Exhibit 4.10
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FACILITY LETTER
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BANK OF SCOTLAND
funding of
(pound)2,000,000
to
GA DESIGN INTERNATIONAL (HOLDINGS) LIMITED
Dickson Minto W.S.
Edinburgh
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Bank of Scotland
New Uberior House
11 Earl Grey Street
Edinburgh EH3 9BN
GA Design International (Holdings) Limited Telephone: 0131 659 0720
(Company Number 3705307) Fax: 0131 659 0760
2nd Floor Lyme House Studios
30-31 Lyme Street
London NW1 0EE
15 February 2002
Dear Sirs
TERM LOAN OF (pound)2,000,000
We are pleased to offer GA Design International (Holdings) Limited (the
"Borrower") a Term Loan of (pound)2,000,000 (the "Term Loan"). This offer is
open for acceptance by the Borrower until 28th February 2002, when it will
lapse. If accepted, this letter and its schedules will form the agreement
between the Borrower and BoS for the Term Loan.
The definitions which shall apply to this letter are given in Schedules 4 and
11.
1. Conditions Precedent
The Term Loan will not be available until BoS has received, in form and
substance satisfactory to it, the documents and evidence detailed in
Schedule 1.
2. The Term Loan
2.1 Purpose
The Borrower may only use the Term Loan to help fund the cash
consideration payable by the Borrower in respect of its acquisition of
the entire issued share capital of the Target.
2.2 Drawdown
2.2.1 Subject to 2.2.2 below, the Borrower may draw the Term Loan in
one amount before 28th February 2002 by giving a Notice of
Drawdown no later than 11 am on the proposed date of drawdown
(which must be a Business Day).
2.2.2 The Term Loan may not be drawn down if an Event of Default or
Potential Event of Default has occurred or
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would result from drawdown.
2.3 Repayment
The Term Loan shall (subject to the other provisions of this letter)
be repaid on the following dates by the following instalments:-
Repayment Date Repayment Amount ((pound))
31 January 2003 400,000
31 July 2003 200,000
31 January 2004 200,000
31 July2004 200,000
31 January 2005 200,000
31 July 2005 200,000
31 January 2006 200,000
31 July 2006 200,000
31 January 2007 200,000
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2,000,000
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2.4 Interest
2.4.1 The period for which the Term Loan is outstanding shall be
divided into successive Interest Periods each of which will start
on the expiry of the previous period or, in the case of the first
Interest Period, on drawdown.
2.4.2 The Borrower will pay interest on the Term Loan for each
Interest Period at the annual rate which is the sum of (1) the
Margin, (2) LIBOR and (3) the Mandatory Costs.
2.4.3 Interest will be paid in arrears on each Interest Payment Date.
2.4.4 The Borrower may select Interest Periods of one, three or six
months (subject to 2.4.6 below and/or as otherwise agreed by
BoS).
2.4.5 If the Borrower does not select an Interest Period by 11 am on
the Business Day preceding its commencement then subject to 2.4.6
below, that Interest Period will be three months.
2.4.6 No Interest Period may be selected which (1) extends beyond the
Final Repayment Date or (2) would require the Borrower to repay
all or any part of the Term Loan
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before the end of the relevant Interest Period to ensure that the
Term Loan reduces in accordance with Clause 2.3 above.
2.4.7 If there is a repayment, prepayment or recovery of all or any
part of the Term Loan other than on the last day of an Interest
Period, then the Borrower will pay BoS an amount equal to the
amount (if any) by which the interest which would have been
payable on the amount received at the end of that Interest Period
exceeds the interest which, in the opinion of BoS, would have
been payable on a deposit of equal amount placed with a prime
bank in London for a period from the first Business Day after the
early payment or recovery until the end of that Interest Period
and the Borrower indemnifies BoS against any other costs,
liabilities or expenses incurred by BoS in connection with that
early payment or recovery.
2.5 Prepayment
The Borrower may prepay all or part of the Term Loan provided that:-
2.5.1 it has given BoS at least 5 Business Days' notice in writing of
its intention to prepay;
2.5.2 the prepayment is made on the last day of an Interest Period or
it has met its obligations under 2.4.7 above;
2.5.3 amounts prepaid may not be redrawn;
2.5.4 any prepayment is at least(pound)100,000 and is accompanied by
accrued interest on the amount prepaid;
2.5.5 any notice issued to BoS under 2.5.1 is irrevocable;
2.5.6 any amount prepaid is applied against the instalments due in the
inverse order in which they are otherwise payable; and
2.5.7 BoS is paid, by way of compensation for early repayment, an
amount equal to one per cent. (1%) of the amount prepaid if the
prepayment is made pursuant to, in contemplation of or otherwise
in connection with a refinancing of all or any part of the Term
Loan by a third party which is a bank or financial institution.
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2.6 The Borrower will prepay the Term Loan (together with accrued
interest) on a Sale or on a Listing.
3. Hedging
3.1 The Borrower, after consultation with BoS, shall enter into such
interest rate protection agreements (with BoS Group) regarding its
exposure to interest rates or foreign exchange rates as the Borrower
and BoS may agree from time to time. Any fee or premium payable to BoS
or to any other person in connection with such agreements shall be
payable by the Borrower on demand and the Borrower hereby indemnifies
BoS (and any of its subsidiaries) against all and any liabilities,
losses, damages, costs and other amounts which may arise out of or in
connection with such arrangements (including, without limitation, the
termination or closing out of such arrangements) save to the extent
resulting from the gross negligence or wilful default of BoS or any of
its subsidiaries.
3.2 In consideration of (1) Treasury (now or in the future) entering into
any of the agreements contemplated in 3.1 above with the Borrower or
any Group Company and (2) BoS entering into the Treasury Guarantee,
the Borrower shall indemnify BoS against the Indemnified Events. In
addition, the Borrower:-
3.2.1 authorises BoS to make any payments and comply with any demands
made under the Treasury Guarantee without further authority from
the Borrower and agrees that any such payment shall be binding on
the Borrower without further evidence from BoS of its liability
to make such payment to Treasury;
3.2.2 undertakes to pay to BoS on demand an amount equal to each
amount demanded under the Treasury Guarantee and authorises BoS
to debit any of the Borrower's accounts with such sums; and
3.2.3 agrees that this indemnity shall be a continuing security until
such time as all liabilities, claims, damages, costs and expenses
incurred or sustained by the Borrower under this indemnity have
been paid or discharged in full.
4. Default Interest
4.1 If the Borrower fails to pay any sum under or in relation to the Term
Loan on its due date then the Borrower will pay interest
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on it until it is paid at the Default Rate.
4.2 Default interest payable must be paid monthly in arrear and if not
paid will itself bear interest at the Default Rate.
5. Security
5.1 As security for the Term Loan and any other money owing or incurred to
BoS by any Group Company (including contingent liabilities and all
amounts due to BoS in respect of payment commitments entered into by
BoS on behalf of any Group Company but not yet debited to that
company's account) the Borrower will deliver or procure delivery of
the security detailed in Schedule 1.
5.2 The Borrower will grant such further security to BoS as it may require
from time to time and procure that any subsidiary undertaking which is
created or is acquired by any Group Company after the date of this
letter will grant such security to BoS as it shall notify to the
Borrower from time to time and all such further security will secure
the Term Loan and any other money owing or incurred to BoS by any
Group Company (including contingent liabilities).
6. Representations and Warranties
The Borrower by signing this letter makes the representations and
warranties set out in Schedule 2 and repeats each of them (save for 7, 8,
9, 11, 12 and 16) on each Interest Payment Date.
7. Covenants
The Borrower covenants with BoS that from the date of its acceptance of
this letter until all the Borrower's obligations under it have been
discharged:-
7.1 General Covenants
The Borrower will at all times comply and procure compliance by each
Group Company with the general covenants set out in Schedule 3.
7.2 Financial Covenants
The Borrower will at all times comply with the financial covenants set
out in Schedule 4.
7.3 Financial Information Covenants
The Borrower will at all times comply with the financial
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information covenants set out in Schedule 5.
