SEAL)
THIS WARRANT AND THE SHARE ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE 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 COMPANY 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.
Warrant No. W 1 7,761 Shares (subject to adjustment)
COMMON STOCK PURCHASE WARRANT
-----------------------------
To Subscribe for Share of
Common Stock
of
HLM DESIGN, INC.,
a Delaware corporation
THIS CERTIFIES THAT, in exchange for the sum of $10,800.00 in
cash and for other good and valuable consideration, Pacific Capital., L.P., a
Delaware limited partnership (the "Holder") is entitled to subscribe for and
purchase from HLM Design, Inc., a Delaware corporation (the "Company") up to
seven thousand seven hundred sixty-one (7,761) shares (subject to increase and
adjustment as set forth herein) of the Company's Common Stock, $0.01 par value
per share (the "Shares") at a price of $0.01 per share (the "Warrant Price") at
any time from the date hereof to and including 5:00 p.m. (EDT) on July 31, 2002
(or the next following business day if such day is not a business day), subject
to the terms and conditions stated in this Warrant. At the time of issuance of
this Warrant and including this Warrant, the Company has outstanding, on a fully
diluted/converted basis calculated in accordance with generally accepted
accounting principles in effect on the date hereof, 64,672 shares of Common
Stock.
In the event that the indebtedness owed by the Company to the
Holder pursuant to that certain Note (the "Note") purchased by Holder from the
Company pursuant to that certain Note Purchase Agreement, dated May 30, 1997, is
not repaid in full on or before May 30, 1999, then the number of shares of the
Company's Common Stock that may be purchased by the Holder of this Warrant shall
increase by 260 shares on each May 30 thereafter, until the indebtedness is paid
in full. Such increase shall occur automatically and without the need for the
Holder of this Warrant to make demand therefore or to tender this Warrant to the
Company for replacement; provided, however, that if the Holder elects to tender
this Warrant to the Company for a replacement warrant, the Company shall
promptly thereafter deliver to the Holder a new Warrant setting forth the total
number of shares of the Company's common stock then covered by the Warrant.
<PAGE>
1. Exercise of Warrant.
The rights represented by this Warrant may be exercised by the
Holder hereof in whole or in part (provided that this Warrant may not be
exercised for fractional shares) by the surrender to the Company of this Warrant
and delivery of an executed Subscription Notice in the form attached hereto to
the Company at its principal office at any time or times within the period
specified above, accompanied by payment for the Shares so subscribed for by
either (i) delivery of cash or certified or bank checks in lawful money of the
United States or (ii) cancellation of a portion of any indebtedness owed by the
Company to Holder pursuant to the Note in an amount equal to the exercise price
for the portion of the Warrant being exercised, at the option of the Holder. In
the event of the partial exercise of the rights represented by this Warrant, a
new Warrant representing the number of Shares as to which this Warrant shall not
have been exercised shall be promptly issued to the Holder. In any event, such a
new Warrant and a certificate or certificates for the Shares purchase by
exercise of this Warrant shall be delivered by the Company to the Holder not
later than ten days after payment for the purchased Shares is received by the
Company. The Company covenants and agrees that it will pay when due any and all
state and federal issue taxes which may be payable in respect of the issuance of
this Warrant or the issuance of any Shares upon exercise of this Warrant.
2. Validity of Issue.
The Company warrants and agrees that all Shares of Common
Stock which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be fully paid and non-assessable and free from all
taxes, liens, charges and preemptive rights, if any, with respect to the issue
thereof. The Company further warrants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
3. Investment Representation.
The Holder by accepting this Warrant represents that this
Warrant is acquired for the Holder's own account for investment purposes and not
with a view to any offering or distribution and that the Holder has no present
intention of selling or otherwise disposing of this Warrant or the underlying
Shares. Upon exercise, the Holder will confirm in respect of securities obtained
upon such exercise, that it is acquiring such securities for its own account and
not with a view to any offering or distribution in violation of applicable
securities laws.
4. Adjustments to the Number of Shares.
The kind of securities purchasable upon the exercise of this
Warrant and the number of shares purchasable upon exercise of this Warrant shall
be subject to adjustment from time to time upon the occurrence of certain events
as follows:
2
<PAGE>
(a) Reclassification, Consolidation or Merger. In
case of any reclassification or change of outstanding securities of the class
issuable upon exercise of this Warrant (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation, other than a merger with
another corporation in which the Company is a continuing corporation and which
does not result in any reclassification of change or outstanding securities
issuable upon exercise of this Warrant, or in case of any sale of all or
substantially all of the assets of the Company, the Company, or such successor
or purchasing corporation, as the case may be, shall execute a new Warrant,
providing that the Holder shall have the right to exercise such new Warrant and
procure upon such exercise, in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change, consolidation, or merger by a holder of one share of Common Stock. Such
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4. No
consolidation or merger of the Company with or into another corporation referred
to in the first sentence of this subsection (a) shall be consummated unless the
successor or purchasing corporation referred to above shall have agreed to issue
a new Warrant as provided in this Section 4. The provisions of this Subsection
(a) shall similarly apply to successive reclassification, changes,
consolidations, mergers and transfers.
