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.
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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 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
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
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
Shares have been released as provided in paragraph 2 or paragraph 3 above.
5
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:
____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & COMPANY
LEASING, INC.
____________________________________
By:
Its:
ISSUER:
HLM DESIGN, INC.
By:_______________________________
Its:_______________________________
ESCROW AGENT
FIRST UNION NATIONAL BANK
____________________________________
By:_________________________________
Its:________________________________
6
EXHIBIT A
Securities
Name of Holder Number of Shares Number of Options
-------------- ---------------- -----------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 309,188 57,954
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 309,187 57,954
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company Leasing, Inc. 43,631
7
EXHIBIT B
Escrow Agent Fees
8
EXHIBIT C
Officers and Directors
Officers Directors
-------- ---------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III
D. ▇▇▇▇▇▇▇ ▇▇▇▇▇
9