8. Default and Indemnity
8.1 If an Event of Default occurs and has not been waived by BoS in
writing, BoS may by notice in writing to the Borrower:-
8.1.1 cancel any part of the Term Loan then undrawn; and/or
8.1.2 require repayment (immediately or otherwise as BoS may require)
of the Term Loan together with accrued interest; and/or
8.1.3 require that interest is payable on the Term Loan at the Default
Rate.
8.2 The Borrower will indemnify (and keep indemnified) BoS on written
demand against any loss or expense, including legal fees, which BoS
sustains or incurs:-
8.2.1 because of a default by any Group Company of any obligation
assumed by it under any BoS Document; or
8.2.2 as a consequence of any Event of Default or Potential Event of
Default.
9. Taxes and Increased Cost
9.1 All payments by the Borrower to BoS (being a Qualifying Bank) under
this letter shall be free and without deduction of tax unless the
Borrower is required by law to make a payment subject to deduction or
withholding of tax, in which case the amount payable by the Borrower
will be sufficiently increased to ensure that BoS receives and retains
a net sum equal to that which it would have received and retained were
no deduction or withholding made. If BoS subsequently receives a tax
credit which is referable to the increased payment and which enhances
its position, then it will reimburse the Borrower sufficient to
redress the position up to the amount received so long as by so doing
it does not prejudice receipt or retention of the tax credit.
9.2 If BoS incurs an Increased Cost, then the Borrower will indemnify it
and will promptly pay to it the amount BoS certifies as payable. BoS
will disclose, in reasonable detail, the basis of its calculation but
not any matter which it considers confidential.
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10. Payment, Set Off and Interest Calculations
10.1 All payments of principal, interest or commission will be paid to BoS
at the Borrower's branch unless BoS otherwise directs and shall be in
cleared sterling funds free of set-off or counterclaim.
10.2 All sums of interest or commission will be calculated on the basis of
a year of 365 days and for the actual number of days elapsed following
decree or judgement as well as before it.
10.3 Any determination by BoS of any amount of principal, interest,
commission or charges or an applicable interest rate shall, in the
absence of manifest error, be conclusive and binding on the Borrower.
10.4 Where the due date for payment of any sum under any BoS Document is
not a Business Day then (without affecting subsequent payment dates)
actual payment will be required on the next Business Day unless that
day falls in the next calendar month, in which case payment will be on
the preceding Business Day.
10.5 The Borrower agrees that any monies from time to time standing to its
credit on any account with BoS may be retained as cover for and at any
time without notice to the Borrower applied by BoS in or towards
payment or satisfaction of any monies or liabilities now or from time
to time due, owing or incurred by the Borrower to BoS in whatsoever
manner, whether presently payable or not, whether actually or
contingently, whether solely or jointly with any other person and
whether as principal or surety.
10.6 If BoS exercises any right of set-off in respect of any liability of
the Borrower and that liability or any part of it is in a different
currency from any credit balance against which BoS seeks to set it
off, BoS may use the currency of the credit balance to purchase an
amount in the currency of the liability at the then prevailing spot
rate of exchange and to pay out of the credit balance all costs,
charges and expenses incurred by BoS in connection with that purchase.
10.7 If the Borrower fails to pay any amount due to BoS in Sterling but
makes such payment in another optional currency, the Borrower shall
indemnify BoS against the full cost incurred by BoS (including all
costs, charges and expenses) of converting that payment into Sterling.
10.8 In the event that (1) any currency in which any of the obligations
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under the BoS Documents are denominated from time to time is changed
or replaced at any time after the date of this letter (whether as a
result of the introduction of, changeover to or operation of a single
or unified European currency or otherwise) and/or (2) any price source
for the euro or the national currency of any member state of the
European Union disappears or is replaced and/or (3) any market
conventions relating to the fixing and/or calculation of interest are
changed or replaced, the BoS Documents will be amended to the extent
that BoS (acting reasonably) considers to be required in order to
reflect those circumstances.
11. Illegality
If, in the opinion of BoS, the introduction of any law or regulation or
change in its interpretation, makes it unlawful for BoS to maintain any
part of the Term Loan or carry out any of its obligations in relation to it
then BoS will serve notice to that effect on the Borrower and that notice
will release BoS from those obligations. The Borrower will then repay to
BoS (on its demand or on whatever later date BoS reasonably specifies) the
Term Loan together with any other sums payable to BoS under this letter.
12. Assignment and Transfer
12.1 This letter is for the benefit of the Borrower and BoS and their
successors and assignees and transferees of BoS.
12.2 The Borrower may not assign or transfer all or any of its rights,
obligations or benefits under this letter.
12.3 BoS will be entitled (after consultation with the Borrower) to (1)
assign, novate or transfer and/or (2) permit a participation in all or
any part of its rights and obligations under this letter to or by any
other Qualifying Bank or Banks. The Borrower undertakes to execute and
to procure that each Group Company will execute all documents BoS may
reasonably require to give effect to an assignment, novation or
transfer. If BoS does assign, novate or transfer or enter into a
participation arrangement, the Borrower will continue to deal directly
with BoS as agent.
12.4 BoS will be entitled to enter into any sub-participation or other
contractual arrangement with any person in relation to the BoS
Documents and (subject to 12.5 below) to provide information in
relation to the Group to such persons for such purpose.
12.5 BoS will be entitled to disclose to any prospective or actual
assignee, transferee or participant, any other member of the BoS
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Group or any other person who enters or proposes to enter into
contractual relations with BoS in relation to the BoS Documents
confidential information concerning each Group Company and its
financial condition and any other information which may be given to
BoS in relation to this letter, provided that the person to whom such
information is disclosed undertakes to BoS to maintain the
confidentiality of such information.
13. Notices
Unless otherwise provided in this letter, all notices or other
communications to or between the parties will be in writing and:-
13.1 will be by first-class pre-paid post or by fax transmission,
authenticated to the satisfaction of BoS and if by letter, will be
deemed to have been received forty-eight hours after posting (unless
hand delivered and then at the time of delivery) and if by fax, when
sent (provided a transmission report is received);
13.2 in order to prove that a notice or demand has been made, BoS need only
establish that the notice or demand was properly addressed and posted
or transmitted;
13.3 if given to BoS, it will be given at the address at the head of this
letter or at any other address in the UK which BoS may designate at
any time by notice to the Borrower;
13.4 if given to the Borrower, it will be deemed to be duly given if given
at the address of the Borrower shown above or at any other UK address
the Borrower designates by notice to BoS;
13.5 BoS may rely upon any communication by telephone or fax or purporting
to be on behalf of the Borrower by anyone notified to BoS as being
authorised without enquiry by BoS as to authority provided that BoS
follows any security procedure which has been agreed with the
Borrower. The Borrower agrees to indemnify BoS against any liability
incurred or sustained by BoS as a result.
14. Press Release
The Borrower and BoS shall agree the terms of any public announcement or
press release concerning the terms of this letter and no such announcement
or release shall be issued without the agreement of both unless required by
the SEC or any other applicable Stock Exchange or listing authority. Any
announcement by either party shall in any event be issued only after prior
consultation with the other.
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15. Miscellaneous
15.1 No failure or delay by BoS in exercising any right or remedy under any
BoS Document shall operate as a waiver, and no single or partial
exercise shall prevent further exercise, of any right or remedy.
15.2 If any part of this letter is not valid or enforceable then that shall
not affect any other part.
15.3 The Schedules referred to in this letter shall form part of this
letter.
15.4 Save to the extent expressly provided to the contrary in a BoS
Document, a person who is not a party to a BoS Document may not
enforce any of its terms under the Contracts (Rights of Third Parties)
Act 1999.
16. Principal Banker
All bank transactions and accounts of the Group shall be made or held with
BoS Group unless otherwise agreed by BoS.
17. Fees and Expenses
17.1 The Borrower will pay to BoS an arrangement fee of (pound)35,000
payable on drawdown of the Term Loan and which shall debited to the
current account of the Borrower with BoS.
17.2 The Borrower will pay or reimburse to BoS (on a full indemnity basis)
all reasonable legal, accountancy, valuation, due diligence and other
fees, costs and expenses or tax charged to or incurred by BoS in
connection with the BoS Documents (including the amendment, waiver,
enforcement or preservation of the BoS rights) on demand.
