<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1996
REGISTRATION NO. 333-10481
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HA-LO INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
ILLINOIS 5199 36-3573412
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
5980 WEST TOUHY AVENUE, NILES, ILLINOIS 60714, (847) 647-2300
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
LOU WEISBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HA-LO INDUSTRIES, INC.
5980 West Touhy Avenue, Niles, Illinois 60714, (847) 647-2300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
With copies to:
BARRY J. SHKOLNIK, ESQ.
NEAL, GERBER & EISENBERG
TWO NORTH LASALLE STREET
CHICAGO, ILLINOIS 60602
(312) 269-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
HA-LO INDUSTRIES, INC.
5980 West Touhy Avenue
Niles, Illinois 60714
(847) 647-2300
August 23, 1996
Dear Shareholder:
A Special Meeting of Shareholders of HA-LO Industries, Inc. ("HA-LO") will
be held at the principal executive offices of HA-LO located at 5980 West Touhy
Avenue, Niles, Illinois 60714, on September 25, 1996, at 10:00 A.M., local time.
At the Special Meeting, you will be asked to consider and vote on a proposal
to approve and adopt an Agreement and Plan of Merger and Amalgamation (the "Plan
of Merger and Amalgamation") pursuant to which (i) a wholly-owned subsidiary of
HA-LO will be merged with and into Market USA, Inc. ("Market USA"), (ii) a
wholly-owned subsidiary of HA-LO will be amalgamated with Marusa Marketing Inc.
("Marusa"); and (iii) a Canadian-organized affiliate of HA-LO will purchase all
of the assets and properties of each of Marusa Financial Services Ltd. ("Marusa
Financial") and Nerok Verifications Inc. ("Nerok") (collectively, the "Merger
Transactions"). The terms of the Plan of Merger and Amalgamation provide that
(i) each outstanding share of Market USA Common Stock will be converted into the
right to receive 19,125 shares of HA-LO Common Stock (a total of 1,912,500
shares of HA-LO Common Stock); (ii) each outstanding share of Marusa Common
Stock will be converted into 318,700 shares of HA-LO Common Stock (a total of
637,400 shares of HA-LO Common Stock); and (iii) HA-LO will issue 50 shares of
HA-LO Common Stock to each of Marusa Financial and Nerok (a total of 100 shares
of HA-LO Common Stock). HA-LO has reserved the right to consummate the
acquisition of the assets of each of Marusa Financial and Nerok upon the terms
described in the Plan of Merger and Amalgamation or effect an alternate
transaction acceptable to HA-LO having a substantially similar purpose and total
consideration which does not exceed 100 shares of HA-LO Common Stock.
After careful consideration, the Board of Directors of HA-LO has determined
that the proposed Merger Transactions are in the best interests of HA-LO and its
shareholders. Accordingly, the Board of Directors has approved the Plan of
Merger and Amalgamation and recommends that all shareholders vote for its
approval. William Blair & Company, L.L.C., an investment banking firm retained
by HA-LO, has rendered its opinion to the Board of Directors of HA-LO that, as
of August 23, 1996, the proposed consideration to be paid by HA-LO pursuant to
the Merger Transactions was fair to HA-LO from a financial point of view. The
written opinion of William Blair & Company, L.L.C. is attached as Appendix B to
the accompanying Proxy Statement/Prospectus and should be read carefully by
HA-LO's shareholders.
All shareholders are invited to attend the Special Meeting in person. The
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of HA-LO Common Stock will be necessary for approval and adoption of the
Plan of Merger and Amalgamation.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. If you
attend the Special Meeting in person you may, if you wish, vote personally on
all matters brought before the Special Meeting even if you have previously
returned your Proxy.
Sincerely,
Lou Weisbach
Chairman of the Board,
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
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HA-LO INDUSTRIES, INC.
5980 West Touhy Avenue
Niles, Illinois 60714
(847) 647-2300
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 25, 1996
Notice is hereby given that a Special Meeting of Shareholders of HA-LO
Industries, Inc. ("HA-LO") will be held on September 25, 1996, at 10:00 A.M.,
local time, at the principal executive offices of HA-LO at 5980 West Touhy
Avenue, Niles, Illinois 60714 for the following purposes:
(1) to consider and vote on a proposal to approve and adopt an
Agreement and Plan of Merger and Amalgamation dated as of June 14, 1996
(the "Plan of Merger and Amalgamation") among HA-LO, HA-LO Acquisition
Corporation, Inc. ("HA-LO Sub-1"), HA-LO Acquisition Corporation of
Canada Ltd. ("HA-LO Sub-2"), Market USA, Inc. ("Market USA"), Marusa
Marketing Inc. ("Marusa"), Marusa Financial Services Ltd. ("Marusa
Financial"), Nerok Verifications Inc. ("Nerok") and the shareholders of
Market USA and Marusa, pursuant to which, among other things, (a) HA-LO
Sub-1 will be merged with and into Market USA, HA-LO Sub-2 will be
amalgamated with Marusa and a Canadian-organized affiliate of HA-LO will
purchase all of the assets and properties of each of Marusa Financial
and Nerok (collectively, the "Merger Transactions"), and (b) each
outstanding share of Market USA Common Stock will be converted into the
right to receive 19,125 shares of HA-LO Common Stock (a total of
1,912,500 shares of HA-LO Common Stock), each outstanding share of
Marusa Common Stock will be converted into 318,700 shares of HA-LO
Common Stock (a total of 637,400 shares of HA-LO Common Stock), and
HA-LO will issue 50 shares of HA-LO Common Stock to each of Marusa
Financial and Nerok (a total of 100 shares of HA-LO Common Stock), in
each case as described in the accompanying Proxy Statement/Prospectus;
and
(2) to transact such other business as may properly come before the
Special Meeting or at any postponement(s) or adjournment(s) thereof.
Notwithstanding shareholder approval of the foregoing Proposal (1), HA-LO
reserves the right to abandon the Merger Transactions at any time prior to the
consummation of the Merger Transactions.
The Board of Directors of HA-LO has fixed the close of business on August
26, 1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting, and only shareholders of record at
such time will be entitled to notice of and to vote at the Special Meeting. A
list of HA-LO shareholders entitled to vote at the Special Meeting will be
available for examination, during ordinary business hours, at the principal
offices of HA-LO at 5980 West Touhy Avenue, Niles, Illinois 60714, for ten days
prior to the Special Meeting.
A form of Proxy Statement/Prospectus containing more detailed information
with respect to the matters to be considered at the Special Meeting accompany
this notice.
If the Plan of Merger and Amalgamation proposed for approval and adoption
herein is approved by the shareholders of HA-LO at the Special Meeting and the
transactions described in Proposal (1) above are consummated, any shareholder of
HA-LO as of the record date for the Special Meeting who (i) delivers to HA-LO,
before the vote is taken at the Special Meeting, a written demand for payment of
his or her shares of HA-LO Common Stock if the transactions described in
Proposal (1) above are consummated; (ii) does not vote in favor of the approval
and adoption of the Plan of Merger and Amalgamation; and (iii) otherwise
complies with Sections 11.65 and 11.70 of the Illinois Business Corporation Act
of 1983, as amended (the "IBCA"), has or may have the right to require HA-LO to
pay such shareholder the fair value of such shareholder's shares of HA-LO Common
Stock. HA-LO and such shareholder shall in such case have all of the rights and
duties and shall follow the
<PAGE>
procedures set forth in Sections 11.65 and 11.70 of the IBCA. You are cordially
invited and urged to attend the Special Meeting in person, but if you are unable
to do so, please complete, sign, date and promptly return the enclosed Proxy in
the enclosed, self-addressed, stamped envelope. If you attend the Special
Meeting and desire to revoke your Proxy and vote in person, you may do so. In
any event, a Proxy may be revoked at any time before it is voted.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND
ADOPTION OF THE PLAN OF MERGER AND AMALGAMATION.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
By Order of the Board of Directors,
Lou Weisbach
Chairman of the Board,
President and Chief Executive Officer
Niles, Illinois
August 23, 1996
<PAGE>
HA-LO INDUSTRIES, INC.
----------------
PROXY STATEMENT/PROSPECTUS
------------------
HA-LO INDUSTRIES, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 25, 1996
GENERAL INFORMATION
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of HA-LO Industries, Inc., an Illinois corporation ("HA-LO"), for use
in connection with a Special Meeting of Shareholders of HA-LO (the "Special
Meeting") to be held on September 25, 1996, or any postponement(s) or
adjournment(s) thereof. At the Special Meeting, the shareholders of HA-LO will
be asked to consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger and Amalgamation dated as of June 14, 1996 (the "Plan of
Merger and Amalgamation") among HA-LO, HA-LO Acquisition Corporation, Inc., an
Illinois corporation and wholly-owned subsidiary of HA-LO ("HA-LO Sub-1"), HA-LO
Acquisition Corporation of Canada Ltd., a Canadian federal corporation and
wholly-owned subsidiary of HA-LO ("HA-LO Sub-2"), Market USA, Inc., an Illinois
corporation ("Market USA"), Marusa Marketing Inc., a Canadian federal
corporation ("Marusa"), Marusa Financial Services Ltd., a Canadian federal
corporation ("Marusa Financial"), Nerok Verifications Inc., a Canadian federal
corporation ("Nerok," and together with Market USA, Marusa and Marusa Financial,
the "Target Companies") and the shareholders of each of Market USA and Marusa
(the "Target Shareholders"), pursuant to which, among other things, (i) HA-LO
Sub-1 will be merged with and into Market USA; (ii) HA-LO Sub-2 will be
amalgamated with Marusa; and (iii) a Canadian-organized affiliate of HA-LO
having the appropriate licenses will purchase all of the assets and properties
of each of Marusa Financial and Nerok (collectively, the "Merger Transactions").
As a result of the Merger Transactions, (i) each outstanding share of common
stock, no par value, of Market USA ("Market USA Common Stock") will be converted
into the right to receive 19,125 shares of common stock, no par value, of HA-LO
("HA-LO Common Stock") (a total of 1,912,500 shares of HA-LO Common Stock); (ii)
each outstanding share of Class A common stock of Marusa ("Marusa Common Stock")
will be converted into 318,700 shares of HA-LO Common Stock (a total of 637,400
shares of HA-LO Common Stock); and (iii) HA-LO will issue 50 shares of HA-LO
Common Stock to each of Marusa Financial and Nerok (a total of 100 shares of
HA-LO Common Stock). HA-LO has reserved the right to consummate the acquisition
of the assets of each of Marusa Financial and Nerok upon the terms described in
the Plan of Merger and Amalgamation or effect an alternate transaction
acceptable to HA-LO having a substantially similar purpose and total
consideration which does not exceed 100 shares of HA-LO Common Stock.
The shareholders of HA-LO also will consider and vote upon such other
business as may properly come before the Special Meeting or any adjournment(s)
or postponement(s) thereof.
This Proxy Statement/Prospectus also constitutes the prospectus of HA-LO
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of HA-LO Common Stock to be issued pursuant to the Merger
Transactions.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER
TRANSACTIONS, SEE "RISK FACTORS" ON PAGES 1-6.
<PAGE>
This Proxy Statement/Prospectus is first being mailed to the shareholders of
HA-LO on or about August 26, 1996.
------------------------
THE HA-LO COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER
TRANSACTIONS HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION AND NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is August 23, 1996.
ii
<PAGE>
AVAILABLE INFORMATION
This Proxy Statement/Prospectus constitutes a prospectus delivered in
compliance with the Securities Act. A Registration Statement on Form S-4 under
the Securities Act has been filed with the Securities and Exchange Commission
(the "Commission") with respect to the shares of HA-LO Common Stock to be issued
in connection with the Merger Transactions. In addition, HA-LO is subject to the
information reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Commission. Such Registration
Statement, including exhibits, and such reports, proxy statements and other
information may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the following regional offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago Illinois 60661 and 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained from those offices upon payment of
certain fees prescribed by the Commission. HA-LO is quoted and traded on The
Nasdaq National Market. Reports and other information concerning HA-LO may also
be inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
UPON REQUEST FROM LOU WEISBACH, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, HA-LO INDUSTRIES, INC., 5980 WEST TOUHY AVENUE, NILES,
ILLINOIS 60714, TELEPHONE NUMBER (847) 647-2300. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER 18, 1996.
HA-LO UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A PROXY STATEMENT/PROSPECTUS IS DELIVERED A COPY OF
ANY AND ALL INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE IN THE PROXY
STATEMENT/PROSPECTUS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED
THEREIN).
The following documents, which have been filed by HA-LO with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference in this Proxy
Statement/Prospectus: (i) HA-LO's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, including the portions of HA-LO's Proxy Statement for
the Annual Meeting of Shareholders held on June 10, 1996 and the portions of
HA-LO's 1995 Annual Report to Shareholders for the fiscal year ended December
31, 1995 that have been incorporated by reference therein; (ii) HA-LO's Current
Report on Form 8-K dated January 16, 1996; (iii) HA-LO's Current Report on Form
8-K/A dated March 13, 1996; (iv) HA-LO's Current Report on Form 8-K/A dated May
28, 1996; (v) HA-LO's Current Report on Form 8-K/A dated August 20, 1996; (vi)
HA-LO's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1996; (vii) HA-LO's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996; and (viii) the description of HA-LO's Common Stock contained in
the Registration Statement dated October 20, 1992 filed pursuant to Section 12
of the Exchange Act and any amendment or report filed for the purpose of
updating such description.