(b) Subdivision or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine the Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of combination.
(c) Stock Dividends. If the Company at any time while
this Warrant is outstanding and unexpired shall pay a dividend payable in Common
Stock, or make any other distribution payable in Common Stock, with respect to
Common Stock (except any distribution specifically provided for in the foregoing
Subsections (a) or (b)), then the Warrant Price shall be adjusted, from and
after the date of determination of shareholders entitle to receive such dividend
or distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (a) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution and (b) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each
adjustment in the Warrant Price pursuant to any of Subsections 4(b) and (c), the
number of shares of Common Stock purchasable hereunder shall be adjusted, to the
nearest whole share, to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator or which shall be the Warrant Price
immediately thereafter.
3
<PAGE>
(e) Notice of Adjustments. Upon any adjustment of
this Warrant under this Section 4, then and in each such case the Company shall
give written notice thereof, by first class mail, postage prepaid, addressed to
the Holder of this Warrant at its address registered on the books of the
Company, which notice shall state (i) the increase or decrease, if any, in the
Warrant Price resulting from such adjustment, and (ii) the increase or decrease,
if any, in the number of Shares purchasable at such price upon the exercise of
this Warrant, and (iii) any change in the type of security issuable upon
exercise hereof setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
5. Issuance of Additional Capital Stock
(a) The Company covenants and agrees that it shall
not sell any shares of the Company's capital stock at a price below the greater
of $64.00 per share (as adjusted for stock splits, stock dividends,
recapitalizations and the like) for such shares or the fair market value of such
shares, without the prior written consent of the Holder hereof. In the event
that the Company sells shares of the Company's capital stock in violation of
this Section 5(a), the number of shares issuable upon exercise of this Warrant
shall be equal to the product obtained by multiplying the number of shares
issuable pursuant to this Warrant prior to such sale by the quotient obtained by
dividing (i) the greater of the fair market value of the shares or $64.00 per
share (as adjusted for stock splits, stock dividends, recapitalizations and the
like) for such shares issued in violation of this Section 5(a) by (ii) the price
at which such shares were sold.
(b) The Company shall give to the Holder at least 20
days' prior written notice, by first class mail, postage prepaid, addressed to
the Holder at its address registered on the books of the Company, of the record
date for determining the Holders of Shares who shall be granted rights for or to
purchase, or any options for the purchase of, any capital stock of the Company
or evidence of indebtedness, or other securities directly or indirectly
convertible into or exchangeable for Common Stock, to the end that the Holder
may exercise its rights to acquire Common Stock under this Warrant, by delivery
or an executed Subscription Notice in accordance with Section 1 prior to said
record date, and may thereby receive the same rights as other holders of Common
Stock on said record date.
6. Miscellaneous
6.1. Definition. As used herein, the term "Common
Stock" shall mean and include the Company's presently authorized Common Stock,
$0.01 par value, and stock of any other class into which such presently
authorized Common Stock may hereafter be changed.
6.2. Rights as Warrantholder; Rights Offerings;
Preemptive Rights; Preference Rights. This Warrant shall not entitle the Holder
hereof to any voting rights or other rights as a stockholder of the Company, or
to any other rights whatsoever except the rights herein expressed, and no cash
dividend paid out of earnings or surplus or interest shall be payable or accrue
in respect of this Warrant or the interest represented hereby or the Shares
which may be subscribed for and purchase hereunder until and unless and except
to the extent that the rights represented by
4
<PAGE>
this Warrant shall be exercised. Notwithstanding the foregoing, if the Company
should offer to all of the Company's shareholders the right to purchase any
securities of the Company, then all shares of Common Stock that are subject to
this Warrant shall be deemed to be outstanding and owned by the Holder and the
Holder shall be entitled to participate in such rights offering. The Company
shall not grant any preemptive rights with respect to any of its capital stock
without the prior written consent of the Holder. The Company shall not issue any
securities which entitle the holder thereof to obtain any preference over
holders of Common Stock upon the dissolution, liquidation, winding-up, sale,
merger or reorganization of the Company without the prior written consent of the
Holder.
6.3. Replacement Warrants. This Warrant is
exchangeable, upon the surrender hereof at the office or agency of the Company,
for new Warrants of like tenor representing in the aggregate the right to
subscribe for and purchase the number of shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of shares as shall be designated by said
Holder hereof at the time of such surrender.
6.4. Registration Rights. The shares of Common Stock
that may be acquired by the Holder from the Company upon exercise of this
Warrant shall be entitled to the benefits of a certain Registration Rights
Agreement between the Company and the Holder dated May 30, 1997.