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18. Law
This letter will be governed by and construed according to English law and
the Borrower submits to the jurisdiction of the English courts.
Yours faithfully
/s/ Andrew Shankland
for and on behalf of
THE GOVERNOR AND COMPANY
OF THE BANK OF SCOTLAND
Agreed and accepted on behalf of GA Design International (Holdings) Limited
By /s/ Vernon B Brannon Director
/s/ Werner Aeberhard Director/Secretary
Date: 15 February 2002
IMPORTANT NOTICE: As with any legally binding agreement, we recommend that you
consult your solicitor or other independent legal adviser before accepting this
letter.
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SCHEDULE 1
CONDITIONS PRECEDENT
1. Drawdown
A Notice of Drawdown.
2. Security
2.1 A first and only debenture from each Group Company.
2.2 A Composite Guarantee (incorporating set off arrangements) by each
Group Company (as guarantor) in favour of BoS on account of each Group
Company (as principal).
2.3 The Inter Creditor Deed.
2.4 A guaranty by HLM Design, Inc. for not less than US$750,000 in favour
of BoS and on account of the obligations of each Group Company to BoS.
2.5 Consent by the Industrial Bank of Japan to execution of the guaranty
referred to in 2.4 above by HLM Design, Inc., to execution by the
Group Companies of the Security Documents and confirmation from IBJ
that none of the documents signed by IBJ restrict the enforcement of
the Security Documents.
2.6 Personal guarantees by each of Joseph M Harris, Vernon B Brannon and
Werner Aeberhard in favour of BoS in respect of $500,000 in aggregate
of the Term Loan to remain in place until not earlier than
(pound)600,000 of the Term Loan has been irrevocably repaid.
3. Financial Information
3.1 The Accountant's Report.
3.2 The Business Plan.
3.3 The Financial Statements of the Target Group for the period to 31st
December 2000.
3.4 The management accounts of the Target Group for the period to 31st
October 2001.
3.5 An opening pro forma balance sheet.
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3.6 Whatever information regarding the trading and financial position of
each Group Company that BoS may reasonably require.
4. Due Diligence Report
The Legal Due Diligence Report.
5. Acquisition and Financial Assistance
5.1 A Certified Copy of the executed Acquisition Agreement with
confirmation from the Borrower's solicitors that the conditions
precedent to completion have been satisfied in full, apart from
payment of that part of the consideration to be funded by the Term
Loan.
5.2 A Certified Copy of the Acquisition Documents (other than the
Acquisition Agreement).
5.3 A Certified Copy of each of the Loan Notes.
5.4 Evidence (including Certified Copies of applicable documents and
resolutions) that each relevant Group Company has complied with
Sections 151-158 of the Companies Act 1985.
5.5 An auditors non-statutory report and letter of engagement and a board
memorandum in relation to the net asset position of each relevant
Group Company.
5.6 Evidence satisfactory to BoS that all of the relevant forms and
resolutions in relation to compliance with Sections 151 to 158 of the
Companies Act 1985 by each Group Company have been lodged at Companies
House.
5.7 Evidence of the deferral of all fees payable by any member of the
Group to Quayle Munro until not earlier than 30th June 2002.
6. Refinancing
6.1 Evidence that all Security Rights (including the debenture dated 30th
January 2001 by the Target in favour of Barclays Bank plc), guarantees
and indemnities granted by any Group Company have been or will be
discharged at or before drawdown including evidence that the debenture
by GA Design International Limited in favour of Barclays Bank plc has
been discharged.
6.2 Details of all bonds, indemnities and guarantees issued by any bank or
other person on behalf of any Group Company.
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6.3 Copies of any bank balances or reconciliations delivered by the
Vendors in terms of the Acquisition Agreement.
6.4 A counter indemnity from the Borrower in respect of any guarantee by
BoS in favour of the outgoing bank.
7. Administrative/Secretarial
7.1 A Secretary's Certificate.
7.2 A Certified Copy of the duly executed service contract of each member
of the Management Team.
1.6 An account mandate in respect of the Borrower.
1.7 A Certified Copy of the Articles of Association.
1.8 The information and evidence in respect of the Borrower required by
BoS to comply with its own money laundering procedures.
8. Insurance
A letter addressed to BoS setting out details of the insurances of the
Group and the Target Group and the recent claims history in relation to
such insurances.
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SCHEDULE 2
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:-
1. each Group Company is duly incorporated and validly existing under the laws
of the jurisdiction of its incorporation;
2. no Group Company has any Borrowings (other than Permitted Borrowings) and
no Security Right (other than a Permitted Security Right) exists over the
property or assets of any of them;
3. no Event of Default nor Potential Event of Default has occurred and is
continuing unwaived;
4. each Group Company has power to enter into and comply with its obligations
in terms of the BoS Documents;
5. everything has been done (including obtaining any necessary consents) in
order (1) for each Group Company to comply with its obligations under the
BoS Documents and (2) to ensure that those obligations are legally binding;
6. execution of and compliance with the BoS Documents does not cause any Group
Company to breach:-
6.1 any law, regulation, judicial or official order to which it is
subject;
6.2 its memorandum or articles of association; or
6.3 any letter, undertaking or restriction to which it is a party or
subject;
and will not result in the imposition of any Security Right (other than
under a BoS Document) on any of its assets;
7. so far as the Borrower is aware after all necessary enquiries each
statement of fact contained in the Accountant's Report or in the Business
Plan is materially correct and, so far as the Borrower is aware after all
necessary enquiries, there are no other matters concerning any Group
Company not already disclosed in writing to and accepted by BoS which would
materially qualify or contradict the Accountant's Report or the Business
Plan;
8. so far as the Borrower is aware after all necessary enquiries all
statements of opinion in the Accountants Report or the Business Plan
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were, when made, given in good faith after careful consideration and are
still honestly and reasonably held; so far as the Borrower is aware after
all necessary enquiries all forecasts and projections contained in the
Accountants Report or the Business Plan were prepared in good faith, after
careful consideration and on the basis of reasonable assumptions and the
Borrower is not aware of anything which might affect their accuracy;
9. so far as the Borrower is aware the factual information in the Due
Diligence Report is true and accurate in all material respects and so far
as the Borrower is aware after all necessary enquiries the Due Diligence
Report does not fail to disclose any matter which would make such report
inaccurate or misleading in any respect;
10. save as disclosed to BoS in compliance with 2.2 of Schedule 3, no Material
Litigation is current, pending or threatened against any Group Company or
its assets;
11. the Financial Statements of the Target delivered to BoS in terms of
Schedule 1 were prepared in accordance with GAAP and give a true and fair
view of the financial condition of the Target at the end of the relevant
period and there has been no material adverse change in the financial
condition of the Target since the date of those accounts;
12. the management accounts of the Target delivered to BoS in terms of Schedule
1 have been prepared with due care and attention and accurately reflect the
financial position of the Target in all material aspects as at their date
and there has been no material adverse change in the financial condition of
the Target since the date of those accounts;
13. the copies of all Certified Copy documents and other documents delivered to
BoS are true, accurate and complete in all material respects;
14. the most recent Financial Statements of the Group were prepared in
accordance with GAAP and give a true and fair view of the financial
condition of the Group at the end of the relevant period and there has been
no material adverse change in the financial condition of the Group since
the date of those statements;
15. the most recent management accounts of the Group have been prepared with
due care and attention and accurately reflect the financial position of the
Group in all material aspects as at their date and there has been no
material adverse change in the financial condition of the Group since the
date of those accounts;
16. on drawdown of the Term Loan, the Borrower will be the beneficial owner of
the issued share capital of each other Group Company free from any Security
Right (other than a Permitted Security Right);
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17. each Group Company holds all licences and consents (including Environmental
Licences) necessary for the ownership of its property and which allow it to
comply with the terms of the BoS Documents and to conduct its business and
has complied in all material respects with those licences and consents and
with Environmental Law;
18. no Dangerous Substance has been used, disposed of or released at or from
any property owned or occupied by a Group Company or (to the best of the
Borrower's knowledge) from any adjoining property, which, in either case,
is likely to result in a liability which, in the opinion of BoS, would have
a Material Adverse Effect;
19. each Group Company is either owner or licensee of all Intellectual Property
Rights used in its business and use of them does not infringe any third
party rights;
20. the Acquisition Documents constitute the entire agreement between the
Borrower and Vendors for the acquisition of the Target;
21. so far as it is aware, the Acquisition Warranties (as qualified by any
related disclosure schedules) are true and correct in all material
respects;
22. the group structure chart in Schedule 10 correctly sets out the structure
of the Group and the legal and beneficial ownership of each Group Company
(other than the Borrower) immediately following Completion;
23. none of the Ringfenced Companies has assets with a net value in excess
of(pound)5,000 in aggregate;
24. the Borrower is a wholly owned subsidiary of the Parent.