All documents filed by HA-LO pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date hereof and before the Special Meeting shall
be deemed to be incorporated herein by reference and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in
another document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
iii
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------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES OF HA-LO TO BE ISSUED
IN CONNECTION WITH THE MERGER TRANSACTIONS, OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF HA-LO OR THE TARGET COMPANIES SINCE SUCH DATE.
iv
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TABLE OF CONTENTS
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PAGE
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SUMMARY.................................................................................................... viii
General................................................................................................ viii
Principal Parties to the Proposed Merger Transactions.................................................. viii
HA-LO Special Meeting of Shareholders.................................................................. ix
Vote Required.......................................................................................... ix
The Merger Transactions................................................................................ ix
Risk Factors........................................................................................... xiii
HA-LO Industries, Inc. Selected Historical Financial Data.............................................. xiv
Target Companies Selected Historical Financial Data.................................................... xv
Summary Unaudited Pro Forma Financial Information...................................................... xvi
Comparative Per Share Data............................................................................. xvii
RISK FACTORS............................................................................................... 1
Risks Factors Relating to the Merger Transactions...................................................... 1
Risk Factors Relating to the Target Companies.......................................................... 1
Risk Factors Relating to HA-LO and HA-LO Common Stock.................................................. 5
THE SPECIAL MEETING........................................................................................ 7
Matters to Be Considered at the Special Meeting........................................................ 7
Vote Required.......................................................................................... 7
Voting of Proxies...................................................................................... 8
Revocability of Proxies................................................................................ 8
Record Date; Shares Entitled to Vote................................................................... 8
Solicitation of Proxies................................................................................ 8
Dissenters' Rights..................................................................................... 8
THE MERGER TRANSACTIONS.................................................................................... 11
General................................................................................................ 11
Background of the Merger Transactions.................................................................. 11
Reasons for the Merger Transactions; Recommendation of Board of Directors.............................. 12
Opinion of Financial Advisor to HA-LO.................................................................. 13
Accounting Treatment................................................................................... 16
Certain United States Federal Income Tax Considerations................................................ 17
Certain Canadian Federal Income Tax Considerations..................................................... 18
Regulatory Approval.................................................................................... 19
Interests of Certain Persons in the Merger Transactions................................................ 19
Resale Restrictions.................................................................................... 21
THE PLAN OF MERGER AND AMALGAMATION........................................................................ 22
The Merger Transactions................................................................................ 22
Exchange Procedures.................................................................................... 23
Representations and Warranties......................................................................... 23
Certain Covenants...................................................................................... 24
No Solicitation of Competing Transactions.............................................................. 25
Governance............................................................................................. 26
Indemnification........................................................................................ 26
Conditions............................................................................................. 27
Termination............................................................................................ 28
Expenses; Termination Fees............................................................................. 28
Amendment and Waiver................................................................................... 29
STOCK PRICE AND DIVIDEND INFORMATION....................................................................... 29
HA-LO.................................................................................................. 29
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v
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The Target Companies................................................................................... 30
HA-LO AND TARGET COMPANIES PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............................... 31
TARGET COMPANIES SELECTED FINANCIAL INFORMATION............................................................ 35
TARGET COMPANIES' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 36
General................................................................................................ 36
Six Months Ended June 30, 1996 as Compared to Six Months Ended June 30, 1995........................... 37
Fiscal Year Ended December 31, 1995 as Compared to Fiscal Year Ended December 31, 1994................. 37
Fiscal Year Ended December 31, 1994 as Compared to Fiscal Year Ended December 31, 1993................. 38
Liquidity and Capital Resources........................................................................ 38
Inflation.............................................................................................. 39
Quarterly Results...................................................................................... 39
BUSINESS OF THE TARGET COMPANIES........................................................................... 39
General................................................................................................ 39
Industry Overview...................................................................................... 39
Growth Strategy........................................................................................ 40
Business Strategy...................................................................................... 40
Operations Overview.................................................................................... 41
Competition............................................................................................ 42
Government Regulation.................................................................................. 42
Facilities............................................................................................. 44
Legal Proceedings...................................................................................... 45
MANAGEMENT OF THE TARGET COMPANIES......................................................................... 46
Directors and Executive Officers....................................................................... 46
Executive Compensation................................................................................. 46
Employment Agreements.................................................................................. 47
CERTAIN TRANSACTIONS RELATING TO THE TARGET COMPANIES...................................................... 48
PRINCIPAL SHAREHOLDERS OF THE TARGET COMPANIES............................................................. 49
Principal Shareholders of Market USA................................................................... 49
Principal Shareholders of Marusa....................................................................... 49
Principal Shareholders of Marusa Financial............................................................. 50
Principal Shareholders of Nerok........................................................................ 50
COMPARISON OF RIGHTS OF HOLDERS OF HA-LO COMMON STOCK AND TARGET COMPANY COMMON STOCK...................... 51
Common Stock........................................................................................... 51
Dividends.............................................................................................. 51
Voting Rights.......................................................................................... 51
Indemnification........................................................................................ 51
Preemptive Rights...................................................................................... 53
Assessments............................................................................................ 53
Liquidation Rights..................................................................................... 53
Quorum................................................................................................. 53
</TABLE>
vi
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<TABLE>
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Amendment of Articles and Bylaws....................................................................... 53
LEGAL MATTERS.............................................................................................. 54
EXPERTS.................................................................................................... 54
SHAREHOLDER PROPOSALS...................................................................................... 54
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
APPENDICES
A -- Agreement and Plan of Merger and Amalgamation................................................... A-1
B -- Opinion of William Blair & Company, L.L.C....................................................... B-1
C -- Sections 11.65 and 11.70 of the Illinois Business Corporation Act of 1983....................... C-1
</TABLE>
vii
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED, OR
INCORPORATED BY REFERENCE, ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. THIS
SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MORE DETAILED INFORMATION APPEARING, OR INCORPORATED BY
REFERENCE, ELSEWHERE HEREIN. SHAREHOLDERS OF HA-LO INDUSTRIES, INC. ARE URGED TO
REVIEW THE ENTIRE PROXY STATEMENT/PROSPECTUS, THE APPENDICES HERETO AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE. EXCEPT AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A
3-FOR-2 SPLIT OF THE OUTSTANDING HA-LO INDUSTRIES, INC. COMMON STOCK, EFFECTED
IN THE FORM OF A 50% COMMON STOCK DIVIDEND, TO SHAREHOLDERS OF RECORD ON MAY 17,
1996 EFFECTIVE JUNE 3, 1996.
GENERAL
This Proxy Statement/Prospectus is being provided to the shareholders of
HA-LO Industries, Inc., an Illinois corporation ("HA-LO"), in connection with
the proposed transactions contemplated by the Agreement and Plan of Merger and
Amalgamation dated as of June 14, 1996 (the "Plan of Merger and Amalgamation"),
by and among HA-LO, HA-LO Acquisition Corporation, Inc., an Illinois corporation
and wholly-owned subsidiary of HA-LO ("HA-LO Sub-1"), HA-LO Acquisition
Corporation of Canada Ltd., a Canadian federal corporation and wholly-owned
subsidiary of HA-LO ("HA-LO Sub-2"), Market USA, Inc., an Illinois corporation
("Market USA"), Marusa Marketing Inc., a Canadian federal corporation
("Marusa"), Marusa Financial Services Ltd., a Canadian federal corporation
("Marusa Financial"), Nerok Verifications Inc., a Canadian federal corporation
("Nerok"), and the shareholders of Market USA and Marusa (individually, a
"Target Shareholder" and collectively, the "Target Shareholders").
Pursuant to the Plan of Merger and Amalgamation, (i) HA-LO Sub-1 will be
merged with and into Market USA (the "U.S. Merger"); (ii) HA-LO Sub-2 will be
amalgamated with Marusa (the "Canada Amalgamation"); and (iii) each of Marusa
Financial and Nerok will sell, and a Canadian-organized affiliate of HA-LO ("New
Canadian Service Entity") having the appropriate licenses will purchase, subject
to discharge or performance of related liabilities, all of the assets and
properties of each of Marusa Financial and Nerok (the "Ancillary Asset
Acquisition"). The U.S. Merger, the Canada Amalgamation and the Ancillary Asset
Acquisition are collectively referred to as the "Merger Transactions," and
Market USA, Marusa, Marusa Financial and Nerok are individually referred to as a
"Target Company" and collectively referred to as the "Target Companies." The
Ancillary Asset Acquisition is designed to enable HA-LO to acquire all of the
assets utilized in the business operations conducted by Marusa Financial and
Nerok and is not anticipated to be material to the Merger Transactions, taken as
a whole. HA-LO has reserved the right to consummate the Ancillary Asset
Acquisition upon the terms described in the Plan of Merger and Amalgamation or
effect an alternate transaction acceptable to HA-LO having a substantially
similar purpose and total consideration which does not exceed 100 shares of
HA-LO Common Stock.
PRINCIPAL PARTIES TO THE PROPOSED MERGER TRANSACTIONS
HA-LO INDUSTRIES, INC. HA-LO is one of the nation's leading marketers and
distributors of advertising specialty products to customers with significant
advertising and promotional requirements. HA-LO's national marketing strategy
includes a system of 13 showrooms throughout the United States in which it
displays products provided by its network of over 2,500 vendors and marketed by
approximately 600 sales representatives. HA-LO and its sales representatives
assist customers by developing innovative advertising specialty programs which
are tailored to customers' specific needs. HA-LO's customers utilize these
products, which generally are articles of merchandise imprinted or otherwise
customized with a customer's name, logo or message, for marketing, employee
incentives and customer gifts and giveaways. These products include (i) apparel
items such as jackets, sweaters, hats and golf shirts, (ii) business accessories
such as clocks, portfolios, briefcases, blotters and pen and pencil sets, (iii)
recognition awards such as trophies and plaques and (iv) other miscellaneous
advertising items such as etched crystalware, calendars, golf accessories, key
chains, watches
viii
<PAGE>
and mugs. HA-LO's customers include manufacturing, financial service,
broadcasting, consumer product and communications companies as well as
professional sports teams. Selected customers of the Company include Motorola,
Inc., The Quaker Oats Company, Time Warner, Inc., Ameritech Corporation, Turner
Broadcasting System, Inc., Abbott Laboratories, Andersen Consulting, the Chicago
Bulls and Sony Signatures. HA-LO's principal executive offices are located at
5980 West Touhy Avenue, Niles, Illinois 60714, and its telephone number at that
address is (847) 647-2300.
THE TARGET COMPANIES. The Target Companies are a rapidly growing provider
of outsourced telephone-based sales and marketing services. The Target
Companies' client base is comprised of large companies with growing needs for
cost-effective means of contacting and servicing current and prospective
customers. The Target Companies operate over 900 workstations in 17 telephone
call centers located in the United States and Canada. The call centers are
centrally managed through the application of extensive telecommunications and
computer technology to promote the consistent delivery of quality services. The
Target Companies' primary business involves the provision of telephone-based
sales to consumers, database analysis and management, script development,
consultation and program development as well as customer lead generation,
acquisition and retention. The industries in which the Target Companies'
specialize include the insurance industry and the financial services industry.
The Target Companies' most significant clients in these industries are Allstate
Insurance and Maryland Bank of North America.
The principal executive offices of the Target Companies are located at 701
Lee Street, Des Plaines, Illinois 60016 and their telephone number at that
address is (847) 803-1900.
HA-LO SPECIAL MEETING OF SHAREHOLDERS
This Proxy Statement/Prospectus relates to a Special Meeting of Shareholders
of HA-LO (the "Special Meeting"). At the Special Meeting, the shareholders of
HA-LO will consider and vote upon a proposal to approve and adopt the Plan of
Merger and Amalgamation. A copy of the Plan of Merger and Amalgamation is
attached to this Proxy Statement/Prospectus as Appendix A. Approval and adoption
of the Plan of Merger and Amalgamation shall also constitute approval of the
issuance of shares of common stock, no par value, of HA-LO ("HA-LO Common
Stock") in connection with the Merger Transactions.
The Special Meeting will be held on Wednesday, September 25, 1996, 10:00
A.M., local time at the offices of HA-LO, 5980 West Touhy Avenue, Niles,
Illinois 60714. The record date for shareholders of HA-LO entitled to notice of
and to vote at the Special Meeting is as of the close of business on August 26,
1996. Voting rights for HA-LO are vested in holders of HA-LO Common Stock; with
each share of HA-LO Common Stock entitled to one vote on each matter coming
before the shareholders. As of July 31, 1996, there were approximately
10,509,055 shares of HA-LO Common Stock outstanding and approximately 525
holders of record.
VOTE REQUIRED
The favorable vote of the holders of at least two-thirds of the outstanding
shares of HA-LO Common Stock present, in person or by proxy, at the Special
Meeting will be necessary for approval and adoption of the Plan of Merger and
Amalgamation. As of July 31, 1996, directors and executive officers of HA-LO
were beneficial owners of approximately 23.79% of the outstanding shares of
HA-LO Common Stock (excluding 475,743 shares which may be acquired upon exercise
of options or other rights which are exercisable within 60 days of July 31,
1996). The directors and officers of HA-LO have indicated that they intend to
vote their shares FOR the approval and adoption of the Plan of Merger and
Amalgamation.
THE MERGER TRANSACTIONS
General; Conversion of Securities. Pursuant to the Plan of Merger and
Amalgamation, (i) HA-LO Sub-1 will be merged with and into Market USA; (ii)
HA-LO Sub-2 will be amalgamated with Marusa; and (iii) the New Canadian Service
Entity will purchase, subject to discharge or performance of related
liabilities, all of the assets and properties of each of Marusa Financial and
Nerok. As a result of
ix
<PAGE>
the U.S. Merger, Market USA will become a wholly-owned subsidiary of HA-LO and
each outstanding share of common stock, no par value, of Market USA ("Market USA
Common Stock") will be converted into the right to receive 19,125 shares of
HA-LO Common Stock (a total of 1,912,500 shares of HA-LO Common Stock). As a
result of the Canada Amalgamation, the corporation resulting therefrom will
become a wholly-owned subsidiary of HA-LO and each outstanding share of Class A
common stock of Marusa ("Marusa Common Stock") will be converted into 318,700
shares of HA-LO Common Stock (a total of 637,400 shares of HA-LO Common Stock).
As a result of the Ancillary Asset Acquisition, the New Canadian Service Entity
will purchase, subject to discharge or performance of related liabilities, all
of the assets and properties of each of Marusa Financial and Nerok in
consideration of HA-LO's issuance to each of Marusa Financial and Nerok of 50
shares of HA-LO Common Stock (a total of 100 shares of HA-LO Common Stock). The
Ancillary Asset Acquisition is designed to enable HA-LO to acquire all of the
assets utilized in the business operations conducted by Marusa Financial and
Nerok and is not anticipated to be material to the Merger Transactions, taken as
a whole. HA-LO has reserved the right to consummate the Ancillary Asset
Acquisition upon the terms described in the Plan of Merger and Amalgamation or
effect an alternate transaction acceptable to HA-LO having a substantially
similar purpose and total consideration which does not exceed 100 shares of
HA-LO Common Stock. As a result of the Merger Transactions, HA-LO will issue an
aggregate of 2,550,000 shares of HA-LO Common Stock (approximately 19.5% of the
outstanding HA-LO Common Stock as of July 31, 1996, after giving effect to the
Merger Transactions).
RECOMMENDATIONS OF THE BOARD OF DIRECTORS. The Board of Directors of HA-LO
has approved the Plan of Merger and Amalgamation and recommends a vote FOR
approval and adoption of the Plan of Merger and Amalgamation by the shareholders
of HA-LO. The Board of Directors of HA-LO believes that the terms of the Plan of
Merger and Amalgamation are fair to and in the best interests of HA-LO and its
shareholders. For a discussion of the factors considered by the Board of
Directors of HA-LO in reaching its decisions, see "The Merger Transactions
Reasons for the Merger Transactions; Recommendations of the Board of Directors."
EFFECTIVE TIME OF THE MERGER TRANSACTIONS. The Merger Transactions will
become effective at the time and on the date that (i) articles of merger
relating to the U.S. Merger are filed with Illinois Secretary of State; (ii)
articles of amalgamation and an amalgamation agreement relating to the Canada
Amalgamation are filed with the Canadian Department of Industry and a
certificate of amalgamation is issued thereby; and (iii) all documents and
instruments required to effectuate the Ancillary Asset Acquisition, or any
applicable alternate transaction, are filed with the appropriate governmental
authority (the time at which the last of the U.S. Merger, the Canada
Amalgamation and the Ancillary Asset Acquisition becomes effective is referred
to as the "Effective Time"). It is presently contemplated that the Effective
Time will occur as soon as practicable after the conditions specified in the
Plan of Merger and Amalgamation are satisfied or waived. See "The Plan of Merger
and Amalgamation -- Conditions."
EXCHANGE OF SHARES. Exchange of certificates evidencing Market USA Common
Stock and Marusa Common Stock (collectively, "Target Company Common Stock") for
certificates evidencing HA-LO Common Stock will be made at the Effective Time
upon surrender of certificates evidencing Target Company Common Stock to HA-LO.
OPINION OF FINANCIAL ADVISOR. On August 23, 1996, William Blair & Company,
L.L.C. ("Blair") delivered its opinion to HA-LO's Board of Directors to the
effect that, based upon and subject to the matters presented to HA-LO's Board of
Directors and as set forth in its opinion, as of such date, the proposed
consideration to be paid by HA-LO pursuant to the Merger Transactions was fair
to HA-LO from a financial point of view. A copy of the full text of the written
opinion of Blair, dated August 23, 1996, which sets forth the assumptions made,
procedures followed, matters considered and limits of its review, is attached to
this Proxy Statement/Prospectus as Appendix B, and should be read carefully in
its entirety. See "The Merger Transactions -- Opinion of Financial Advisor."
x
<PAGE>
MANAGEMENT OF HA-LO AFTER THE MERGER TRANSACTIONS. At the Effective Time,
HA-LO will take such action as is necessary to elect one Target Shareholder to
the Board of Directors of HA-LO. It is currently anticipated that Seymour N.
