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.
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
(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.
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(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
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
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
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/ Xxxxxx X. Xxxxxx
----------------------------
President
Attest:
/s/ Xxxxxx X. Xxxxxxx
---------------------------
Asst. Secretary
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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 ________ .
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: ___________________________________________________________________________
8