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SCHEDULE 3
GENERAL COVENANTS
1. The Borrower shall, save with the prior written consent of BoS:-
1.1 ensure that its obligations in respect of the Term Loan and the
obligations of itself and each other Group Company under the Security
Documents at all times rank ahead of all other Borrowings of each
Group Company unless statutorily preferred;
1.2 notify BoS of any Event of Default or Potential Event of Default
immediately upon becoming aware of it, at the same time describing the
steps (if any) being taken to nullify or mitigate its effects;
1.3 take or procure to be taken all reasonable steps available to it
(including commencement of litigation) to enforce all/any of its
rights, title, benefit and interest in, to, under and pursuant to the
Acquisition Documents unless the Borrower demonstrates to the
satisfaction of BoS that to do so would be impracticable or would not
be in the best commercial interest of the Group.
2. The Borrower shall, and shall procure that each other Group Company shall,
unless it has a prior written waiver from BoS:-
2.1 effect and maintain (with BoS interest noted on them) sufficient and
appropriate policies of insurance of its business and assets and
supply copies or evidence of them on written demand by BoS;
2.2 advise BoS within 14 days of Material Litigation;
2.3 take whatever steps and execute whatever documents BoS may reasonably
require in order to give effect to the Security Documents;
2.4 have and maintain all licences and authorisations necessary under any
law or regulation affecting the conduct of its business;
2.5 comply with all Statutory Controls and promptly give to BoS a copy of
any notice concerning compliance with them;
2.6 at the Borrower's expense once in each year and/or at any time after
an Event of Default, permit BoS to obtain valuations of whatever Group
assets which BoS may, at any time, reasonably require;
19
2.7 on receiving the same, notify BoS of any actual or threatened claim
against any Group Company in respect of an alleged breach of
Environmental Law or remedial obligation or liability under such law
which could, if well-founded, (1) have a Material Adverse Effect or
(2) constitute a material liability of that Group Company (which shall
be judged solely by BoS (acting reasonably));
2.8 indemnify BoS, any receiver appointed by BoS and their respective
officers, employees and agents against all costs and expenses suffered
or incurred by them which arise as a result of (1) any actual or
threatened breach of Environmental Law, (2) any actual or threatened
release of or exposure to a Dangerous Substance on, at or from the
premises or operations of any Group Company or (3) any actual or
threatened claim referred to in 2.7 above whether such claim has a
Material Adverse Effect or not;
2.9 where environmental harm in terms of the Environmental Protection Act
1990 (as amended by the Environmental Act 1995) has been caused to any
property belonging to any Group Company over which BoS has or will
have a security interest pursuant to a Security Document, ensure that
none of the Group Companies is the "appropriate person" in terms of
that Act who has caused or knowingly permitted that harm to occur and
be aware both of the identity of the appropriate person and of that
person's current financial condition.
3. The Borrower shall not, and shall procure that each other Group Company
shall not, save with the prior written consent of BoS:-
3.1 grant or permit to subsist any Security Right other than a Permitted
Security Right;
3.2 incur or contract to incur or permit to subsist any Borrowings other
than Permitted Borrowings;
3.3 dispose of or part with control of (whether by a single transaction or
a series of transactions) any asset or undertaking (other than a
Permitted Disposal);
3.4 carry on any business other than that undertaken at the date of
acceptance of this letter;
3.5 lend or give credit to or indemnify or guarantee any other person(s)
unless it is (1) to or on account of the obligations of another Group
Company which has granted Full Group Security or (2) in the ordinary
course of trade;
20
3.6 save for PFI projects in the ordinary and usual course of trade, join
any partnership or joint venture with any other person or amalgamate
with any other person (other than as part of a solvent reconstruction
with the prior written consent of BoS);
3.7 in any financial year incur any capital expenditure (actually or
contingently) in excess of (pound)250,000 in aggregate;
3.8 acquire any company or business (or any shares in any company) for a
consideration in excess of (pound)50,000 or which, when aggregated
with the consideration for all other acquisitions in any financial
year exceeds (pound)50,000;
3.9 alter the accounting principles and practices applied in its Financial
Statements (unless to comply with GAAP or in the United States of
America or on the advice of its auditors);
3.10 alter its accounting reference date other than to 30th April;
3.11 enter an arrangement for finance not shown in its balance sheet as
Borrowings which, when aggregated with all other such arrangements in
any financial year exceeds (pound)300,000;
3.12 factor or discount its debts;
3.13 agree to amend or waive or permit the amendment or waiver of any of
the Acquisition Documents, the Articles of Association or the Loan
Note Instrument in any way which, in the opinion of BoS, is likely to
have an adverse effect upon the interests of BoS under the BoS
Documents;
3.14 declare or make any Distribution other than a Permitted Distribution;
3.15 declare or make any payment on or in relation to the Subordinated Debt
other than in relation to Permitted Payments in accordance with the
Inter Creditor Agreement or accelerate or increase any payment on or
in relation to the Subordinated Debt or redeem, repay or purchase the
Subordinated Debt;
3.16 allow any dormant company or any Ringfenced Company to undertake any
significant accounting transaction or otherwise commence trading or to
acquire or assume any rights or liabilities without first having
granted Full Group Security;
3.17 pay any fees due by the Group to Quayle Munro before 30th June 2002.
21
SCHEDULE 4
financial COVENANTS
1. The Borrower covenants with BoS as follows:-
1.1 Gearing
The ratio of Net Borrowings to Net Worth shall not at any time be
greater than:-
1.1.1 4.0 : 1 during the period from the date of drawdown to 30th
April 2002;
1.1.2 2.5 : 1 during the period from 1st May 2002 to 30th April 2003;
1.1.3 1.25:1 during the period from 1st May 2003 to 30th April 2004;
and
1.1.3 0.5 : 1 thereafter.
1.2 Trade Debtor Cover
The ratio the Trade Debtors of the Group (less Preferential Creditors)
to the Net Borrowings shall not be less than:-
1.2.1 1.25 : 1 during the period from the date of drawdown to 30th
April 2002;
1.2.2 2.0 : 1 during the period from 1st May 2002 to 30th April 2003;
and
1.2.3 3.0 : 1 thereafter.
1.3 Senior Interest Cover
The ratio of PBIT to Senior Interest shall not be less than 3.0 : 1.
1.4 Cash Flow Cover
The ratio of CFADS to Total Debt Service shall not be less than 1.2 :
1.
1.5 Consolidated Gearing
The ratio of Consolidated Net Borrowings to Consolidated Net Worth
shall not at any time be greater than:-
1.5.1 2.0 : 1 during the period from the date of drawdown to 30th
April 2003;
22
1.5.2 1.5 : 1 during the period from 1st May 2003 to 30th April 2004;
and
1.5.3 1.0 : 1 thereafter.
1.6 Consolidated Interest Cover
The ratio of Consolidated PBIT to Consolidated Total Interest shall
not be less than:-
1.6.1 2.75:1 during the period from the date of drawdown to 31 July
2002; and
1.6.2 3.0 : 1 thereafter.