Okner, the principal Target Shareholder, will be nominated and appointed to the
Board of Directors as of the date following the Effective Time. See "The Merger
Transactions -- Interest of Certain Persons in the Merger." It also is
anticipated that after the consummation of the Merger Transactions Lou Weisbach,
the Chairman of the Board, President and Chief Executive Officer of HA-LO, will
continue to serve in such capacities.
CONDITIONS TO THE MERGER TRANSACTIONS. The obligations of HA-LO and the
Target Companies to consummate the Merger Transactions are subject to the
satisfaction of certain conditions, including, among others (i) obtaining the
requisite HA-LO shareholder approval, (ii) the expiration or termination of the
waiting period applicable to the consummation of the Merger Transactions under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (iii) obtaining from the Target Shareholders a certificate under Section
116 of the Income Tax Act (Canada) (the "ITA") indicating that any gain realized
on the Canada Amalgamation is tax-free by virtue of the Canada-United States
Income Tax Convention (the "Treaty"), (iv) the absence of any injunction
prohibiting consummation of the Merger Transactions, (v) the receipt of certain
legal opinions with respect to various aspects of the Merger Transactions and
(vi) the receipt of accountants' letters with respect to "cold comfort" matters.
See "The Merger Transactions -- Certain Income Tax Considerations," "The Merger
Transactions -- Accounting Treatment" and "The Plan of Merger and Amalgamation
- -- Conditions."
TERMINATION. The Plan of Merger and Amalgamation may be terminated and the
Merger Transactions may be abandoned at any time prior to the Effective Time,
before or after the approval by the shareholders of HA-LO, in a number of
circumstances, which include, among others, (i) by the mutual consent of HA-LO
and the Target Companies (or the Target Shareholders acting on their behalf);
(ii) by HA-LO if there has been a breach by a Target Company or a Target
Shareholder of any of its or his respective covenants or agreements in the Plan
of Merger and Amalgamation or if any of the representations and warranties of
the Target Companies or Target Shareholders shall have become untrue such that a
condition to the consummation of the Merger Transactions shall not have been
satisfied and such breach or condition has not been cured within 30 days after
receipt of written notice; (iii) by the Target Companies (or the Target
Shareholders acting on their behalf) if there has been a breach by HA-LO of any
of its respective covenants or agreements in the Plan of Merger and Amalgamation
or if any of the representations and warranties of HA-LO shall have become
untrue such that a condition to the consummation of the Merger Transactions
shall not have been satisfied and such breach or condition has not been cured
within 30 days after receipt of written notice; (iv) by HA-LO or the Target
Companies (or the Target Shareholders acting on their behalf) if any decree,
permanent injunction, judgment, order or other action by any court of competent
jurisdiction or governmental entity preventing or prohibiting consummation of
the Merger Transactions shall have become final and nonappealable; (v) by HA-LO
or the Target Companies if the Merger Transactions have not been consummated by
October 31, 1996; (vi) by HA-LO, if the Board of Directors of a Target Company
shall have recommended to the shareholders of such Target Company any Competing
Transaction (hereinafter defined); or (vii) by the Target Companies (or the
Target Shareholders acting on their behalf) if HA-LO has entered into a written
agreement relating to a HA-LO Change in Control (hereinafter defined). See "The
Plan of Merger and Amalgamation -- No Solicitation of Competing Transactions"
and "The Plan of Merger and Amalgamation -- Termination."
TERMINATION FEES. If the Plan of Merger and Amalgamation is terminated by
HA-LO, on the one hand, or the Target Companies (or the Target Shareholders
acting on their behalf), on the other hand, pursuant to clause (ii) or (iii) of
the preceding paragraph due to an intentional breach by the non-terminating
party, and without fault of the terminating party, the non-terminating party is
required to pay the terminating party an amount equal to all of the
non-terminating party's out-of-pocket expenses incurred in connection with the
Plan of Merger and Amalgamation. If HA-LO terminates the Plan of Merger and
Amalgamation and at the time of such termination a Competing Transaction
xi
<PAGE>
exists, the Target Companies are required to pay HA-LO a $15 million termination
fee and HA-LO's out-of-pocket expenses incurred in connection with the Plan of
Merger and Amalgamation. If the Target Companies (or the Target Shareholders
acting on their behalf) terminate the Plan of Merger and Amalgamation and at the
time of such termination there shall exist a written agreement with respect to a
HA-LO Change in Control, HA-LO is required to pay the Target Companies a $15
million termination fee and the Target Companies' out-of-pocket expenses
incurred in connection with the Plan of Merger and Amalgamation. In addition, if
the Target Companies (or the Target Shareholders acting on their behalf)
terminate the Plan of Merger and Amalgamation, HA-LO is required to pay the
Target Companies an additional termination fee equal to the discount (if any)
applicable to accounts receivable sold by Market USA to a bank at the request of
HA-LO. See "The Plan of Merger and Amalgamation -- Expenses; Termination Fees"
and "The Plan of Merger and Amalgamation -- Certain Covenants."
AVAILABILITY OF DISSENTERS' RIGHTS. Shareholders of the Target Companies
are not entitled to dissenters' rights in connection with the Merger
Transactions. All shareholders of HA-LO at the record date for the Special
Meeting will be entitled to exercise dissenters' rights in accordance with the
Illinois Business Corporation Act of 1983, as amended (the "IBCA"). A
shareholder of HA-LO desiring to exercise dissenters' rights must (i) deliver to
HA-LO, before the vote is taken at the Special Meeting, a written demand for
payment of his or her shares of HA-LO Common Stock if the Merger Transactions
are consummated; (ii) not vote in favor of the approval and adoption of the Plan
of Merger and Amalgamation; and (iii) otherwise comply with Sections 11.65 and
11.70 of the IBCA. See "The Special Meeting -- Dissenters' Rights."
RESALE RESTRICTIONS. Of the 2,550,000 shares of HA-LO Common Stock to be
issued in connection with the Merger Transactions, 26 shares of HA-LO Common
Stock will be freely transferable and the remaining 2,549,974 shares of HA-LO
Common Stock may be resold by the recipients thereof only in limited
circumstances because such latter shares of HA-LO Common Stock will be received
by persons who may be deemed to be "affiliates" (as such term is defined in the
Securities Act) of the Target Companies at the Effective Time. Pursuant to the
Plan of Merger and Amalgamation, HA-LO has agreed to file and cause to be
declared effective under the Securities Act, at specified dates, a registration
statement to permit resales of shares of HA-LO Common Stock received by such
affiliates as part of the Merger Transactions. See "The Merger Transactions --
Resale Restrictions."
ANTITRUST MATTERS. The Merger Transactions are subject to the requirements
of the HSR Act and the rules and regulations promulgated thereunder, which
provide that certain acquisition transactions (including the U.S. Merger) may
not be consummated until certain information has been furnished to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and
unless certain waiting period requirements are met. On August 5, 1996, the
Notification and Report Forms for the Merger Transactions required pursuant to
the HSR Act were filed by both HA-LO and the Target Companies. On August 16,
1996, the FTC informed HA-LO that HA-LO's request for early termination of the
applicable waiting period had been granted. See "The Merger Transactions --
Regulatory Approval."
CANADIAN REGULATORY MATTERS. Neither the Canada Amalgamation nor the
Ancillary Asset Acquisition requires governmental approval under the Competition
Act (Canada) (the "Competition Act") or the Investment Canada Act prior to the
consummation of the Merger Transactions. See "The Merger Transactions --
Regulatory Approval."
CERTAIN INCOME TAX CONSIDERATIONS. Consummation of the Merger Transactions
is conditioned upon receipt by HA-LO and the Target Companies of opinions from
their respective legal counsel that the U.S. Merger will qualify as a
reorganization for United States federal income tax purposes under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). In
addition, HA-LO believes that (i) the Canada Amalgamation will qualify as a
reorganization under Section 368(a) of the Code (provided that certain
shareholders of Marusa will be required to include an amount in gross income as
a "toll charge" subject to tax) and (ii) the Ancillary Asset Acquisition will be
taxable to both
xii
<PAGE>
Nerok and Market Financial, unless both of such corporations adopt plans of
liquidation in connection with such exchanges (in which case certain
shareholders of each of Marusa Financial and Nerok will be required to include
an amount in gross income as a "toll charge" subject to tax). See "The Merger
Transactions -- Certain United States Federal Income Tax Considerations" and
"The Plan of Merger and Amalgamation -- Conditions."
Any gains realized as a result of the Canada Amalgamation by a Target
Shareholder who is a resident of the United States for purposes of the Treaty
should be exempt from Canadian federal income tax by virtue of the Treaty. The
Canada Amalgamation will also not give rise to any Canadian federal income tax
payable by Marusa or HA-LO Sub-2. Any income or gains realized by Marusa
Financial and Nerok as a result of the Ancillary Asset Acquisition will be
subject to Canadian federal income tax. Any gain realized by HA-LO on the
conversion of the shares of HA-LO Sub-2 in the Canada Amalgamation will be
exempt from federal income tax pursuant to the provisions of the Treaty. See
"The Merger Transactions -- Certain Canadian Federal Income Tax Considerations."
ACCOUNTING TREATMENT. The Merger Transactions are expected to be accounted
for as a pooling of interests in accordance with the provisions of Accounting
Principles Board Opinion No. 16 on business combinations. HA-LO has received the
written opinion of Arthur Andersen LLP, independent public accountants, to the
effect that, based upon certain material facts and certain representations and
warranties provided by HA-LO and the Target Companies described in such opinion,
the business combination to be effected by the Merger Transactions would be
properly accounted for as a pooling of interests in accordance with generally
accepted accounting principles. See "The Merger Transactions -- Accounting
Treatment."
LISTING ON THE NASDAQ NATIONAL MARKET. The HA-LO Common Stock is quoted on
The Nasdaq National Market under the symbol "HALO." The obligations of HA-LO to
consummate the Merger Transactions are subject to the condition that the HA-LO
Common Stock to be issued in connection with the Merger Transactions shall have
been approved for quotation on The Nasdaq National Market.
MARKET PRICE DATA. On June 14, 1996, the last trading day immediately prior
to the date on which HA-LO and the Target Companies first publicly announced
their intent to undertake the Merger Transactions, the closing sale price of
HA-LO Common Stock as reported by The Nasdaq National Market was $26.75 per
share. On August 22, 1996, the last trading day for which quotations were
available at the time of printing this Proxy Statement/Prospectus, the last
reported sale price for HA-LO Common Stock on The Nasdaq National Market, was
$ per share. Neither the Market USA Common Stock nor the Marusa
Common Stock is traded on any established public trading market or the
over-the-counter market. See "Stock Price and Dividend Information."
RISK FACTORS
The information set forth under "Risk Factors" on pages 1-6 should be
reviewed and carefully considered in evaluating the Merger Transactions and the
issuance of HA-LO Common Stock in connection with the Merger Transactions.
xiii
<PAGE>
HA-LO INDUSTRIES, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data and other
operating information for HA-LO for each of the fiscal years in the three-year
period ended December 31, 1995 and for the six months ended June 30, 1996 and
1995. The selected financial information for each of the three-year periods has
been derived from the Consolidated Financial Statements of HA-LO, which have
been audited by Arthur Andersen LLP, independent auditors to HA-LO, and from the
underlying accounting records of HA-LO. The selected financial information for
the six-month periods has been derived from unaudited consolidated financial
statements of HA-LO and reflects all adjustments (consisting of normal recurring
adjustments) that, in the opinion of the management of HA-LO, are necessary for
a fair presentation of such information. Operating results for the six months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for fiscal 1996.
All information contained in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Pro Forma Financial Information" and with the
Consolidated Financial Statements and related notes of HA-LO included or
incorporated by reference herein.
HA-LO INDUSTRIES, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................................... $ 80,463 $ 110,396 $ 172,866 $ 66,314 $ 85,973
Cost of service............................................... 59,262 76,319 122,982 45,634 60,703
--------- --------- --------- --------- ---------
Gross profit.................................................. 21,201 34,077 49,884 20,680 25,270
Selling expenses.............................................. 11,328 18,213 24,600 10,699 13,026
General and administrative expenses........................... 8,876 12,663 19,045 8,293 9,928
--------- --------- --------- --------- ---------
Income from operations........................................ 997 3,201 6,239 1,688 2,316
Other income (expense)........................................ (53) (836) (1,260) (665) 248
--------- --------- --------- --------- ---------
Income before taxes........................................... 944 2,365 4,979 1,023 2,564
Provision for income taxes.................................... 198 859 1,991 409 1,026
--------- --------- --------- --------- ---------
Net income for the period..................................... $ 746 $ 1,506 $ 2,988 $ 614 $ 1,538
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income for the period(1)........................ $ 566 $ 1,419 N/A N/A N/A
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE DATA(2):
Net income (pro forma for 1993 and 1994)(1)................... 0.08 0.20 0.34 0.08 0.14
Shares used in computation assuming full dilution............. 7,074 7,200 8,722 7,955 11,263
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................................. $ 31,306 $ 44,667 $ 68,848 $ 48,742 $ 63,093
Working capital............................................... 8,757 14,556 27,586 27,344 29,425
Long-term debt, net of current portion........................ 6,071 12,512 -- 15,226 --
Shareholders' equity.......................................... 8,721 9,911 39,572 12,216 42,124
</TABLE>
- ------------------------------
(1) In December, 1995 HA-LO acquired an entity that had elected to be treated as
an S corporation for federal income tax purposes. The acquisition was
accounted for as a pooling-of-interests. Accordingly, pro forma net income
and income per share amounts include an unaudited pro forma tax provision
for the years ended December 31, 1993 and 1994 at an effective rate of 40%.
(2) All per share amounts have been adjusted to reflect the June 3, 1996 3-for-2
split of the outstanding HA-LO Common Stock, effected in the form of a 50%
common stock dividend, to shareholders of record on May 17, 1996.
xiv
<PAGE>
TARGET COMPANIES
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical combined financial data
and other operating information for the Target Companies for each of the fiscal
years in the three-year period ended December 31, 1995 and for the six months
ended June 30, 1996 and 1995. The selected financial information for each of the
three-year periods has been derived from the Combined Financial Statements of
the Target Companies, which have been audited by Arthur Andersen LLP,
independent auditors to the Target Companies, and from the underlying accounting
records of the Target Companies. The selected combined financial information for
the six-month periods has been derived from unaudited consolidated financial
statements of the Target Companies and reflects all adjustments (consisting of
normal recurring adjustments) that, in the opinion of the management of the
Target Companies, are necessary for a fair presentation of such information.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for fiscal 1996.
All information contained in the following tables should be read in
conjunction with "Target Companies' Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Pro Forma Financial
Information" and with the Combined Financial Statements and related notes of the
Target Companies included herein. Certain amounts from the combined statements
of income of the Target Companies have been reclassified to conform with the
presentation below.