6.5. Observation Rights. In addition to such other
rights as Holder may have, the original Holder of this Warrant shall receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity. The original Holder and each subsequent Holder of this Warrant shall
(a) receive copies of all notices, packages and documents provided to members of
the Company's Board of Directors for each board of directors meeting, and (b)
receive copies of all actions taken by written consent by the Company's Board of
Directors from the dates hereof until such time as this Warrant is exercised in
full or expires. The Company's failure to make delivery of the foregoing shall
not impair the validity of any action taken by the Board of Directors.
6.6. Shareholders Agreement. Upon the exercise of
this Warrant for any or all the Shares hereunder, Holder shall become a party
to, and be entitled to the rights under, such Shareholders' Agreement between
the Company and the shareholders thereof which has been approved by the original
Holder of this Warrant.
7. Transfer and Registration.
7.1. Compliance with Securities Laws. If any proposed
transfer of this Warrant, in whole or in part, or the Shares issuable upon
exercise of this Warrant might reasonably involve a public offering of the same
contrary to the investment representations in Section 3, the Company may
require, as a condition precedent to such transfer, an opinion of counsel,
satisfactory
5
<PAGE>
to it, that the proposed transfer will not involve a public offering which is
required to be registered under the Securities Act of 1933. However, no such
requirement shall be imposed during such time as a new registration statement or
a post-effective amendment thereof covering the Shares or part thereof being
transferred is in effect.
7.2. Transfer. Subject to Section 7.1 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender of this
Warrant at the principal office of the Company, together with an assignment of
this Warrant in the form attached hereto duly executed by the Holder or its
agent or attorney. If transferred in part, upon the surrender of this Warrant
two (2) or more new Warrants, together representing the total number of Shares
as to which this Warrant applies, shall be promptly issued to the Holder and its
transferee(s).
8. Put Agreement.
(a) The Company hereby irrevocably grants and issues
to the Holder the right and option to sell to the Company (the "Put") this
Warrant for a period of 30 days immediately prior to the expiration hereof, at a
purchase price (the "Purchase Price") equal to the Fair Market Value (as
hereinafter defined) of the shares of Common Stock issuable to the Holder upon
exercise of this Warrant less the exercise price.
(b) The Company shall pay to the Holder, in cash or
certified or cashier's check, the Purchase Price in exchange for the delivery to
the Company of this Warrant within thirty (30) days of the receipt of written
notice from the Holder of its intention to exercise the Put.
(c) The Fair Market Value of the shares of Common
Stock of the Company issuable pursuant to this Warrant shall be determined as
follows:
(i) The Company and the Holder shall each
appoint an independent, experienced appraiser who is
a member of a recognized professional association of
business appraisers. The two appraisers shall
determine the value of the shares of Common Stock
which would be issued upon the exercise of the
Warrant assuming that the sale would be between a
willing buyer and a willing seller, both of whom have
full knowledge of the financial and other affairs of
the Company, and neither of whom is under any
compulsion to sell or buy.
(ii) If the highest of the two appraisals is
not more than 10% more than the lowest of the
appraisals, the Fair Market Value shall be the
average of the two appraisals. If the highest of the
two appraisals is 10% more than the lowest of the two
appraisals, then a third appraiser shall be appointed
by
6
<PAGE>
the two appraisers, and if they cannot agree on a
third appraiser, the American Arbitration Association
shall appoint the third appraiser. The third
appraiser, regardless of who appoints him or her,
shall have the same qualifications as the first two
appraisers.
(iii) The Fair Market Value after the
appointment of the third appraiser shall be the mean
of the three appraisals.
(iv) The fees and expenses of the appraisers
shall be paid one-half by the Company and one-half of
by the Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant (W-1)
to be signed by its President and attested by its Secretary as of the 30th day
of May, 1997.
HLM DESIGN, INC.
By:/s/ Joseph M. Harris
----------------------------
President
Attest:
/s/ Vernon B. Brannon
- ---------------------------
Asst. Secretary
7
<PAGE>
FORM OF SUBSCRIPTION NOTICE
(To be signed only on exercise of Warrant)
TO: _______________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant form and to purchase thereunder,
__________ shares of Common Stock of and herewith makes payment of $_______
therefor in cash and requests that the certificates for such shares be issued in
the name of, and delivered to ___________________________ whose address is
_________________________ and whose taxpayer identification number is ________ .
<TABLE>
<S> <C>
Dated:__________________ __________________________________________________________________
(Signature must conform to name of holder as specified on the face
of this Warrant)
__________________________________________________________________
__________________________________________________________________
(Address)
----------
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ___________________________ the right represented by the within
Warrant to purchase shares of Common Stock of _______________________________ to
which the within Warrant relates, and appoints _________________________ as its
Attorney to transfer such right on the books of ________________________________
__________________________________ with full power of substitution in the
premises.
Dated: _______________________ __________________________________________________________________
(Signature must conform to name of holder as specified on the face
of this Warrant)
Signed in the presence of: ___________________________________________________________________________
</TABLE>
8
<PAGE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
We consent to the use in this Amendment No. 5 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 (January 30, 1998, February 13, 1998 and
February 27, 1998 as to the last paragraph in Note 1) 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. 5 to the Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
June 5, 1998