2. The financial covenants shall be tested as follows:-
2.1 the Gearing and Consolidated Gearing covenants shall be tested on a
quarterly basis on 31 January, 30 April, 31 July and 31 October in
each year commencing 30 April 2002;
2.2 the Trade Debtor Cover covenant shall be tested on a monthly basis on
the last day of each month commencing on 28 February 2002;
2.3 the Senior Interest Cover covenant shall be tested on a monthly basis
on the last day of each month commencing on 28 February 2002 by
reference to the preceding twelve month period;
2.4 the Consolidated Total Interest Cover and Cash Flow Cover Covenants
shall be tested on a quarterly basis with the first test on 30 April
2002 by reference to the period from Completion to that date, the
second test on 31 July 2002 by reference to the period from Completion
to that date, the third test on 31 October 2002 by reference to the
period from Completion to that date and the fourth test on 31 January
2003 by reference to the period from Completion to that date and
thereafter on 31 January, 30 April, 31 July and 31 October in each
year by reference to the preceding twelve month period;
in the case of the covenants in 1.1, 1.2, 1.3 and 1.4 above, by reference
to the latest Financial Statements of the Borrower or, if more recent, to
the latest management accounts of the Group and, in the case of the
covenants in 1.5 and 1.6 above, by reference to the latest Financial
Statements of the Parent or, if more recent to the latest management
accounts of the Consolidated Group, provided that in each case, where any
financial covenant is tested by reference to management accounts it shall
be tested again by reference to Financial Statements when the relevant
Financial Statements become available.
23
3. For the purposes of this Schedule 4:-
"CFADS" means, for any specified period, PBIT after adding back
depreciation and other non-cash profit & loss items, plus or minus net
movements in working capital, less tax paid and capital expenditure paid
(net of capital expenditure funded by asset disposals and/or hire-purchase
and/or finance leasing) by the Group in that period.
"Consolidated Net Worth" means the aggregate of the amount paid up on the
issued share capital of the Parent and the amount standing to the credit of
its capital and revenue reserves (including any share premium account or
capital redemption reserve and goodwill) plus or minus the amount standing
---- -----
to the credit or debit (as the case may be) of the profit and loss account
of the Parent.
"Consolidated Net Borrowings" means total Borrowings of each Consolidated
Group Company less sums standing at credit of all accounts of the
Consolidated Group.
"Consolidated PBIT" means, for any specified period, the trading profit of
the Consolidated Group before deduction of interest, taxation and
------
amortisation of goodwill but after the deduction of extraordinary and
exceptional items.
"Consolidated Total Interest" means, in relation to any specified period,
the aggregate amount of interest, commission, guarantee fees and other
recurrent financial expenses attributable to the Net Borrowings of the
Consolidated Group charged, accrued or capitalised for such period.
"GAAP" means generally accepted accounting principles and practices in the
UK or the USA.
"Net Borrowings" means total Borrowings of each Group Company less sums
standing at credit of all accounts of the Group with BoS from time to time
in respect of which BoS has valid and enforceable rights of set-off.
"Net Worth" means the aggregate of the amount paid up on the issued share
capital of the Group and the amount standing to the credit of its capital
and revenue reserves (including any share premium account or capital
redemption reserve and goodwill) plus or minus the amount standing to the
---- -----
credit or debit (as the case may be) of the profit and loss account of the
Borrower.
"PBIT" means, for any specified period, the trading profit of the Group
before deduction of interest, taxation and amortisation of goodwill but
------
after the deduction of extraordinary and exceptional items.
24
"Preferential Creditors" means creditors whose debts would be treated as
having a preferential ranking in terms of Section 386 of and Schedule 6 to
the Insolvency Act 1986 (or any subsequent legislation amending the
categories of preferential debts in an insolvency) if, on the date of
computation, preferential ranking had crystallised.
"Senior Interest" means, in relation to any specified period, the aggregate
amount of interest, commission, guarantee fees and other recurrent
financial expenses attributable to the Borrowings of the Group due to BoS
charged, accrued or capitalised for such period.
"Total Debt Service" means, in relation to any specified period, the
aggregate of Total Interest and scheduled repayments due on the total
Borrowings of the Group.
"Trade Debtors" means debts due to each Group Company in the ordinary
course of business outstanding for not more than 90 days from date of
invoice (or such other period agreed with BoS) and which are not bad or
doubtful (or determined by BoS to be bad or doubtful) but excluding:-
1. any debt owed by another Group Company;
2. any debt owed by any person who is also a creditor of a Group Company
to the extent of the amount owed by that Group Company to that
creditor; and
3. any debt which has been assigned or charged to or is held in trust for
any third party or is subject to any factoring or invoice discounting
or similar letter;
with any adjustments BoS may from time to time consider to be appropriate
in the context of the business of each Group Company and the Term Loan.
4. If the Borrower breaches the terms of any of the financial covenants
specified above, without prejudice to any of its other rights or remedies,
BoS shall be entitled to:-
4.1 initiate an investigation and instruct any report (accounting, legal
and valuation or otherwise) on the business and affairs of the
Borrower or any other Group Company which BoS deems necessary to
ascertain the financial position of the Group, all costs incurred by
BoS in so doing being payable by the Borrower; and/or
4.2 increase the Margin by two per cent (2%).
25
SCHEDULE 5
FINANCIAL INFORMATION COVENANTS
The Borrower covenants that it will supply to BoS:-
1. within 90 days after the end of each financial year of the Borrower two
copies of its Financial Statements and two copies of the Financial
Statements of the Parent;
2. within 28 days before the commencement of each financial year of the
Borrower, its annual budget (including profit and loss account, balance
sheet and cash flow forecasts) for the next financial year and a
consolidated annual budget for the Group;
3. within 21 days after the end of each month in each financial year of the
Borrower, management accounts (including profit and loss account, balance
sheet and cash flow statements) on a consolidated basis for the Group and
showing a comparison with budget together with commentary by the finance
director on all material aspects of those management accounts;
4. within 45 days after the end of each quarter in each financial year of the
Parent, management accounts (including profit and loss account, balance
sheet and cash flow statements) on a consolidated basis for the
Consolidated Group and showing a comparison with budget together with
commentary by the finance director on all material aspects of those
management accounts;
5. at the same time as it delivers the Financial Statements or the management
accounts referred to above, a certificate of compliance in the form set out
in Schedule 9 with the financial covenants set out in Schedule 4 signed by
a director of the Borrower setting out in reasonable detail supporting
computations and in form and content acceptable to BoS;
6. details of all off balance sheet financing arrangements in excess
of(pound)300,000 in aggregate in any financial year;
7. such further financial information as BoS may from time to time reasonably
require.
The Borrower also covenants that it will identify from any consolidated accounts
prepared for itself and its Subsidiaries the financial performance of any
undertaking included in those accounts as a Subsidiary Undertaking (which is not
a Subsidiary) and will provide details of all financing agreements and
arrangements to which any Group Company is a party which need not be shown in
the Financial Statements of the Borrower.