TARGET COMPANIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................................... $ 24,491 $ 35,425 $ 38,399 $ 17,746 $ 24,733
Cost of service................................................. 16,392 23,170 25,495 13,173 18,350
--------- --------- --------- --------- ---------
Gross profit.................................................... 8,099 12,255 12,904 4,573 6,383
--------- --------- --------- --------- ---------
Selling expenses................................................ 459 911 959 435 548
General and administrative expenses............................. 5,487 7,205 9,062 3,013 3,469
--------- --------- --------- --------- ---------
Income from operations.......................................... 2,153 4,139 2,883 1,125 2,366
Other income.................................................... 14 36 46 23 13
--------- --------- --------- --------- ---------
Income before taxes............................................. 2,167 4,175 2,929 1,148 2,379
Provision for income taxes...................................... 209 337 508 47 167
--------- --------- --------- --------- ---------
Net income for the period....................................... $ 1,958 $ 3,838 $ 2,421 $ 1,101 $ 2,212
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income for the period(1).......................... $ 1,300 $ 2,505 $ 1,757 $ 689 $ 1,427
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE DATA(2):
Dividends....................................................... .14 .26 1.84 0.17 0.49
Pro forma net income(1)......................................... 0.51 0.98 0.69 0.27 0.56
Shares used in computation...................................... 2,550 2,550 2,550 2,550 2,550
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................................... $ 7,945 $ 11,271 $ 10,492 $ 12,472 $ 13,308
Working capital................................................. 2,130 4,900 2,368 5,819 2,562
Long-term debt, net of current portion.......................... 87 79 81 78 78
Shareholders' equity............................................ 4,311 7,478 5,338 8,156 6,292
</TABLE>
- ------------------------------
(1) Market USA has elected to be treated as an S corporation for federal income
tax purposes. Pro forma net income and pro forma net income per share
amounts include an unaudited pro forma income tax provision for all periods
at an effective rate of 40%.
(2) All per share data is based on the number of shares of HA-LO Common Stock to
be issued by HA-LO in connection with the Merger Transactions.
xv
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents summary pro forma financial information derived
from the Unaudited Pro Forma Combined Condensed Financial Statements included
elsewhere in this Proxy Statement/Prospectus and has been presented assuming the
Merger Transactions will be accounted for as a pooling of interests. The
Unaudited Pro Forma Condensed Combined Financial Statements do not purport to
present the financial position or results of operations of HA-LO had the
transactions and events assumed therein occurred on the dates specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in HA-LO's Annual Report to Securityholders on
Form 10-K, which is incorporated by reference herein, and "Target Companies'
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "HA-LO and Target Companies Pro Forma Combined Condensed
Financial Statements" included elsewhere in this Proxy Statement/Prospectus.
HA-LO AND TARGET COMPANIES
SUMMARY PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues..................................... $ 104,954 $ 145,821 $ 211,265 $ 84,060 $ 110,706
Pro forma net income(1),(3)................ 1,866 3,924 4,745 1,303 2,965
Pro forma earnings per share(2),(4)........ 0.19 0.40 0.42 0.12 0.21
Balance Sheet Data (at end of period):
Total assets............................... $ 76,401
Working capital............................ 29,104
Long-term debt, net of current portion..... 78
Shareholders' equity....................... 45,532
</TABLE>
- ------------------------
(1) A corporation which was acquired by HA-LO in December, 1995 in a transaction
accounted for as a pooling-of-interests, had elected to be treated as an S
corporation for federal income tax purposes. Pro forma net income and income
per share amounts include an unaudited provision for federal and state
income taxes at an effective rate of 40% for 1993 and 1994.
(2) All per share information has been adjusted to reflect a 3-for-2 stock
split, effected by HA-LO as a 50% common stock dividend, to shareholders of
record on May 17, 1996.
(3) Market USA has elected to be treated as an S corporation for federal income
tax purposes. Pro forma net income and pro forma net income per share
amounts include an unaudited provision for federal and state income taxes
for all periods at an effective rate of 40%.
(4) All per share data is based on the number of shares of HA-LO Common Stock to
be issued by HA-LO to complete the Merger Transactions.
xvi
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of HA-LO
and the Target Companies and combined per share data on an unaudited pro forma
basis, based on the assumption that the Merger Transactions occurred at the
beginning of the earliest period presented and were accounted for as a pooling
of interests. The pro forma comparative per share data has been adjusted to give
effect to (i) the issuance of 1,912,500 shares of HA-LO Common Stock in
connection with the U.S. Merger; (ii) the issuance of 637,400 shares of HA-LO
Common Stock in connection with the Canada Amalgamation; and (iii) the issuance
of 100 shares of Common Stock in connection with the Ancillary Asset
Acquisition. The pro forma comparative per share data does not purport to
represent what HA-LO's financial position or results of operation would actually
have been had the Merger Transactions occurred at the beginning of the earliest
period presented or to project HA-LO's financial position or results of
operation for any future date or period. This data should be read in conjunction
with the pro forma combined condensed financial statements and the separate
historical financial statements and notes thereto of HA-LO included or
incorporated by reference herein and of the Target Companies included elsewhere
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS PER SHARE
Historical HA-LO................................................... $ 0.08 $ 0.20 $ 0.34 $ 0.08 $ 0.14
Historical Target Companies........................................ $ 0.51 $ 0.98 $ 0.69 $ 0.43 $ 0.87
Pro forma combined................................................. $ 0.19 $ 0.40 $ 0.42 $ 0.12 $ 0.21
BOOK VALUE PER SHARE
Historical HA-LO................................................... $ 4.54 $ 3.74
Historical Target Companies........................................ $ 2.09 $ 2.94
Pro forma combined................................................. $ 3.98 $ 3.30
CASH DIVIDENDS PER SHARE
Historical HA-LO(1)................................................ -- -- -- -- --
Historical Target Companies........................................ $ 0.14 $ 0.26 $ 1.84 $ 0.17 $ 0.49
Pro forma combined................................................. $ 0.04 $ 0.07 $ 0.42 $ 0.04 $ 0.09
</TABLE>
- ------------------------
(1) Excludes dividends of $299,000, $610,000 and $555,000 paid by an acquired
company to its shareholders in 1993, 1994 and 1995, respectively, prior to
its acquisition by HA-LO. The acquisition, which occurred in December 1995,
was accounted for as a pooling of interests. No dividends were paid by the
acquired company during the six months ended June 30, 1995 or June 30, 1996.
xvii
<PAGE>
RISK FACTORS
The following are certain factors that should be considered by the
shareholders of HA-LO in evaluating the Merger Transactions as well as the
proposal to be considered and voted upon at the HA-LO Special Meeting and by
shareholders of each of the Target Companies in evaluating an investment in
HA-LO Common Stock. Unless otherwise specified, references herein to the Target
Companies after the Merger Transactions refer to the surviving corporation of
the U.S. Merger, the corporation resulting from the Canada Amalgamation and the
business operated by the New Canadian Service Entity.
RISKS FACTORS RELATING TO THE MERGER TRANSACTIONS
INTEGRATION OF THE BUSINESSES. The Merger Transactions involve the
integration of two business organizations that have previously operated
independently. There can be no assurance that HA-LO will not encounter
difficulties in integrating the operations of the Target Companies with those of
HA-LO or that the benefits expected from such integration will be realized. Any
delays or unexpected costs incurred in connection with such integration could
have a material adverse effect on the combined company's business, operating
results or financial condition. Furthermore, there can be no assurance that the
operations, managements and personnel of the two business organizations will be
compatible or that HA-LO or the Target Companies will not experience the loss of
key personnel. Among the factors considered by the Board of Directors of HA-LO
in connection with its approval of the Plan of Merger and Amalgamation were the
opportunities to provide additional marketing services to HA-LO's existing
clients. There can be no assurance that any of HA-LO's existing clients will
become clients of the Target Companies after the Merger Transactions.
DILUTION OF PERCENTAGE OWNERSHIP INTEREST. Following the Merger
Transactions, the current shareholders of HA-LO will own approximately 80.5% of
the then outstanding HA-LO Common Stock. This represents substantial dilution of
the percentage ownership interest in HA-LO by HA-LO's current shareholders. The
shareholders of the Target Companies will own approximately 19.5% of the HA-LO
Common Stock. In addition, the policies and day-to-day operations of the
combined companies will be controlled by the Board of Directors and management
of HA-LO.
RISK FACTORS RELATING TO THE TARGET COMPANIES
RELIANCE ON MAJOR CLIENTS AND KEY INDUSTRIES. Because a substantial portion
of the Target Companies' revenue is generated from relatively few clients, the
loss of a significant client or clients could have a materially adverse effect
on the Target Companies. The Target Companies' ten largest clients collectively
accounted for approximately 89.3% and 77.2%, respectively, of the Target
Companies' combined net revenues in 1994 and 1995. The Target Companies' largest
client in 1994 was JC Penney Life Insurance Company, which accounted for
approximately 25.4% of the Target Companies' combined net revenues. The Target
Companies' largest client in 1995 was Allstate Insurance, which accounted for
approximately 19.5% of the Target Companies' combined net revenues. Many of the
Target Companies' clients are concentrated in the insurance and financial
services industries. A trend in either of these industries not to use, or to
reduce their use of, telephone-based sales, marketing or customer management
services, could have a materially adverse effect on the Target Companies. The
Target Companies generally operate under contracts which may be terminated on
short notice, some of which do not have minimum volume requirements. See
"Business of the Target Companies."
FACTORS AFFECTING ABILITY TO MANAGE AND SUSTAIN GROWTH. The Target
Companies have experienced rapid growth over the past several years and
anticipate continued growth to be driven primarily by industry trends toward
outsourcing of telephone-based sales, marketing and customer service operations
and increased penetration by the Target Companies of new and existing clients
and markets. Future growth will depend on a number of factors, including the
effective and timely initiation and development of client relationships, opening
of new call centers, and recruitment,
1
<PAGE>
motivation and retention of qualified personnel. Sustaining growth will also
require the implementation of enhanced operational and financial systems and
will require additional management, operational and financial resources. There
can be no assurance that the Target Companies will be able to manage their
expanding operations effectively or that they will be able to maintain or
accelerate their growth. See "Target Companies Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business of the
Target Companies."
COMPETITIVE AND FRAGMENTED INDUSTRY; POTENTIAL FUTURE COMPETING TECHNOLOGIES
AND TRENDS. The industry in which the Target Companies compete is very
competitive and highly fragmented. The Target Companies' competitors range in
size from very small firms offering special applications or short term projects
to large, publicly traded companies. A number of competitors have capabilities
and resources equal to, or greater than, the Target Companies. Some of the
Target Companies' services also compete with direct mail, television, radio and
other advertising media. There can be no assurance that, as the Target
Companies' industry continues to evolve, additional competitors with greater
resources than the Target Companies will not enter the industry (or particular
segments of the industry) or that the Target Companies' clients will not choose
to conduct more of their telephone-based sales, marketing or customer service
activities internally. See "Business of the Target Companies -- Competition."
The development of new forms of direct sales and marketing techniques, such
as interactive home shopping through television, computer networks and other
media, could have an adverse effect on the demand for the Target Companies'
services. In addition, the effectiveness of marketing by telephone could also
decrease as a result of consumer saturation and increased consumer resistance to
this direct marketing tool. Although the Target Companies' attempt to monitor
industry trends and respond accordingly, there can be no assurance that the
Target Companies will be able to anticipate and successfully respond to such
trends in a timely manner. See "Business of the Target Companies."
ORGANIZATION OF MARUSA. The Canada Business Corporations Act (the "CBCA")
requires that a majority of the directors of a corporation organized under the
CBCA be residents of Canada. At the time of its incorporation under the CBCA,
the sole directors of Marusa were Seymour N. Okner and Samuel P. Okner, each a
resident of the United States. HA-LO's Canadian counsel has informed HA-LO that,
because of such failure to comply with the CBCA, (i) Messrs. Okner, in their
capacity as the sole directors of Marusa, had no authority to transact business
on behalf of Marusa and (ii) all actions so taken by Messrs. Okner on behalf of
Marusa were without effect, including, without limitation, the issuance of
shares of Marusa Common Stock. As a result, neither Marusa nor the shareholders
of Marusa can confirm the identity of either the shareholders or directors of
Marusa since its initial incorporation. Although, Marusa has commenced
proceedings to obtain a declaratory judgment of a court of competent
jurisdiction to confirm the identity of the shareholders and directors of
Marusa, there can be no assurance that a court will grant such a declaratory
judgment, that such a declaratory judgment will be granted prior to the
Effective Time or that Marusa will be able to consummate the Canada Amalgamation
in the absence of such a judgment. If such declaratory judgment is not granted
prior to the Effective Time and HA-LO is otherwise able to consummate the Canada
Amalgamation, HA-LO will bear the risk that persons, other than those set forth
in this Proxy Statement/Prospectus, may claim ownership to the Marusa Common
Stock. The Target Companies have informed HA-LO that they believe they have
meritorious defenses to any such claims. Although HA-LO will vigorously defend
any such claims, there can be no assurance that HA-LO would be meritorious in
such defense and that any such claimants would not be judicially declared to be
the owners of all or a portion of the Marusa Common Stock.
LICENSING REQUIREMENTS. Certain United States and Canadian jurisdictions in
which the Target Companies operate have laws and regulations which require that
persons selling insurance products obtain state, provincial or territorial
licenses before engaging in such activities. In particular, each Canadian
province and territory requires that Marusa Financial and its representatives
selling insurance products, among others, obtain such a license. Marusa
Financial has been unable to demonstrate
2
<PAGE>
that it is in compliance with such licensing requirements in several Canadian
provinces and territories. In the absence of a valid license, the provincial or
territorial government has the authority to require Marusa Financial to cease
and desist from conducting telemarketing activities relating to insurance
products in such province or territory until such license is applied for and
obtained, a process which could require several months to complete. There can be
no assurance that any such license will be obtained. In addition, on May 21,
1996, governmental authorities in the Province of British Columbia issued a
cease and desist order with respect to Marusa Financial's activities in such
Province requiring each employee of Marusa Financial to cease conducting
telemarketing activities on behalf of Marusa Financial until such employees
obtain the required Province of British Columbia licenses. On May 24, 1996,
Marusa Financial appealed such cease and desist order and applied for and
obtained a stay of the British Columbia cease and desist order, which stay is
effective until the court renders a decision on the Target Companies' appeal.
The hearing relating to the Target Companies' appeal is scheduled for October
1996. The failure of Marusa Financial to obtain, and maintain in effect, all
required licenses to conduct telemarketing activities with respect to insurance
products would have a material adverse effect on the results of operations of
the Target Companies taken as a whole. See "Business of the Target Companies --
Legal Proceedings."
RELIANCE ON TECHNOLOGY. The Target Companies have invested significantly in
sophisticated and specialized telecommunications and computer technology, and
have focused on the application of this technology to provide customized
solutions to meet their clients' needs. The Target Companies anticipate that it
will be necessary to continue to select, invest in and develop new and enhanced
technology on a timely basis in the future in order to maintain their
competitiveness. The Target Companies' future success will also depend in part
on their ability to continue to develop information technology solutions which
keep pace with evolving industry standards and changing client demands. In
addition, the Target Companies' business is highly dependent on its computer and
telephone equipment and software systems, and the temporary or permanent loss of
such equipment or systems, through casualty or operating malfunctions, could
have a materially adverse effect on the Target Companies' business. See
"Business of the Target Companies -- Business Strategy."
DEPENDENCE ON KEY PERSONNEL. The success of the Target Companies depends in
large part upon the abilities and continued service of their executive officers
and other key employees. There can be no assurance that the Target Companies
will be able to retain the services of such officers and employees. Seymour N.
Okner, the principal Target Shareholder, is 69 years of age and, although Mr.
Okner will serve as Chairman and Chief Executive Officer of each of Market USA
and Marusa and enter into an Employment Agreement with HA-LO for an initial term
of three years, there can be no assurance that Mr. Okner or any other executive
officer or key employee will continue to be able to devote the same efforts to
the success of the Target Companies as has historically been the case. The loss
of key personnel, including Mr. Okner, could have a materially adverse effect on
the Target Companies. The Target Companies have non-competition agreements with
certain of their existing key personnel. However, courts are at times reluctant
to enforce such agreements. In order to support their growth, the Target
Companies will be required to effectively recruit, develop and retain additional
qualified management personnel. See "The Merger Transactions -- Interests of
Certain Persons in the Merger Transactions" and "Management of the Target
Companies."
DEPENDENCE ON LABOR FORCE. The Target Companies' industry is very labor
intensive and has experienced high personnel turnover. Many of the Target
Companies' employees receive modest hourly wages. A higher turnover rate among
the Target Companies' employees would increase the Target Companies' recruiting
and training costs and decrease operating efficiencies and productivity. Some of
the Target Companies' operations, particularly insurance product sales, require
specially trained and licensed employees. Growth in the Target Companies'
business will require them to recruit and train qualified personnel at an
accelerated rate from time to time. There can be no assurance that the Target
Companies will be able to continue to hire, train and retain a sufficient labor
force of qualified employees. A significant portion of the Target Companies'
costs consists of
3
<PAGE>
wages to hourly workers. An increase in hourly wages, costs of employee benefits
or employment taxes could materially adversely effect the Target Companies. See
"Business of the Target Companies -- Personnel and Training."
DEPENDENCE ON TELEPHONE SERVICE. The Target Companies' business is
materially dependent on service provided by various local and long distance
telephone companies. A significant increase in the cost of telephone services
that is not recoverable through an increase in the price of the Target
Companies' services, or any significant interruption in telephone services,
could have a materially adverse impact on the Target Companies.
GOVERNMENT REGULATION. The Target Companies' business is subject to various
federal and state laws and regulations. The Target Companies' industry has
become subject to an increasing amount of federal and state regulation in the
past five years. The rules of the Federal Communications Commission (the "FCC")
under the Federal Telephone Consumer Protection Act of 1991 limit the hours
during which telemarketers may call consumers and prohibit the use of automated
telephone dialing equipment to call certain telephone numbers. The Federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 (the "TCFAPA")
broadly authorizes the Federal Trade Commission (the "FTC") to issue regulations
prohibiting misrepresentation in telephone sales. In August 1995, the FTC issued
regulations under the TCFAPA which, among other things, require telemarketers to
make certain disclosures when soliciting sales. The Target Companies' operating
procedures comply with the telephone solicitation rules of the FCC and FTC.
However, there can be no assurance that additional federal or state legislation,
or changes in regulatory implementation, would not limit the activities of the
Target Companies or their clients in the future or significantly increase the
cost of regulatory compliance. See "Business of the Target Companies --
Government Regulation -- United States Government Regulation."
The Target Companies' business is also subject to various federal and
provincial laws and regulations, including, but not limited to, certain fraud
provisions of the Canadian Criminal Code and certain misleading advertising
provisions of the Competition Act. In addition, certain provinces and
territories have enacted legislation applicable to telemarketing practices.
Moreover, the Canadian Radio-television and Telecommunications Commission has
issued several decisions relating to the use of automatic dialing-announced
devices in connection with certain telemarketing practices. In June 1995, the
Director under the Competition Act proposed that certain amendments be made to
the Competition Act to, among other things, (i) establish deceptive
telemarketing practices as a specific strict liability criminal offense; (ii)
permit legal proceedings in respect to deceptive telemarketing practices by way
of summary conviction in less serious matters or by way of indictment in more
serious matters; and (iii) increase the maximum fine relating to summary
convictions from Cdn. $25,000 to Cdn. $200,000. The Target Companies believe
that draft legislation relating to the foregoing will be introduced into the
House of Commons in the fall of 1996. The Target Companies also believe that,
except as described in this Proxy Statement/Prospectus, they are currently in
compliance with all existing Canadian laws; however, there can be no assurance
(i) that additional federal or provincial legislation, or changes in regulatory
implementation would not limit the activities of the Target Companies or their
clients in the future or significantly increase the cost of regulatory
compliance or (ii) as to the impact, if any, that any such legislation, if
enacted, would have upon the business and operations of the Target Companies in
Canada. See "Business of the Target Companies -- Government Regulation --
Canadian Government Regulation."
Several of the industries in which the Target Companies' clients operate are
subject to varying degrees of government regulations, particularly the insurance
and financial services industries. Generally, compliance with these regulations
is a responsibility shared between the Target Companies and their clients.
However, the Target Companies could be subject to a variety of enforcement or
private actions for their failure or the failure of their clients to comply with
such regulations. The Target Companies' telephone representatives who sell
insurance products are required, among other things, to be licensed by various
state and provincial insurance commissions and participate in regular continuing
education programs, thus requiring the Target Companies to comply with the
extensive
4
<PAGE>
regulations of these state and provincial commissions. As a result, changes in
these regulations or their implementation could materially increase the Target
Companies' operating costs. See "Business of the Target Companies -- Government
Regulation -- Other Regulation."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Target Companies
could experience quarterly variations in net revenues and operating income as a
result of many factors, including, among others, the timing of clients'
marketing campaigns, the timing of additional selling, general and
administrative expenses to acquire and support such new business and changes in
the Target Companies' revenue mix among its various service offerings. In
addition, the Target Companies must plan their operating expenditures based on
revenue forecasts, and revenue shortfall below such forecast in any quarter
would likely adversely affect the Target Companies' operating results for that
quarter. However, the Target Companies' business tends to be slower in the first
quarter due to client marketing programs which are typically slower in the first
part of the year. See "Target Companies' Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISK FACTORS RELATING TO HA-LO AND HA-LO COMMON STOCK
GROWTH THROUGH ACQUISITIONS. Acquiring businesses which can be integrated
into HA-LO's operations has been and continues to be an important element of
HA-LO's strategy for achieving profitable growth. Since January 1, 1993, HA-LO
has acquired ten advertising specialty businesses. However, there can be no
assurance that suitable acquisition candidates will continue to be available at
prices deemed reasonable by HA-LO, that HA-LO will be able to successfully
integrate future acquisitions, if any, into its existing business, that the
sales representatives previously associated with an acquired business will
remain with HA-LO after the acquisition or that HA-LO's recent growth rate will
continue in the future. In addition, there is significant competition for
attractive acquisition candidates.
RISKS RELATED TO RAPID GROWTH. Since January 1, 1993, HA-LO's net sales and
net income have increased as a result of both its acquisitions of advertising
specialty businesses and its internal growth. As part of its business strategy,
HA-LO intends to continue to pursue additional acquisitions, open showrooms and
attract and retain additional sales representatives. The failure to effectively
control and manage growth could have a material adverse effect on HA-LO's
financial condition and results of operations. There can be no assurance that
HA-LO's recent growth rate will continue in the future.
CONCENTRATION OF SALES WITH MONTGOMERY WARD; LOWER GROSS MARGINS WITH
MONTGOMERY WARD BUSINESS. During the six months ended June 30, 1996, sales to
Montgomery Ward & Co. Incorporated ("Montgomery Ward") accounted for
approximately 15.0% of HA-LO's net sales. HA-LO's exclusive agreement with
Montgomery Ward expires on December 31, 2004, subject to earlier termination (i)
at HA-LO's election in the event that Montgomery Ward fails to purchase
specified minimum amounts of HA-LO products annually under the agreement and
(ii) at Montgomery Ward's election on December 31 of any year, commencing in
1998, upon no less than six-months' notice. In connection with the agreement, a
fund in which Montgomery Ward is the principal investor, acquired shares of
HA-LO Common Stock and warrants to purchase additional shares of HA-LO Common
Stock. Certain of the warrants are subject to forfeiture upon early termination
of the agreement. Subsequently, the fund distributed its shares of HA-LO Common
Stock and warrants to its partners (including Montgomery Ward) PRO RATA in
accordance with their respective partnership interests. The agreement provides
for limitations on HA-LO's gross margins relating to sales thereunder, resulting
in lower gross margins on this business than on HA-LO's other business. This is
offset, however, by lower selling expenses incurred on the sales to Montgomery
Ward. Although HA-LO believes that it has established an excellent relationship
with Montgomery Ward, the loss of all or a significant portion of this account
would have a material adverse effect on HA-LO's business and results of
operations.
CONCENTRATION OF SALES AND EARNINGS IN FOURTH QUARTER; QUARTERLY
FLUCTUATIONS IN SALES AND EARNINGS. Some customers tend to utilize a greater
portion of their advertising and promotion
5
<PAGE>
budgets in the latter part of the calendar year, which has historically resulted
in and may continue to result in a disproportionately large share of HA-LO's net
sales and net income being recognized in the fourth quarter. In addition, the
timing of, and method of accounting used in connection with, an acquisition may
cause substantial fluctuations in operating results from quarter to quarter.
EMPLOYMENT TAX AUDIT. The Internal Revenue Service (the "IRS") has
commenced and is currently engaged in a field audit examination of HA-LO's
federal employment tax returns for the years ended December 31, 1993, 1994 and
1995 which includes a review of the facts, circumstances and legal authority
supporting HA-LO's position that its independent sales representatives have
properly been treated as independent contractors for federal employment tax
purposes. The audit is continuing, and no adjustments to HA-LO's federal
withholding, federal unemployment or social security tax liabilities have been
proposed to date, although management believes that the IRS will propose such
adjustments in the near future. Although management believes that HA-LO's
characterization of its independent sales representatives as independent
contractors rather than employees is proper, the IRS could assert otherwise and
seek to require HA-LO to reclassify its independent sales representatives as
employees and/or pay substantial additional employment taxes and penalties,
which amount could be material. If the IRS proposes such a reclassification or
adjustment, HA-LO would have several options available to it, including an
appeal of any such determination within the IRS and to the Federal District
Court, if necessary. This process could take several years to resolve as the
ultimate determination will be based upon a factual analysis of the relationship
between HA-LO and its independent sales representatives. If the IRS were to
prevail and require HA-LO to treat all or any portion of its independent sales
representatives as employees, such change in status could adversely effect
HA-LO's business.
DEPENDENCE UPON INDEPENDENT SALES REPRESENTATIVES. The success of HA-LO is
largely attributable to its ability to attract and retain experienced sales
representatives. HA-LO's sales force currently consists of approximately 600
sales representatives, most of whom are independent representatives. During the
six months ended June 30, 1996, no single sales representative was responsible
for more than 0.3% of HA-LO's sales. HA-LO's independent sales representatives
generally have the right to represent other companies, including competitors of
HA-LO. HA-LO believes that the decision of a sales representative to terminate
his or her relationship with HA-LO could result in HA-LO losing that
representative's customers. Historically, HA-LO has not had significant turnover
among its sales representatives; however, there can be no assurance that HA-LO
will not experience higher turnover among its sales representatives in the
future.
COMPETITION. The advertising specialty industry is highly fragmented and
competitive, and the cost of entry is low. Although HA-LO believes its
value-added services provide it with a competitive advantage, these capabilities
may result in higher administrative costs than those incurred by certain of its
smaller competitors. Existing or new competitors may have substantially greater
financial and other resources than HA-LO. HA-LO also competes for advertising
dollars with other sources, such as television, radio, newspapers, magazines and
billboards. There can be no assurance that HA-LO will be able to continue to
compete successfully against current and future competitors or that competitive
pressures faced by HA-LO will not materially adversely affect its business,
operating results and financial condition in the future.
CONTROL BY MANAGEMENT. After giving effect to the issuance of HA-LO Common
Stock in connection with the consummation of the Merger Transactions, HA-LO's
executive officers and directors (including Seymour N. Okner and his
affiliates), and investors currently represented on its Board of Directors,
will, in the aggregate, beneficially own approximately 37.1% of the outstanding
HA-LO Common Stock. Although no voting agreements or similar arrangements among
such shareholders currently exist or are contemplated, if such shareholders were
to act in concert in the future, they likely would be able to elect all of
HA-LO's directors, determine the outcome of most corporate actions requiring
shareholder approval and otherwise control the business affairs of HA-LO.
Similarly, such persons, acting together, would be in a position to prevent a
take-over of HA-LO by one or more third parties.
6
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK. Certain provisions of
HA-LO's Restated Articles of Incorporation, as amended, and HA-LO's Amended and
Restated By-laws, as well as provisions of the IBCA, could have an anti-takeover
effect. HA-LO's Board of Directors has the authority to issue up to 10,000,000
shares of Preferred Stock and to determine the price, voting, liquidation,
dividend and other rights, preferences and privileges of such shares without any
further vote or action by HA-LO's shareholders. The rights of the holders of
HA-LO Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
The issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate transactions, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of HA-LO or to otherwise effect a change of control.
HA-LO has no present plan to issue shares of Preferred Stock. Additionally, the
IBCA places restrictions on business combinations with persons deemed
"interested shareholders." These provisions could have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
HA-LO.
DIVIDENDS. HA-LO has not paid any dividends on the HA-LO Common Stock since
its initial public offering in November 1992 and does not anticipate paying any
such dividends in the foreseeable future. However, an entity acquired by HA-LO
in December 1995 in a transaction accounted for as a pooling of interests paid
cash dividends of $555,000, $610,000 and $299,000 in 1995, 1994 and 1993,
respectively.
SHARES ELIGIBLE FOR FUTURE SALE. As of July 31, 1996, 10,509,055 shares of
HA-LO Common Stock were outstanding, and 2,485,067 shares of HA-LO Common Stock
were reserved for issuance in connection with the exercise of outstanding
options, warrants and conversion rights. In addition to the 2,550,000 shares of
HA-LO Common Stock proposed to be issued in the Merger Transactions, HA-LO may
issue shares of HA-LO Common Stock and preferred stock in the future in
connection with acquisitions, corporate combinations, financing activities or
employee compensation plans. Sales of substantial amounts of HA-LO Common Stock
in the open market or the availability of such shares for sale could have an
adverse short-term effect on the market price for HA-LO Common Stock. See "The
Merger Transactions -- Resale Restrictions."
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of HA-LO Common Stock will consider and vote
upon a proposal to approve and adopt the Plan of Merger and Amalgamation and the
transactions contemplated thereby. Approval and adoption of the Plan of Merger
and Amalgamation shall also constitute approval of the issuance of shares of
HA-LO Common Stock in connection with the Merger Transactions. HA-LO
shareholders will also consider and vote upon such other matters as may properly
be brought before the Special Meeting or any adjournment(s) or postponement(s)
thereof.
THE HA-LO BOARD OF DIRECTORS HAS APPROVED THE PLAN OF MERGER AND
AMALGAMATION AND RECOMMENDS THAT HA-LO STOCKHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE PLAN OF MERGER AND AMALGAMATION (WHICH APPROVAL AND ADOPTION
SHALL CONSTITUTE, AMONG OTHER THINGS, APPROVAL OF THE ISSUANCE OF SHARES OF
HA-LO COMMON STOCK IN CONNECTION WITH THE MERGER TRANSACTIONS.)
The HA-LO Special Meeting will be held at HA-LO's principal executive
offices located at 5980 West Touhy Avenue, Niles, Illinois 60714, on Wednesday,
September 25, 1996, at 10:00 A.M., local time.
VOTE REQUIRED
The affirmative vote of at least two-thirds of the outstanding shares of
HA-LO Common Stock will be necessary for approval and adoption of the Plan of
Merger and Amalgamation. Each share of HA-LO Common Stock is entitled to one
vote.
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On July 31, 1996, HA-LO's directors and executive officers may be deemed to
be beneficial owners of 2,500,027 shares of HA-LO Common Stock (excluding
475,743 shares which may be acquired upon exercise of options and other rights
which are exercisable within 60 days of July 31, 1996), or approximately 23.79%
of the then outstanding shares of HA-LO Common Stock. The directors and
executive officers of HA-LO have indicated that they intend to vote their shares
FOR the approval and adoption of the Plan of Merger and Amalgamation.