26
SCHEDULE 6
EVENTS OF DEFAULT
1. The Borrower fails to pay any sum of principal due under a BoS Document on
its due date or the Borrower fails to pay any other sum due under a BoS
Document within 7 days of its due date, other than as a result of the
failure of the appropriate payment transmission system which is not within
the Borrower's control provided that such payment is made to BoS within 2
Business Days of the due date;
2. any written information or projection given or any representation, warranty
or statement made or repeated by or on behalf of any Group Company under
the BoS Documents (whether before or after the date of this letter) is
incorrect, inaccurate, incomplete or, in the opinion of BoS, misleading in
each case in any material respect and, if the relevant circumstances are
capable of remedy, those circumstances are not remedied within seven days;
3. any Borrowings of any Group Company are not paid when due for payment
(whether because of acceleration or otherwise) or within any originally
permitted period of grace or any creditor of all or any of the Group
Companies becomes entitled to declare any such borrowings due and payable
prior to their stated maturity;
4. the Borrower fails to comply with the terms of Schedule 4 or any Group
Company fails to comply with the terms of any of Clauses 3.1, 3.2, 3.3,
3.11, 3.13, 3.14 and 3.15 of Schedule 3;
5. any Group Company fails to comply with any other covenant, undertaking or
obligation given or owed by it under a BoS Document which is not remedied
to the satisfaction of BoS within 28 days after the first of (1) a Group
Company being aware of the failure or (2) notice by BoS calling for its
remedy (should BoS reasonably consider it to be remediable);
6. any Group Company (other than a Ringfenced Company) ceases or threatens to
cease to carry on its business or a significant part of it (unless as part
of a solvent reconstruction approved by BoS) or suspends or threatens to
suspend payment of its debts or is unable or is deemed to be unable to pay
its debts within the meaning of Section 123 (1) of the Insolvency Act 1986;
7. a proposal is made or a nominee or supervisor is appointed for any Group
Company (other than a Ringfenced Company) for a composition in satisfaction
of its debt or for a scheme of arrangement of its affairs or other
arrangement or any proceedings for the benefit of
27
its creditors are commenced under any law, regulation or procedure relating
to the reconstruction or readjustment of debt;
8. a petition is made for an administration order under the Insolvency Act
1986 with respect to any Group Company (other than a Ringfenced Company);
9. any steps are taken by a Group Company (without BoS prior written consent)
or any other person to wind up or dissolve any Group Company (other than a
Ringfenced Company) or to appoint a liquidator, trustee, receiver,
administrative receiver or similar officer to any Group Company (other than
a Ringfenced Company) or any part of its undertaking or assets;
10. any legal process (excluding arrestments on the dependence) in excess of
(pound)100,000 (when aggregated with all other legal processes in any one
financial year) (not being reasonably considered by BoS to be defensible or
vexatious, in good faith) is levied, enforced or sued against a Group
Company or its assets or any person validly takes possession of any of the
property or assets of a Group Company or steps are taken by any person to
enforce any Security Right against any of the property or assets of a Group
Company;
11. any event occurs or proceedings are taken in respect of a Group Company in
any jurisdiction to which it is subject which has an effect equivalent or
similar to any of the events mentioned in paragraphs 6 to 10 above
(inclusive);
12. any part of a BoS Document ceases to be legal or effective (or a Group
Company so alleges) in a way which is adverse to the interests of BoS or
any consent required to enable a Group Company to perform its obligations
under a BoS Document ceases to have effect;
13. notice of withdrawal or discontinuance of any guarantee or security
provided by any third party (including any Group Company) is served on BoS
and a replacement guarantor suitable to BoS cannot be found within seven
days of receipt of such notice;
14. control of any Group Company passes to any person or persons (whether
acting individually or in concert) who is or are not a shareholder in it
immediately after Completion without the prior written consent of BoS;
15. the Borrower ceases to be a wholly owned subsidiary of the Parent;
16. any licence, authority, permit, consent, agreement or contract which is
material to the business from time to time of any Group Company is
terminated, withheld or modified which will result in a 15% (or more) fall
in the annual turnover of the Group and lead to a breach of the
28
financial covenants in Schedule 4 to this letter;
17. in the reasonable opinion of BoS at any time after the date of this
letter:-
17.1 there is a risk of material liability to BoS under Environmental Law
or because it has taken security (direct or third party) for the Term
Loan; or
17.2 the value of any asset of any Group Company may be diminished in any
material way because of Environmental Law; or
17.3 any Group Company does not comply with regulations or the law
applicable to its business or with Environmental Law or Licence(s)
which failure to comply will have a Material Adverse Effect;
18. any 5 or more members of the Management Team cease to be an employee or
director of the Borrower unless a replacement acceptable to BoS is
identified and accepts such position (subject to any notice period) within
60 days of that cessation or other interim measures acceptable to BoS are
implemented;
19. (save where the Borrower can demonstrate to the satisfaction of BoS (acting
reasonably) that no material liability to any Group Company or BoS will
arise due to the existence of relevant insurance cover) any litigation,
arbitration or administrative proceedings (excluding any arrestment on the
dependence) are instituted against any Group Company which, if adversely
determined, would involve a total liability (whether actual or contingent)
in excess of (pound)100,000 in aggregate for any financial year;
20. any other circumstance or event occurs or arises which will have a Material
Adverse Effect.
29
SCHEDULE 7
NOTICE OF DRAWDOWN
[GA Design International (Holdings) Limited Headed Paper]
To: Bank of Scotland
New Uberior House
11 Earl Grey Street
Edinburgh EH3 9BN
Date:____________
As required under Clause 1 of the facility letter dated _____________ (the
"Letter") between the Bank and ourselves as borrower in respect of term loan
facilities of (pound)2,000,000 (the "Facilities"), we now give you notice of our
intention to drawdown under the Term Loan as follows:
1. Date of Drawdown: ____________.
2. Amount:(pound)____________.
3. The duration of the first Interest Period: ___________ months.
4. Payment instructions: ___________.
5. We confirm that:-
5.1 the matters represented by us and set out in Schedule 2 of the Letter
(save for those set out in Clauses _____, _____ and ______) are true
and accurate on the date of this notice as if made on that date;
5.2 no Potential Event of Default or Event of Default has occurred and is
continuing or would result from the proposed drawdown; and
5.3 the amount specified in 2. above should be credited to Account Number
_______.
Words and expressions in this notice shall bear the same meaning as in the
Letter.
- ---------------------
Director/Secretary
30
SCHEDULE 8
SECRETARY'S CERTIFICATE
[GA Design International (Holdings) Limited Headed Paper]
To: Bank of Scotland
New Uberior House
11 Earl Grey Street
Edinburgh EH3 9BN
Re : GA Design International (Holdings) Limited (the "Company)
- ---------------------------------------------------------------------------
Registered Office : 2nd Floor Lyme House Studios, 30-31 Lyme Street,
- ----------------------------------------------------------------------
London NW1 0EE
--------------
Registered Number : 3705307
- -----------------------------
Term Loan of (pound)2,000,000 (the "Facilities)
- -----------------------------------------------
I, [insert full name], the Company Secretary certify that:-
1. the Company has the necessary power to borrow and to incur the liabilities
specified in the letter(s) from BoS dated ____________ offering the
Facilities (the "Letter(s)") and to draw down the Facilities;
2. no borrowing limit of the Company will be exceeded by any borrowing under
the Letter(s);
3. the board of directors of the Company has duly authorised and [insert full
names of those authorised] to accept the Letter(s), to draw down the
Facilities and to execute all documentation necessary to complete the
security specified in Schedule 1 of the Letter(s) (the "Security");
4. the individuals specified in 3 above were at the time of execution of the
documentation referred to above and remain duly appointed [directors]
[authorised signatories] of the Company;
5. the board of directors and where necessary, the shareholders of the Company
have resolved that the granting of the Security is for the commercial
benefit of the Company;
6. the resolutions giving the authorisations referred to above were validly
passed at a properly convened meeting of the board of directors of the
31
Company and, as the case may be, at a properly convened meeting of the
shareholders of the Company and are in full force and effect[; and][.]
7. Section 317 declaration of common interests.]
I attach (1) a list of all the directors of the Company and confirm that those
persons listed are all the directors of the Company as at the date of this
letter and (2) a copy of the Certificate of Incorporation [and Certificate(s) of
Incorporation on Change of Name] of the Company and confirm that each copy is
true, complete and up to date.
This certificate is authorised by the Board of Directors of the Company.
- ---------------------
Secretary
32
SCHEDULE 9
PRO FORMA FINANCIAL COVENANT
COMPLIANCE CERTIFICATE
To: The Bank of Scotland
For the attention of:[______________________________] Esq.
Date ____________
Dear Sirs
Facility Letter
dated [__________________] (the "Facility Letter")
Certificate of compliance in respect of
the [Accounting Quarter] [Month] ended ____________
The calculations of the following tests, as set out in the financial covenants
contained in Schedule 4 (Financial Covenants) of the Facility Letter are
attached and the Borrower hereby confirms that the said financial covenants have
throughout the [Accounting Quarter] [Month] ended ___________ been complied
with.
*1.1 Gearing
**1.2 Asset Cover
**1.3 Senior Interest Cover
*1.5 Consolidated Gearing
*1.6 Consolidated Interest Cover
*1.4 Cash Flow Cover
Also, the Borrower hereby confirms that no Event of Default or Potential Default
has occurred or is likely to occur and the Borrower is not aware of any
circumstances likely to give rise to such an occurrence.
Expressions defined in the Facility Letter shall bear the same meanings when
used in this certificate.
For and on behalf of:
GA Design International (Holdings) Ltd.