VOTING OF PROXIES
Shares of HA-LO Common Stock represented by properly executed proxies
received at or prior to the Special Meeting, will be voted at the Special
Meeting in the manner specified by the holders of such shares. Properly executed
proxies which do not contain voting instructions will be voted FOR the approval
and adoption of the Plan of Merger and Amalgamation. Abstention from voting on
the Plan of Merger and Amalgamation will have the practical effect of voting
against such matters. Broker non-votes on the Plan of Merger and Amalgamation
will have the effect of a vote against the approval and adoption of the Plan of
Merger and Amalgmation
If any other matters are properly presented at the Special Meeting for
consideration, the person or persons named in the form of proxy enclosed
herewith and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment, unless the proxy indicates otherwise. HA-LO
does not have any knowledge of any matters to be presented at the Special
Meeting other than those matters referred to and described herein.
REVOCABILITY OF PROXIES
The grant of a proxy on the HA-LO form of proxy does not preclude a
shareholder from voting in person or otherwise revoking a proxy. Attendance at
the Special Meeting will not in and of itself constitute revocation of a proxy.
A shareholder may revoke a proxy at any time prior to its exercise by delivering
to Lou Weisbach, Chairman of the Board, President and Chief Executive Officer of
HA-LO, 5980 West Touhy Avenue, Niles, Illinois 60714, a duly executed revocation
or a proxy bearing a later date or by voting in person at the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of HA-LO Common Stock at the close of business on
August 26, 1996 will be entitled to receive notice of and to vote at the Special
Meeting. As of July 31, 1996, HA-LO had outstanding approximately 10,509,055
shares of HA-LO Common Stock.
SOLICITATION OF PROXIES
HA-LO will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of HA-LO and its subsidiaries may solicit proxies from shareholders of
HA-LO by telephone or telegram or in person. Such persons will not be
additionally compensated, but will be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. Arrangements will also
be made with brokerage firms, nominees, fiduciaries and other custodians for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by such persons, and HA-LO will reimburse such persons for their
reasonable out-of-pocket expenses in connection therewith.
DISSENTERS' RIGHTS
TARGET COMPANY SHAREHOLDERS. No statutory right of dissent or appraisal is
available to holders of Target Company Common Stock, under the IBCA or CBCA,
because all of such shareholders voted their shares in favor of the U.S. Merger,
the Canada Amalgamation and the Ancillary Asset Acquisition, as the case may be.
HA-LO SHAREHOLDERS. The rights of shareholders of HA-LO who dissent in
connection with the Merger Transactions are governed by specific legal
provisions contained in Sections 11.65 and 11.70 of
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the IBCA. The description of dissenter's rights contained in this Proxy
Statement/Prospectus is qualified in its entirety by reference to Sections 11.65
and 11.70 of the IBCA, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix C.
If the Merger Transactions are consummated, shareholders of HA-LO who have
fully complied with all applicable provisions of the IBCA may have the right to
require HA-LO to purchase their shares of HA-LO Common Stock for cash at the
fair value of such shares, plus any accrued interest, as of the consummation of
the Merger Transactions. Persons who are beneficial owners of shares of HA-LO
Common Stock but whose shares are held by another person, such as a trustee,
broker or nominee should instruct the record holder to follow the procedures
outlined below if such persons wish to dissent with respect to any or all of
their shares. Under the IBCA, no shareholder who is entitled to exercise
dissenter's rights has any right at law or in equity to challenge the validity
of the Merger Transactions or to have the Merger Transactions set aside or
rescinded, except in an action to determine whether the Merger Transactions are
fraudulent with respect to the shareholder or the corporation or constitutes a
breach of a fiduciary duty owed to the shareholder.
Shares of HA-LO Common Stock must be purchased by HA-LO upon demand from a
dissenting shareholder if such shareholder has complied with all applicable
requirements of the IBCA. The procedures to be followed under the IBCA include
the following requirements:
(i) The shareholder of record must not vote all of his or its shares for
the approval and adoption of the Plan of Merger and Amalgamation. The
shareholder may vote part of its shares for the Merger Transaction without
losing the right to have HA-LO purchase those shares which were not voted in
favor of the approval and adoption of the Plan of Merger and Amalgamation;
(ii) A beneficial owner of shares who is not the record owner may assert
dissenter's rights as to shares held on such person's behalf only if the
beneficial owner submits to HA-LO the record owner's written consent to the
dissent before or at the same time the beneficial owner asserts dissenter's
rights; and
(iii) The notice of meeting to the shareholders of HA-LO relating to the
proposal to approve and adopt the Plan of Merger and Amalgamation must
inform the shareholders of their right to dissent and the procedure to
dissent. If, prior to the Special Meeting, HA-LO furnishes to its
shareholders material information with respect to the Merger Transactions
that will objectively enable its shareholders to vote thereon and to
determine whether or not to exercise dissenter's rights, a shareholder may
assert dissenter's rights only if the shareholder does not vote in favor of
the approval and adoption of the Plan of Merger and Amalgamation and the
shareholder delivers to HA-LO, before the vote is taken at the Special
Meeting, a written demand for purchase of his or its shares if the Merger
Transactions are consummated.
Within 10 days after the date on which the Merger Transactions become
effective or 30 days after the shareholder delivers to HA-LO the written demand
for payment, whichever is later, HA-LO shall send each shareholder who has
delivered a written demand for payment, the following items: (i) a statement
setting forth HA-LO's opinion as to the estimated fair value of the shares, (ii)
HA-LO's latest balance sheet as of the end of a fiscal year ending not earlier
than 16 months before the delivery of the statement, together with the statement
of income for that year and the latest available interim financial statements,
and (iii) either a commitment to pay for the shares of the dissenting
shareholder at the estimated fair value thereof upon transmittal to the
corporation of the certificate or certificates, or other evidence of ownership
with respect to the shares, or instructions to the dissenting shareholder to
sell his or its shares within 10 days after delivery of HA-LO's statement to the
shareholder. HA-LO may instruct the shareholder to sell only if there is a
public market for the shares at which the shares may be readily sold. If the
shareholder does not sell within that 10-day period after being so instructed by
HA-LO, for purposes of this provision of the IBCA, the shareholder shall be
deemed to have sold his or its shares at the average closing price of the
shares, if listed on a national exchange, or the average of the bid and asked
price with respect to the shares quoted by a principal market maker, if not
listed on a national exchange, during that 10-day period.
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A HA-LO shareholder who makes written demand for payment under the IBCA
retains all other rights of a shareholder until those rights are cancelled by
the Merger Transactions. Upon consummation of the Merger Transactions, HA-LO, if
it has not properly instructed the dissenting shareholder to sell his or its
shares, shall pay to each dissenter who transmits to HA-LO the certificate or
other evidence of ownership of the shares the amount HA-LO estimates to be the
fair value of the shares, plus accrued interest, accompanied by a written
explanation of how the interest was calculated. As used in the IBCA, "fair
value" means the value of the shares immediately before the consummation of the
Merger Transactions excluding any appreciation or depreciation in anticipation
of the corporate action, unless such exclusion would be inequitable. "Interest,"
as defined in the IBCA, means interest from the effective date of the Merger
Transactions until the date of payment, at the average rate currently paid by
HA-LO on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
If the shareholder does not agree with the opinion of HA-LO as to the
estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of HA-LO's statement of fair
value, shall notify HA-LO in writing of the shareholder's estimated fair value
and amount of interest due and demand payment for the difference between the
shareholder's estimate of fair value and interest due and the amount of the
payment by the corporation or the proceeds of sale by the shareholder, whichever
is applicable.
If, within 60 days from delivery to HA-LO of the shareholder's notification
of estimate of fair value of the shares and interest due, HA-LO and the
dissenting shareholder have not agreed in writing upon the fair value of the
shares and interest due, HA-LO shall either pay the difference in value demanded
by the shareholder, with interest, or file a petition in the circuit court of
the county in which either the registered office or the principal office of
HA-LO is located, requesting the court to determine the fair value of the shares
and interest due. HA-LO shall make all dissenters, whether or not residents of
Illinois, whose demands remain unsettled, parties to the proceeding as an action
against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law. Failure of HA-LO to commence an action pursuant
to this provision of the IBCA shall not limit or affect the right of the
dissenting shareholders to otherwise commence an action as permitted by law.
The jurisdiction of the court in which the proceeding is commenced to
determine the fair value of the shares of HA-LO is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend a decision of the question of fair value. The appraisers have the
power described in the order appointing them, or in any amendment to it. Each
dissenter made a party to the proceeding is entitled to judgment for the amount,
if any, by which the court finds that the fair value of his or her shares, plus
interest, exceeds the amount paid by HA-LO or the proceeds of sale by the
shareholder, whichever amount is applicable.
The court, in a proceeding commenced under the IBCA, shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
the appraisers, if any, appointed by the court, but shall exclude the fees and
expenses of counsel and experts for the respective parties. If the fair value of
the shares of HA-LO Common Stock as determined by the court materially exceeds
the amount which HA-LO estimated to be the fair value of the shares, then all or
any part of the costs may be assessed against HA-LO. If the amount which any
dissenter estimated to be the fair market value of the shares materially exceeds
the fair value of the shares as determined by the court, then all or any part of
the costs may be assessed against that dissenter. The court may also assess the
fees and expenses of counsel and experts for the respective parties, in amounts
the court finds equitable (i) against HA-LO and in favor of any or all
dissenters if the court finds that HA-LO did not substantially comply with the
requirements of the IBCA, or (ii) against either HA-LO or a dissenter and in
favor of any other party if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by the IBCA.
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THE MERGER TRANSACTIONS
The detailed terms of, and conditions to, the Merger Transactions and
certain related transactions are contained in the Plan of Merger and
Amalgamation, a copy of which is attached hereto as Appendix A. The statements
made in this Proxy Statement/Prospectus with respect to the terms and conditions
of the Merger Transactions and the transactions related thereto are qualified in
their entirety by reference to the more complete information set forth in the
Plan of Merger and Amalgamation and the exhibits thereto.
GENERAL
The Plan of Merger and Amalgamation provides for a business combination
between HA-LO and the Target Companies in which (i) a wholly-owned subsidiary of
HA-LO will merge with and into Market USA; (ii) a wholly-owned subsidiary of
HA-LO will amalgamate with Marusa; and (iii) the New Canadian Service Entity
will purchase, subject to discharge or performance of related liabilities, all
of the assets of each of Marusa Financial and Nerok, and the holders of Market
USA Common Stock and Marusa Common Stock and each of Marusa Financial and Nerok
will be issued shares of HA-LO Common Stock. HA-LO has reserved the right to
consummate the Ancillary Asset Acquisition upon the terms described in the Plan
of Merger and Amalgamation or effect an alternate transaction acceptable to
HA-LO having a substantially similar purpose and total consideration which does
not exceed 100 shares of HA-LO Common Stock. As a result of the Merger
Transactions, HA-LO will issue an aggregate of 2,550,000 shares of HA-LO Common
Stock (approximately 19.5% of the outstanding HA-LO Common Stock after giving
effect to the Merger Transactions). The Merger Transactions are intended to
qualify as a pooling of interests for accounting purposes and as a tax-free
reorganization for United States federal income tax purposes.
BACKGROUND OF THE MERGER TRANSACTIONS
HA-LO has had an active acquisition program for several years. One of the
goals of that program has been the development of a nationally-cohesive strategy
for servicing the advertising specialty and premium product needs of an
expanding base of high-volume corporate customers operating from multiple
locations throughout the U.S. and Canada. HA-LO has focused on the growing needs
of its national clientele by establishing (internally and by acquisition)
offices in key locations from which to better serve its larger customers and
offer a more diverse mix of products and services than would be generally
available from one source. Examples of HA-LO's goal of providing a full range of
products and services to its corporate clientele include the establishment of a
full service ad agency, a sports marketing subsidiary, an event planning
division and the acquisition of over 10 unique advertising specialty companies
in key geographic regions.
In January 1995, HA-LO signed a multi-year agreement to be the exclusive
provider of premium products to Montgomery Ward, an agreement that was extended
to 10 years in December 1995. Through its relationship with Montgomery Ward,
HA-LO has become a supplier of premium products to The Signature Group
("Signature"), a subsidiary of Montgomery Ward, and one of the nation's largest
captive telemarketing operations. By virtue of its agreements with HA-LO,
Montgomery Ward was entitled to nominate an individual to serve as a member of
HA-LO's Board of Directors. In June 1995, Dominic M. Mangone, a partner of
Merchant Partners, L.P., a limited partnership in which Montgomery Ward is a
substantial partner ("Merchant Partners"), upon HA-LO's recommendation to its
shareholders, was elected to HA-LO's Board of Directors. Under its agreement
with HA-LO, Merchant Partners acquired the right to purchase up to 900,000
shares of HA-LO Common Stock through the exercise of warrants vesting at the
earlier of nine years or upon satisfaction of certain annual volume purchase
requirements through HA-LO.
In March 1996, Seymour N. Okner, the principal Target Shareholder,
approached Mr. Weisbach and Marshall J. Katz, a Director of HA-LO (and
compensated consultant to HA-LO on acquisition matters), regarding the terms of
a possible business combination between HA-LO and the Target Companies. In
preliminary discussions among HA-LO's Board of Directors, Mr. Mangone indicated
that Merchant Partners held options to purchase between 20%-25% of the equity
interest in each of
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Market USA and Marusa for a purchase price equal to $4 million. To avoid any
appearance of a conflict in this regard, Mr. Mangone resigned from the HA-LO
Board and did not participate in discussions regarding a possible acquisition of
the Target Companies.
Based upon both internal analyses and those presented by certain of HA-LO's
outside advisors, the Board of Directors authorized HA-LO's management to pursue
acquisition discussions with Mr. Okner and his advisors. During April 1996, a
Confidentiality Letter Agreement was executed among the parties, and thereafter,
representatives of HA-LO, Market USA and Marusa met to discuss and negotiate the
issues related to the possible business combination.
In early April 1996, HA-LO met with certain of its outside advisors in
anticipation of conducting a preliminary due diligence review of the Target
Companies' operations and discussing issues involving the possible terms and
structure of a transaction, evaluation and consideration of the proposed
transaction by HA-LO's Board of Directors and the timing of events in a possible
business combination. In May 1996, HA-LO's Board of Directors authorized the
retention of Blair to provide a fairness opinion in connection with the business
combination (with the understanding that Blair would not commence its activities
until after the execution of the Plan of Merger and Amalgamation) and consulted
with Arthur Andersen LLP, HA-LO's independent public accountants, regarding the
structure of the potential business combination and the applicability of
pooling-of-interests accounting. In addition, HA-LO's Board authorized the
retention of the law firm of Neal, Gerber & Eisenberg as counsel to HA-LO for
the transaction, since among the primary terms discussed was the issuance of
authorized shares of HA-LO Common Stock in exchange for the outstanding capital
stock of Market USA and Marusa.
On May 20, 1996, a special meeting of HA-LO's Board of Directors was
convened to review the proposed terms of a business combination with the Target
Companies. At such meeting, Mr. Weisbach reviewed the material terms and
conditions of the business combination, including the number of shares of HA-LO
Common Stock to be exchanged for full ownership of the Target Companies, the
terms under which the shareholders of the Target Companies would be eligible to
sell HA-LO shares in the open market, the liquidated damages amounts payable if
Market USA or Marusa breached their agreement to consummate the business
combination, the terms and conditions under which Mr. Okner and his son, Samuel
P. Okner, would be provided Employment Agreements with the Target Companies and
HA-LO, and other material issues.
HA-LO's Board of Directors then deliberated on the issues presented and the
terms proposed, and after considering various factors, determined the Merger
Transactions to be fair and in the best interests of HA-LO's shareholders and
approved the Merger Transactions, including the Employment Agreements of Messrs.
Okner. The Plan of Merger and Amalgamation was executed as of the evening of
June 14, 1996, and the Merger Transactions were publicly announced prior to the
opening of business on Monday, June 17, 1996.
REASONS FOR THE MERGER TRANSACTIONS; RECOMMENDATION OF BOARD OF DIRECTORS
The HA-LO Board of Directors believes that the terms of the Plan of Merger
and Amalgamation are fair to and in the best interests of HA-LO and its
shareholders. Accordingly, HA-LO's Board has approved the Plan of Merger and
Amalgamation and recommends approval thereof by the shareholders of HA-LO. In
reaching its determination, the HA-LO Board of Directors consulted with HA-LO
management, as well as its advisors, and considered a number of factors,
including, without limitation, the following:
(i) the Merger Transactions provide HA-LO with the opportunity to
provide integrated marketing services and solutions to its existing and
prospective customers;
(ii) the market capitalization of the combined company will be larger
than HA-LO's current market capitalization, providing HA-LO shareholders
with enhanced liquidity;
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(iii) the business, operations, prospects and strategic alliances of
each of HA-LO and the Target Companies;
(iv) the Merger Transactions will better position HA-LO to further
capitalize on the trend toward the outsourcing of telemarketing services
present in many industries;
(v) the increased ability of HA-LO to enhance and/or expand the scope of
the corporate fulfillment sales programs by offering telemarketing services
to corporate fulfillment customers as part of such programs;
(vi) the terms of the Plan of Merger and Amalgamation;
(vii) the opinion of Arthur Andersen LLP that the Merger Transactions
will be accounted for under the pooling of interests method of accounting;
and
(vii) the conditions to the Plan of Merger and Amalgamation that the
U.S. Merger will be a tax-free reorganization for federal income tax
purposes.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger Transactions, the HA-LO Board of Directors did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
THE BOARD OF DIRECTORS OF HA-LO RECOMMENDS THAT HA-LO SHAREHOLDERS VOTE FOR
THE APPROVAL AND ADOPTION OF THE PLAN OF MERGER AND AMALGAMATION.
OPINION OF FINANCIAL ADVISOR TO HA-LO
HA-LO engaged Blair to render an opinion regarding the fairness, from a
financial point of view, to HA-LO, of the consideration to be paid by HA-LO in
the Merger Transactions. Blair delivered its written opinion, dated August 23,
1996, to the HA-LO Board of Directors which provides that, based upon and
subject to the factors and assumptions set forth in such opinion, the
consideration to be paid by HA-LO in the Merger Transactions is fair to HA-LO
from a financial point of view. The amount of such consideration was determined
pursuant to negotiations between HA-LO and the Target Companies and not pursuant
to recommendations of Blair. No limitations were imposed by HA-LO with respect
to the investigations made or the procedures followed by Blair in rendering its
opinion. A copy of the full text of the written opinion of Blair, dated August
23, 1996, which sets forth the assumptions made, procedures followed, matters
considered and limits of its review is attached to this Proxy
Statement/Prospectus as Appendix B, and should be read carefully in its
entirety. The summary of Blair's opinion set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to this opinion.
In arriving at its fairness opinion, Blair reviewed the financial terms and
conditions of the Plan of Merger and Amalgamation, including but not limited to,
the number and fair market value of shares of HA-LO Common Stock to be issued in
connection with the Merger Transactions. Blair also reviewed certain other
information, including market information regarding HA-LO, audited and unaudited
financial statements of the Target Companies, internal financial analyses and
forecasts of the Target Companies prepared by the management of the Target
Companies and HA-LO, audited and unaudited financial statements of HA-LO and
forecasts of HA-LO prepared by the management of HA-LO. Blair also had
discussions with the members of the senior management of the Target Companies
and HA-LO to discuss the Merger Transactions and has considered other matters
which Blair deemed relevant to its inquiry. This opinion is necessarily based on
economic, market and other conditions in effect on, and the information made
available to Blair as of, the date of the analyses.
In connection with its review, Blair assumed and relied upon the accuracy
and completeness of the foregoing information and did not assume any
responsibility for independent verification of such information. With respect to
financial forecasts, Blair assumed that the forecasts had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management
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of HA-LO and the Target Companies, as the case may be, as to their respective
future financial performance and that they provided a reasonable basis upon
which Blair could form an opinion. Blair also assumed that there had been no
material changes to either HA-LO or the Target Companies since the respective
dates of their latest financial statements made available to Blair and that no
material adverse change will subsequently occur to HA-LO or the Target
Companies. In addition, Blair also assumed that the Merger Transactions would be
consummated in accordance with the terms set forth in the Plan of Merger and
Amalgamation and that the Merger Transactions will be accounted for as a pooling
of interests for accounting purposes. Blair did not assume responsibility for
making an independent evaluation, appraisal or physical inspection of the assets
or properties of HA-LO or the Target Companies, nor was Blair furnished with any
such appraisals.
SUMMARY OF VALUATION ANALYSES. In connection with its opinion, Blair
performed three valuation analyses: (i) a comparison of the Target Companies
with certain publicly traded comparable companies; (ii) an analysis of prices
and terms of certain recent comparable acquisitions, and (iii) a discounted cash
flow analysis of the Target Companies. The basis for valuation assumed HA-LO's
stock price to be $24.00 per share, which was the closing bid on August 16,
1996. In addition, Blair analyzed the estimated effects of the Merger
Transactions on HA-LO's projected future financial performance.
COMPARABLE COMPANIES. Blair analyzed the relative performance and outlook
for the Target Companies by comparing certain financial and market information
for the Target Companies with the corresponding publicly available data and
statistics of four publicly traded companies -- APAC Corporation, ATC
Communications, ICT Group and Sitel Corp. While no company in the comparable
group is identical to the Target Companies, they were chosen principally because
they all generate the majority of their revenue from the provision of
telemarketing services. Among the information considered were revenue, operating
income, earnings before interest, taxes, depreciation and amortization
("EBITDA"), net income and growth in revenues and net income. It was noted that
multiples of total enterprise value (defined as the market value of common
equity, plus total debt less cash and equivalents) to net revenues, operating
income and EBITDA for the latest 12 months implied that the consideration paid
by HA-LO compared favorably, from HA-LO's perspective, to the median of
corresponding multiples of comparable companies. Further, multiples of equity
value to net income of the Target Companies implied by the consideration paid by
HA-LO, both for the latest 12 months and estimated for calendar 1996 and
calendar 1997, revealed favorable comparisons. Blair's report indicated that the
price paid for the Target Companies implied the following multiples: total
enterprise value of 1.3 times the latest 12 months' revenue (compared to a
median multiple of 3.7 and a range of 2.5 to 14.0); total enterprise value of
14.5 times the latest 12 months' operating income (compared to a median multiple
of 50.8 and a range of 32.9 to 101.7); total enterprise value of 11.9 times the
latest 12 months' EBITDA (compared to a median multiple of 28.8 and a range of
22.9 to 78.6); equity value of 24.5 times the latest 12 months' net income
(compared to a median multiple of 106.3 and a range of 69.9 to 172.3); equity
value of 19.3 times estimated net income for calendar 1996 (compared to a median
multiple of 63.4 and a range of 52.6 to 68.0); and equity value of 15.9 times
estimated net income for calendar 1997 (compared to a median multiple of 40.6
and a range of 28.2 to 47.2). It was also noted that, in making these
comparisons with the comparable group of publicly traded companies, no premium
for control was applied to the prevailing market values of comparable companies.
Application of such a control premium to the equity values of the comparable
companies would cause a more favorable comparison, from HA-LO's perspective,
with the multiples for the Target Companies implied by the Merger Transactions.
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DISCOUNTED CASH FLOW. Using a discounted cash flow ("DCF") analysis, Blair
estimated the net present value of the unleveraged free cash flows that the
Target Companies could produce on a stand-alone basis over a five-year period
from January 1, 1996 through December 31, 2000 if the Target Companies performed
in accordance with the forecasts of the Target Companies for 1996 and 1997 and
with certain assumptions made by Blair and the management of the Target
Companies for subsequent periods. In calculating the "terminal value," Blair
assumed multiples of total enterprise value to earnings before interest and
taxes ("EBIT") ranging from 7.0 to 9.0 times, which multiples Blair believed to
be appropriate for such an analysis. The annual and terminal free cash flows
were discounted to determine a net present value of the unleveraged equity value
of the Target Companies. Discount rates in a range of 12.0% to 16.0% were chosen
based on an analysis of the weighted average cost of capital of a comparable
group of companies. The DCF analysis indicated a valuation of the equity of the
Target Companies in a range of $65.6 million to $90.8 million. Based upon a
$24.00 HA-LO stock price, Blair believes that the value of the equity of the
Target Companies compares favorably, from HA-LO's perspective, to the values
indicated by the discounted cash flow analysis.
COMPARABLE ACQUISITIONS. Blair examined 26 selected acquisitions involving
certain companies involved in business services and advertising services. There
was no public company data available related to acquisitions of telemarketing
services companies. These transactions occurred during the period from January
1, 1995 through June 21, 1996. It was noted that the multiples of the latest 12
months' revenue implied by the consideration to be paid by HA-LO compared
favorably to the median of the corresponding multiples of the comparable
acquisitions. It was also noted that the multiples of the latest 12 months
operating income, EBITDA and net income and the multiples of estimated net
income for 1996 and 1997 implied by the consideration to be paid by HA-LO were
higher than the respective median multiples of the comparable acquisitions. Such
analysis indicated that the price paid for the Target Companies implied the
following multiples: total enterprise value of 1.3 times the latest 12 months'
revenue (compared to a median multiple implied by comparable transactions of
1.6); total enterprise value of 14.5 times the latest 12 months' operating
income (compared to a median multiple implied by comparable transactions of
13.9); total enterprise value of 11.9 times the latest 12 months' EBITDA
(compared to a median multiple implied by comparable transactions of 9.1); and
equity value of 24.5 times the latest 12 months' pro forma net income (compared
to a median multiple implied by comparable transactions of 18.4).
OTHER ANALYSES. In the course of its assignment, Blair also reviewed
HA-LO's historical stock price performance. This analysis involved the
examination of the historical prices and trading volumes of HA-LO Common Stock
and was used primarily to confirm the reasonableness of using the August 16,
1996 market price of the shares in calculating the indicated value of the total
consideration to be paid for the Target Companies.
The companies and transactions used in the foregoing analyses as a
comparison are not necessarily substantially comparable to HA-LO or the Target
Companies or the Merger. Accordingly, an analysis of the foregoing involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading value of companies to which the Target Companies and the
Merger are being compared.
PRO FORMA MERGER AND CONTRIBUTION ANALYSIS. In addition to performing the
valuation methodologies described above, Blair reviewed and analyzed the
estimated effects of the Merger Transactions on HA-LO's projected earnings per
share and the capitalization of the combined companies. Based on such analyses,
Blair observed that, based on the terms of the Merger Transactions and assuming
that the Merger Transactions were treated as a pooling of interests for
accounting purposes, the Merger would result in an increase in HA-LO's earnings
per share in fiscal years 1996 and 1997. Blair analyzed the relative
contributions of HA-LO and the Target Companies to the proposed combined entity,
based on net sales, operating income and net income. Based on the terms of the
Merger Transactions and various assumptions, the Target Companies' shareholders
would own approximately 19.5% of the outstanding HA-LO Common Stock immediately
following the Merger Transactions and would contribute in excess of 20% of the
combined companies' net income in fiscal 1996
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without giving effect to any transaction costs. The actual results achieved by
HA-LO, the Target Companies and the combined companies may vary from projected
results and any such variations may be material.
While the foregoing summary describes all analyses and examinations that
Blair deems material to its opinion, it is not a comprehensive description of
all analysis and examinations actually conducted by Blair. The preparation of a
fairness opinion necessarily is not susceptible to partial analysis or summary
description. Blair believes that such analysis and the summary set forth above
must be considered as a whole and that selecting portions of such analysis and
of the factors considered without considering all such analyses and factors
would create an incomplete view of the process underlying the analyses set forth
in its report to the HA-LO Board of Directors. In addition, Blair may have given
various analysis more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Blair's view of the actual value of the Target
Companies.
In performing its analyses, Blair made numerous assumptions with respect to
industry performance and general business and economic conditions, such as
industry growth, inflation and interest rates, many of which are beyond the
control of HA-LO and the Target Companies. The analyses performed by Blair are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than those suggested by such analyses.
Such analyses were prepared solely as part of Blair's analysis of the fairness
to HA-LO of the consideration to be paid in the Merger Transactions, from a
financial point of view, and were provided to HA-LO in connection with the
delivery of Blair's opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at any time in the future. Blair used in its
analyses various projections of future performance prepared by the managements
of HA-LO and the Target Companies. The projections are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
Blair is a nationally recognized investment banking firm regularly engaged
in the valuation of investment securities in connection with public offerings,
private placements, business combinations, estate and tax valuations and similar
transactions. Blair was selected by HA-LO as its financial advisor because of
its extensive prior experience, reputation and expertise in corporate finance
and in providing such opinions in prior transactions with other companies.
In connection with Blair's engagement as financial advisor, if the Merger
Transactions are consummated, HA-LO will pay Blair a fee of $75,000 and will
reimburse Blair for all reasonable out-of-pocket expenses incurred in connection
with the services provided by Blair, and will indemnify and hold harmless Blair
and certain related parties to the full extent lawful from and against certain
liabilities, including certain liabilities under the federal securities laws, in
connection with its engagement. From time to time, Blair provides other services
to HA-LO for which it is compensated.
ACCOUNTING TREATMENT
HA-LO and the Target Companies believe that the Merger Transactions will
qualify as a pooling of interests for accounting and financial reporting
purposes, and have been so advised by Arthur Andersen LLP, HA-LO's independent
public accountant. Under this method of accounting, the assets and liabilities
of HA-LO and the Target Companies will be combined based on the respective
carrying values of the accounts in the historical financial statements of each
entity. Results of operations of the combined company will include income of
HA-LO and the Target Companies for the entire fiscal period in which the
combination occurs and the historical results of operations of the separate
companies for fiscal years prior to the Merger Transactions will be combined and
reported as the results of operations of the combined company. Certain events,
including certain transactions with respect to Market USA Common Stock or Marusa
Common Stock or HA-LO Common Stock by
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affiliates of the Target Companies or HA-LO, respectively, may occur that could
prevent the Merger Transactions from qualifying as a pooling of interests for
accounting and financial reporting purposes. See "-- Resale Restrictions."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL. The respective obligations of HA-LO and the Target Companies to
consummate the U.S. Merger are conditioned on the receipt of opinions of their
respective counsel, Marc S. Roth Associates, Ltd. and Altheimer & Gray, to the
effect that the U.S. Merger will be treated substantially in the manner
described herein. See "The Plan of Merger and Amalgamation -- Conditions."