- ----------------------------------
Director
*Monthly compliance certificate only
**Quarterly compliance certificate only
33
SCHEDULE 10
GROUP ORGANISATION CHART
[FLOW CHART]
34
SCHEDULE 11
DEFINITIONS AND INTERPRETATION
"Accountant's Report" means the report dated 31 July 2001 (including any
schedules and appendices) by Deloitte & Touche on the taxation position of the
Target.
"Acquisition" means the acquisition by the Borrower of the entire issued share
capital of the Target.
"Acquisition Agreement" means the stock purchase agreement dated 18th December
2001 as amended by a supplemental stock purchase agreement dated on or around
the date hereof between, inter alia, the Vendors and the Borrower under which
the Borrower has agreed to purchase the entire issued share capital of the
Target.
"Acquisition Documents" means the Acquisition Agreement and the attached
disclosure schedules, the Loan Notes and the Put and Call Option.
"Acquisition Warranties" means the warranties and representations granted in
favour of the Borrower under the Acquisition Agreement and related documents.
"Articles of Association" means the articles of association of the Borrower in
place at Completion.
"Borrowings" means (without double counting):-
1. money borrowed or raised and includes capitalised interest;
2. any liability under any bond, note, debenture, loan stock, redeemable
preference share capital or other instrument or security;
3. any liability for acceptance or documentary credits or discounted
instruments;
4. any liability for the acquisition cost of assets or services payable on
deferred payment terms where the period of deferment is more than 90 days;
5. any liability under debt purchase, factoring and similar agreements and
capital amounts owing under finance leases, hire purchase or conditional
sale agreements or arrangements; and
6. any liability under any guarantee or indemnity (except product warranties);
7. any other arrangements having the commercial effect of borrowing.
35
"BoS" means The Governor and Company of the Bank of Scotland and its successors,
assignees and transferees.
"BoS Documents" means this letter, the Security Documents, any agreement for
Working Capital and all documents supplemental to any of them.
"BoS Group" means BoS, any Subsidiary of it, any holding company of it and any
Subsidiary of its holding company.
"Business Day" means a day when the branch of BoS at which the Borrower's
account is located is open for business.
"Business Plan" means the financial model prepared by Quayle Munro on behalf of
the Borrower in respect of the Group dated 12th May 2001 and updated on 10
January 2002.
"Certified Copy" means a copy certified as true, complete and up to date by the
specified person or, if no-one is specified, by either the secretary of the
relevant Group Company or the Borrower's solicitors.
"Completion" means completion of the Acquisition Agreement in accordance with
its terms.
"Consolidated Group" means the Parent and each of its subsidiaries which is not
dormant and "Consolidated Group Company" shall be construed accordingly.
"Dangerous Substances" means any substances capable of causing harm to man or
any other living organism or damaging the environment.
"Default Rate" means the rate which is two per cent. (2%) per annum over the
rate at which interest is paid on the Term Loan under this letter.
"Distribution" means any dividend, redemption or distribution of assets by a
company to its members whether in cash or otherwise on account of capital or
income.
"Due Diligence Report" means the Legal Due Diligence Report.
"Environmental Law" means all laws, regulations, directives, codes of practice,
circulars, guidance notices and court decisions (whether in the UK or elsewhere)
concerning the protection of human health or welfare or the environment or the
conditions of the work place or the generation, transportation, storage,
treatment or disposal of Dangerous Substances.
"Environmental Licence" means any licence, authorisation or approval required by
Environmental Law.
"Event of Default" means an event set out in Schedule 6.
36
"Final Repayment Date" means 31 January 2007.
"Financial Statements" means the audited annual profit and loss account and
balance sheet of the relevant company for each of its financial years
(consolidated for each financial year during which that company has a
subsidiary) together with related directors' and auditors' reports.
"Full Group Security" means guarantees in favour of BoS from each Group Company
on account of the obligations of each other Group Company and any other security
(fixed or floating) which BoS may require.
"GAAP" means generally accepted accounting principles in the UK or the USA.
"Group" means the Borrower, the Target and each of their Subsidiaries which is
not dormant and "Group Company" shall be construed accordingly.
"Increased Cost" means:-
1. an additional or increased cost incurred by BoS as a result of it having
entered into, or performing, maintaining or funding its obligations under
this letter; or
2. that portion of an additional or increased cost incurred by BoS in making,
funding or maintaining all or any advances comprised in a class of advances
formed by or including the Term Loan; or
3. a reduction in any amount payable to BoS or in the effective return to BoS
under the Term Loan or on its capital; or
4. the foregone amount of any payment made or interest or other return on or
calculated by reference to any amount received or receivable by BoS under
the Term Loan;
in each case arising as a result of any change, introduction, interpretation or
administration of any law or regulation after the date of this letter or any
compliance after the date of this letter with any law or regulation relating to
reserve assets, special deposits, cash ratios, liquidity or capital adequacy
requirements or any other form of banking or monetary control (including
controls and requirements of the Bank of England, the Financial Services
Authority, the European Central Bank or any other governmental or regulatory
authority) or the introduction of, changeover to or operation of a single or
unified European currency or otherwise but excluding (1) costs compensated for
by the Mandatory Costs or (2) payments in respect of tax under Clause 9.1 of
this letter or (3) costs not generally applicable to U.K. banks.
"Indemnified Events" means all actions, suits, proceedings, claims, demands,
liabilities, costs, expenses, losses, damages and charges whatsoever (except
37
those arising as a result of the gross negligence or wilful misconduct of BoS)
which may occur in relation to or arising out of BoS having given the Treasury
Guarantee.
"Intellectual Property Rights" means patents, patent applications, trade marks,
community trade marks, service marks, trade names, brand names, domain names,
registered designs, copyright and all other industrial and intellectual property
rights.
"Inter Creditor Deed" means the inter creditor deed dated on or around the date
hereof between, inter alia, the Borrower, the Vendors and BoS.
"Interest Payment Date" means the last Business Day of each Interest Period
unless its duration is more than three months in which case it will also be the
last Business Day of each three month period during that Interest Period.
"Interest Period" means each period selected under Clause 2.4 and to which a
rate of interest calculated by reference to that clause applies.
"Legal Due Diligence Report" means the report by RadcliffesLeBrasseur dated on
or around the date hereof in relation to certain legal aspects of the business
of the Group.
"LIBOR" means the rate (expressed as an annual percentage rate) at which
Sterling deposits in an amount equal to the Term Loan are offered to BoS in the
London Inter Bank Market by prime banks, selected by BoS, at or about 11 am on
the first Business Day of an Interest Period for the same period and amount in
Sterling.
"Listing" means the admission of all or part of the issued share capital of any
member of the Group to trading on London Stock Exchange plc, the Alternative
Investment Market, any Recognised Investment Exchange (as such term is defined
in the Financial Services and Markets Act 2000) or any investment exchange set
out in Schedule 3 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2001 or any other market for the public trading of securities
in any country (or any successor of any such markets or exchanges);
"Loan Notes" means the first and second subordinated promissory notes of
(pound)2,680,000 in aggregate dated on or around the date hereof issued by the
Borrower to the Vendors, Joseph Harris and Vernon Brannon.
"Management Team" means C D Liddle, residing at Thorn Cottage, Binton Lane,
Seale, Farnham, Surrey GU10 1LG, Rod Fraser, residing at Hampton Lodge, The
Green, Hampton Court, Surrey KT8 9BP, L H Welch, residing at 70 Holmesdale Road,
Teddington, Middlesex TW11 9LG, John Ferguson, residing at Hillfoot Cottage, 4
Hillfoot Road, Sheffield S17 4AP, D Cafferty, residing at Brunswick Villa, 3
Burnside Close, Twickenham, Middlesex TW1 1ET, Caroline Buckingham, residing at
Thorn Cottage, Binton Lane, Sealer,
38
Farnham, Surrey GU10 1LG, Richard Parsons, residing at 56 Station Road, Marlow,
Buckinghamshire SL7 1NX, Nick Beecroft, residing at Croft Farm, 47 Greenhill
Main Road, Sheffield, South Yorkshire S8 7RB and Karen Mosley, residing at 13
Brincliffe Hill, Sheffield S11 9DF and "member of the Management Team" is
construed accordingly.
"Mandatory Costs" means the costs (expressed as an annual percentage at a rate
rounded up to the nearest one eighth per cent) calculated by BoS in accordance
with its usual practice of complying with any reserve asset and/or special
deposit and/or cash ratio and/or liquidity and/or capital adequacy and/or
banking control or similar requirements of Bank of England, the Financial
Services Authority, the European Central Bank or any other governmental or
regulatory authority.
"Margin" means two per cent. (2%).
"Material Adverse Effect" means any effect which, in the reasonable opinion of
BoS, might:-
1. affect the ability of any Group Company to comply with its material
obligations under a BoS Document;
2. give rise to a breach of the financial covenants set out in Schedule 4;
3. materially and adversely affect the business, assets or financial condition
of the Group as a whole; or
4. (where the context so admits) result in any of the Security Documents not
being legal, valid and binding on, and enforceable substantially in
accordance with its terms against any party to that Security Document or
not providing BoS with enforceable security over the assets to be covered
by it.
"Material Litigation" means any litigation, arbitration or administrative
proceeding raised or threatened against, or defended by or judgement outstanding
in relation to any Group Company, which involves, or if an adverse finding were
made would involve, a total liability (whether actual or contingent) in excess
of (pound)100,000.
"Notice of Drawdown" means a written notice in the form set out in Schedule 7
requesting drawdown of the Term Loan.
"Parent" means HLM Design, Inc..
"Permitted Borrowings" means:-
1. the Term Loan and amounts due in respect of it;
2. Working Capital and amounts due in respect of it;
39
3. Borrowings between Group Companies where each have granted Full Group
Security;
4. commitments of members of the Group under finance lease, hire purchase or
conditional sale agreements or arrangements which do not at any time
exceed(pound)300,000 in aggregate; and
5. the Subordinated Debt.
"Permitted Disposals" means:-
1. the disposal of assets on an arm's length basis in the ordinary and usual
course of trading including the use of cash for any such purpose;
2. disposals between Group Companies where the transferee has granted Full
Group Security;
3. disposals where the proceeds are applied towards the acquisition of a
replacement within 30 days of the disposal; and
4. disposals made other than in the ordinary and usual course of trading and
not referred to in paragraphs 1 to 3 above but on an arm's length basis and
only if the value of the assets disposed of (whether by a single or several
transaction) when taken together with all similar disposals made by the
Group in any financial year is not in total more than (pound)250,000 in
aggregate.
"Permitted Distribution" means any Distribution which either:-
1. the Borrower is obliged to declare or pay by the Articles of Association
and to which BoS has consented in writing; or
2. is to a Group Company which has granted Full Group Security;
in each case at any time when no Event of Default or Potential Event of Default
is continuing and the declaration, payment or making of which will not cause,
directly or indirectly, an Event of Default or Potential Event of Default to
occur.
"Permitted Payments" means any payment of principal or interest due and payable
in respect of the Loan Notes in each case at any time when no Event of Default
or Potential Event of Default is continuing and the declaration, payment or
making of which will not cause, directly or indirectly, an Event of Default or
Potential Event of Default to occur.
"Permitted Security Rights" means (1) liens and rights of set-off securing
obligations which are not overdue beyond their standard payment dates, arising
by operation of law in the ordinary and usual course of trading (2) Security
Rights arising out of title retention provisions in a supplier's standard
conditions of supply of goods acquired in the ordinary and usual
40
course of trading or (3) Security Rights granted in terms of the BoS Documents
or with the prior written approval of BoS.
"Potential Event of Default" means any event, act or condition which, with the
giving of notice and/or lapse of time, and/or any other event, act or condition
which, in the reasonable opinion of BoS, will or is likely to constitute an
Event of Default.
"Put and Call Option" means the put and call option agreements dated on or
around the date hereof between HLM Design, Inc. and each Vendor.
"Qualifying Bank" means a bank for the purposes of Section 349 of the Income and
Corporation Taxes Act 1988 which is within the charge to UK corporation tax as
regards any interest payable to it under or in connection with this letter
and/or any other BoS Document at the time when such interest is paid.
"Ringfenced Companies" means HLM Planning Limited, HLM Landscape Limited,
Worldwide Architecture Limited, Rockarchimedia Limited and Top of the League
Limited and "Ringfenced Company" shall be construed accordingly.
"Sale" means any transaction pursuant to which a person (or persons acting in
concert) obtain control of 25% or more of the issued share capital of any Group
Company (other than those persons having control of the Borrower or the relevant
Group Company immediately after Completion) or in terms of which all or
substantially all of the assets of the Borrower or of the Group are sold to any
person (other than a member of the Group).
"Secretary's Certificate means a certificate in the form set out in Schedule 8
executed by the Secretary of the Borrower.
"Security Documents" means the documents listed under the heading of Security in
Schedule 1 and any other security granted to BoS.
"Security Right" means any mortgage, charge, security, pledge, lien, right of
set-off, right to retention of title or other encumbrance, whether fixed or
floating, over any present or future property, assets or undertaking.
"Statutory Control" means each of the following which affects any Group Company
or any of its assets from time to time:-
1. any legislation (including delegated legislation);
2. any consent made or given under any legislation; and
3. any notice, order or correspondence related to paragraphs 1. or 2. above
and having the force of law.
41
"Sterling" and the figure "(pound)" shall mean the lawful currency of the UK.
"Subordinated Debt" means the (pound)2,680,000 in aggregate subordinated
promissory notes issued by the Borrower to the Vendors, Joseph Harris and Vernon
Brannon pursuant to the Loan Notes;
"Target" means HLM Architects Limited (Company Number 2424914), having its
registered office at 1 Old Lodge Place, St. Margarets, Twickenham, Middlesex TW1
1RQ.
"Target Group" means the Target and the Subsidiaries and any Subsidiary
Undertaking of the Target immediately after Completion.
"Term Loan" means the term loan given under this letter and the amount of it
outstanding at any time and the terms attaching to it as these may be varied by
further agreement between the Borrower and BoS.
"Treasury" means Bank of Scotland Treasury Services PLC (registered number
2692890), having its registered office at Bishopsgate Exchange, P.O. Box 778,
155 Bishopsgate, London EC2M 3UB.
"Treasury Guarantee" means the agreed form guarantee entered into between
Treasury and BoS now or in the future in relation to all sums due and payable by
the Borrower or any Group Company under any hedging/swap/interest rate/currency
documentation or any similar documentation in respect of any forward foreign
exchange contracts or other derivative contracts entered into now or in the
future between the Borrower or any Group Company and Treasury.
"Vendors" means Christopher Dunbar Liddle, Roderick Fraser, Leslie Hunter Welch,
John Russell Ferguson, David Muir Cafferty, Caroline Julia Buckingham, Nicholas
John Beecroft, Richard Peter Ian Parsons and Karen Susan Mosley.
"Working Capital" means a loan for working capital purposes at any time given to
a Group Company by BoS and the amount of it outstanding at any time and the
agreement evidencing it .
Interpretation
Any reference in this letter to:-
(1) statutes, statutory provisions and other legislation shall include all
amendments, substitutions, modifications and re-enactments for the time
being in force.
(2) "control" of any company shall be interpreted in accordance with Section
840 of the Income and Corporation Taxes Act 1988.
42
(3) "including" shall not be construed as limiting the generality of the words
preceding it.
(4) "a Schedule" shall be construed as a reference to the schedules to this
letter.
(5) any term or phrase defined in the Companies Act 1985 (as amended from time
to time) shall bear the same meaning in this letter.
(6) words importing the singular shall include the plural and vice versa and
words denoting any gender shall include all genders.
(7) this letter and to any provisions of it or to any other document referred
to in this letter shall be construed as references to it in force for the
time being and as amended, varied, supplemented, restated, substituted or
novated from time to time.
(8) a person are to be construed to include references to a corporation, firm,
company, partnership, joint venture, unincorporated body of persons,
individual or any state or any agency of a state, whether or not a separate
legal entity.
(9) any person are to be construed to include that person's assignees or
transferees or successors in title, whether direct or indirect.
Clause headings are for ease of reference only and are not to affect the
interpretation of this letter.