The following discussion is intended only as a summary of selected income
tax consequences of the Merger Transactions under current law and does not
purport to be a complete analysis or description of all potential tax effects of
the Merger Transactions. The summary does not address all of the tax
consequences that may be important to shareholders of the Target Companies
subject to special tax treatment, such as insurance companies, corporations
subject to the alternative minimum tax, banks, dealers in securities, tax-exempt
organizations or foreign persons, or to shareholders who acquired their shares
of Target Company Common Stock as compensation. With the exception of certain
tax laws of Canada described herein, no information is provided herein with
respect to the tax consequences, if any, of the Merger Transactions under
applicable foreign, state, local and other tax laws. The summary is based on the
current provisions of the Code and other applicable law, final and proposed
Treasury regulations thereunder and current administrative rulings and court
decisions. All of the foregoing are subject to change and any such change could
effect the accuracy of this discussion. Shareholders of the Target Companies are
urged to consult their own tax advisors as to the specific tax consequences to
them of the Merger Transactions.
THE U.S. MERGER. If the U.S. Merger is treated as a tax-free reorganization
under Section 368(a) of the Code, no gain or loss will be recognized to the
shareholders of Market USA upon receipt of HA-LO Common Stock in exchange for
Market USA Common Stock. Shareholders of Market USA will have a tax basis for
the shares of HA-LO Common Stock received in the U.S. Merger equal to the tax
basis for the shares of Market USA Common Stock surrendered in exchange
therefor. If the shares of Market USA Common Stock are held as capital assets,
the holding period of the shares of HA-LO Common Stock received will include the
period during which such shares of Market USA Common Stock were held.
THE CANADA AMALGAMATION. If the Canada Amalgamation is treated as a
tax-free reorganization under Section 368(a) of the Code, the United States
shareholders (within the meaning of Treasury regulations issued under Section
367 of the Code) of Marusa must include in gross income, as a toll charge, an
amount which will be treated as a dividend. Such amount, referred to as the
"Section 1248 amount," is generally equal to the company's post-1962 earnings
and profits attributable to the Marusa Common Stock exchanged, to the extent
that the fair market value of such Marusa Common Stock exceeds its adjusted
basis. The United States shareholders of Marusa will receive no increase in
basis for the HA-LO Common Stock received, notwithstanding that income is
recognized. In addition, notice of the transaction must be filed with the
Internal Revenue Service in order for the transaction to qualify as tax-free (to
the extent possible).
THE ANCILLARY ASSET ACQUISITION. Generally, the transfer of substantially
all of the assets of a company in exchange for stock of an acquiring company
constitutes a taxable transaction. As such, each of Marusa Financial and Nerok
will recognize gain or loss equal to the difference between the value of the
shares of HA-LO Common Stock received and the basis of the assets surrendered.
However, if Marusa Financial or Nerok is liquidated in connection with the
Ancillary Asset Acquisition, the Ancillary Asset Acquisition will be eligible to
qualify as a tax-free reorganization under Section 368(a) of the Code, subject
to the toll charge and notice provisions described in the immediately preceding
paragraph. Any transaction which may be consummated in lieu of the Ancillary
Asset Acquisition may have different United States federal income tax
consequences to the parties thereto.
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TAX CONSEQUENCES TO HA-LO. If any of the Merger Transactions is treated as
a tax-free reorganization under Section 368(a) of the Code, such Merger
Transaction will result in no gain or loss to HA-LO in connection with the
issuance of HA-LO Common Stock in exchange for Target Company Common Stock or
Target Company assets, as applicable. If any of the Merger Transactions is not
treated as tax-free reorganizations under Section 368(a) of the Code, then it is
possible, but not certain, that HA-LO may recognize gain in an amount equal to
the value of the shares of HA-LO Common Stock issued in connection with any such
taxable Merger Transaction.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following general summary describes the principal Canadian federal
income tax consequences of the Canada Amalgamation and the Ancillary Asset
Acquisition to Target Shareholders, HA-LO Sub-2, Marusa, Nerok, Marusa Financial
and HA-LO. The summary is based upon the current provisions of the ITA and the
regulations thereunder, in force on the date hereof, an understanding of the
current administrative and assessing policies of Revenue Canada, Customs, Excise
and Taxation ("Revenue Canada") and all specific proposals to amend the ITA and
the regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This summary is not exhaustive of all possible Canadian federal income
tax consequences and, except as noted, does not take into account or anticipate
any changes in law, whether by legislative, governmental or judicial action or
any changes in the administrative practices of Revenue Canada, nor does it take
into account provincial tax considerations which may differ from those discussed
herein. This summary is of a general nature only and it is not intended to be,
nor should it be construed to be, legal or tax advice to any Target Shareholder
and no representation with respect to the income tax consequences to any such
shareholder is made. Accordingly, the Target Shareholders are urged to consult
their own tax advisors for advice with respect to the Canadian federal income
tax consequences to them of the Canada Amalgamation and the Ancillary Asset
Acquisition.
THE CANADA AMALGAMATION. The Canada Amalgamation will not qualify as an
amalgamation pursuant to section 87 of the ITA. As a result, the shareholders of
Marusa will be considered to have disposed of their shares of Marusa Common
Stock for proceeds of disposition equal to the fair market value of the shares
of HA-LO Common Stock received in exchange therefor. However, because the shares
of Marusa Common Stock do not derive their value principally from real property
situated in Canada, any gain realized from such disposition by a shareholder of
Marusa who is a resident of the United States for purposes of the Treaty will be
exempt from Canadian federal income tax by virtue of the Treaty. Although the
Canada Amalgamation does not comply with the provisions of section 87 of the
ITA, Revenue Canada has stated in a number of technical interpretations that
corporations amalgamating pursuant to such non-qualifying amalgamations will not
be considered to have disposed of their assets if the corporate law governing
the amalgamation provides that the amalgamating corporations continue as one
corporation following the amalgamation. The Canada Amalgamation will be governed
by the provisions of the CBCA which provides that the amalgamating corporations
continue as one corporation. As a result, the Canada Amalgamation should not
result in any disposition of assets by Marusa or HA-LO Sub-2 and, accordingly,
no Canadian federal income tax will be payable by Marusa or HA-LO Sub-2 as a
result of the Canada Amalgamation.
THE ANCILLARY ASSET ACQUISITION. The transfer of assets by Marusa Financial
and Nerok to the New Canadian Service Entity in exchange for shares of HA-LO
Common Stock will be considered to be a disposition of such assets for
consideration equal to the fair market value of the shares of HA-LO Common Stock
received in exchange therefor. Any income or gains realized as a result of such
disposition will be subject to Canadian federal income tax. Any transaction
which may be consummated in lieu of the Ancillary Asset Acquisition may have
different Canadian federal income tax consequences to the parties thereto.
TAX CONSEQUENCES TO HA-LO. The conversion of the shares of HA-LO Sub-2 into
shares of the amalgamated corporation of the Canada Amalgamation will be
regarded as a disposition of such shares by HA-LO for Canadian federal income
tax purposes. Since the value of the shares of HA-LO
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Sub-2 is not derived principally from real property situated in Canada, any gain
realized by HA-LO in respect of the conversion of the shares of HA-LO Sub-2 on
the Canada Amalgamation will be exempt from Canadian federal income tax pursuant
to the provisions of the Treaty.
REGULATORY APPROVAL
HSR ACT. Under the HSR Act, and the rules promulgated thereunder by the
FTC, the Merger Transactions cannot be consummated until notifications have been
given and certain information has been furnished to the FTC and the Antitrust
Division of the Department of Justice (the "Antitrust Division") and specified
waiting period requirements have been satisfied. HA-LO and the Target Companies
each filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on August 5, 1996. On August 16, 1996, the FTC informed HA-LO
that HA-LO's request for early termination of the applicable waiting period had
been granted.
CANADIAN COMPETITION ACT. The Merger Transactions are not subject to the
pre-notification provisions of the Competition Act. These provisions stipulate
that where specified size of parties and size of transaction thresholds are
exceeded, merger transactions may not be substantially completed until an
advance ruling certificate has been issued by the Director of Investigation and
Research (the "Director"), or specified information has been furnished to the
Director and waiting periods stipulated in the Competition Act have expired
without an order having been issued by the Canadian Competition Tribunal (the
"Tribunal") in respect of the merger transactions. The parties to the Merger
Transactions, together with their affiliates, do not have sufficient assets in
Canada or gross revenues from sales in, from or into Canada to trigger the
pre-notification provisions of the Competition Act. Even though the Merger
Transactions do not require pre-notification under the Competition Act, the
Tribunal may, among other things, on the application of the Director, issue an
order dissolving the mergers resulting from the Merger Transactions or
prohibiting the Merger Transactions from proceeding if such transactions prevent
or lessen competition substantially, or are likely to do so.
INVESTMENT CANADA ACT. Certain of the Merger Transactions are subject to
the Investment Canada Act. That statute requires either notification or, in
certain instances, review and approval by the Minister of Industry, Government
of Canada of a transaction where a non-Canadian proposes to acquire control of a
Canadian business. None of the Merger Transactions are subject to review and
approval under the Investment Canada Act because the asset value of the Canadian
businesses that are to be acquired pursuant to such transactions is below the
threshold for review and approval. However, notification to the Investment
Review Division of the Department of Industry, Government of Canada must be
provided in respect of the Canada Amalgamation and the Ancillary Asset
Acquisition, either prior to the completion of such transactions or within
thirty days thereafter.
CANADIAN INCOME TAX ACT. A non-resident of Canada who disposes of "taxable
Canadian property" is required to obtain a certificate pursuant to section 116
of the ITA in respect of the disposition. The shares of Marusa are taxable
Canadian property for these purposes. Accordingly, the obligations of HA-LO to
consummate the Merger Transactions are subject to the condition that the Target
Shareholders shall deliver to HA-LO a certificate issued under section 116 of
the ITA.
INTERESTS OF CERTAIN PERSONS IN THE MERGER TRANSACTIONS
At the Effective Time, HA-LO will take such action as is necessary to elect
one Target Shareholder to the Board of Directors of HA-LO. It is currently
anticipated that Seymour N. Okner, the principal Target Shareholder, will be
nominated and appointed to the Board of Directors. HA-LO's obligation to
recommend to its shareholders the election of a Target Shareholder to HA-LO's
Board of Directors will terminate upon the earlier to occur of (i) June 14,
2001; (ii) the last to occur of the death of Seymour N. Okner or Samuel P.
Okner, a principal Target Shareholder and the son of Seymour N. Okner; or (iii)
the date upon which the Target Shareholders have sold or disposed of more than
50% of the shares of HA-LO Common Stock received by them in the Merger
Transactions.
In addition, at the Effective Time, HA-LO will enter into an Employment
Agreement with each of Seymour N. Okner, Samuel P. Okner and certain other
employees of the Target Companies. Pursuant
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to Seymour N. Okner's Employment Agreement, Mr. Okner will become the Chairman
and Chief Executive Officer of each of Market USA and the corporation resulting
from the Canada Amalgamation. The Employment Agreement (i) specifies, among
other things, Mr. Okner's annual salary (not less than $150,000), benefits,
rights to performance based bonuses and other compensation and rights to
participate in HA-LO's Stock Option Plan and (ii) contains customary provisions
governing competition with HA-LO during the term of the Employment Agreement and
for 12 months thereafter, solicitation of HA-LO's employees, ownership of
inventions, confidentiality, non-disparagement and certain other matters. Mr.
Okner's Employment Agreement will terminate upon the earlier to occur of (i) the
last day of the month during which the third anniversary of the Effective Time
occurs; (ii) the mutual agreement of HA-LO and Mr. Okner; (iii) the death or
disability of Mr. Okner; (iv) HA-LO's election to terminate Mr. Okner's
Employment Agreement for Cause (as defined therein); and (v) Mr. Okner's
election to terminate his Employment Agreement for Good Reason (as defined
therein). A form of Mr. Okner's Employment Agreement is attached as an exhibit
to the Plan of Merger and Amalgamation which is attached hereto as Appendix A.
Pursuant to Samuel P. Okner's Employment Agreement, Mr. Okner will become
the President and Chief Operating Officer of each of Market USA and the
corporation resulting from the Canada Amalgamation. The Employment Agreement (i)
specifies, among other things, Mr. Okner's annual salary (not less than
$200,000), benefits, rights to performance based bonuses and other compensation
and rights to participate in HA-LO's Stock Option Plan and (ii) contains
customary provisions governing competition with HA-LO during the term of the
Employment Agreement and for 12 months thereafter, solicitation of HA-LO's
employees, ownership of inventions, confidentiality, non-disparagement and
certain other matters. Mr. Okner's Employment Agreement will terminate upon the
earlier to occur of (i) the last day of the month during which the fifth
anniversary of the Effective Time occurs; (ii) the mutual agreement of HA-LO and
Mr. Okner; (iii) the death or disability of Mr. Okner; (iv) HA-LO's election to
terminate Mr. Okner's Employment Agreement for Cause (as defined therein); and
(v) Mr. Okner's election to terminate his Employment Agreement for Good Reason
(as defined therein). A form of Mr. Okner's Employment Agreement is attached as
an exhibit to the Plan of Merger and Amalgamation which is attached hereto as
Appendix A.
In addition to their respective Employment Agreements, each of Messrs. Okner
is required to enter into an Agreement and Covenant Against Unfair Competition
and a General Release of Claims for the benefit of HA-LO and the Target
Companies. The Agreement and Covenant Against Unfair Competition, among other
things, prohibits each of Messrs. Okner from engaging, within the continental
United States and Canada, in a telemarketing business which competes with the
business of the Target Companies for five years after the Effective Time.
Pursuant to the General Release of Claims, each of Messrs. Okner will release
HA-LO and its subsidiaries, the Target Companies and certain other persons from
any and all claims which either of the Okner's had, have or may have against any
of such parties in connection with any matter prior to, and including, the
Effective Time.
Pursuant to an Employment Agreement with Patricia E. Richert, Ms. Richert
will continue to serve as the Vice President -- Operations of each of Market USA
and the corporation resulting from the Canada Amalgamation. The Employment
Agreement specifies that Ms. Richert will be paid an annual base salary of
$100,000 in 1996, $120,000 in 1997 and $145,000 in 1998. In addition, Ms.
Richert will receive an annual bonus of up to $100,000 if specified financial
criteria are satisfied. In addition, if the Target Companies' 1996 earnings
equal or exceed certain thresholds, HA-LO is required to grant Ms. Richert
options to purchase up to 5,000 shares of HA-LO Common Stock pursuant to HA-LO's
Stock Option Plan. In connection with the execution of her Employment Agreement,
Ms. Richert will be granted options to purchase 15,000 shares of HA-LO Common
Stock pursuant to HA-LO's Stock Option Plan (25% of such options will vest at
the Effective Time and an additional 25% of such options will vest on the first,
second and third anniversary of the Effective Time). Ms. Richert's Employment
Agreement will terminate upon the earlier to occur of (i) the third anniversary
of the Effective Time; (ii) the mutual agreement of HA-LO and Ms. Richert; (iii)
the death
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or disability of Ms. Richert; and (iv) HA-LO's election to terminate the
Employment Agreement for Cause (as defined therein). A form of Ms. Richert's
Employment Agreement is attached as an exhibit to the Plan of Merger and
Amalgamation which is attached hereto as Appendix A.
RESALE RESTRICTIONS
Of the shares of HA-LO Common Stock issued in connection with the Merger
Transactions, shares of HA-LO Common Stock received by "affiliates" (as such
term is defined in the Securities Act) of the Target Companies at the Effective
Time may be resold by such persons only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 in the
case of persons who become affiliates of HA-LO). All other shares of HA-LO
Common Stock issued in connection with the Merger Transactions will be freely
transferable. Persons who may be deemed to be affiliates of the Target Companies
or HA-LO generally include individuals or entities that control, are controlled
by or are under common control with, such party and may include officers and
directors of such party as well as principal shareholders of such party.
Of the 2,550,000 shares of HA-LO Common Stock to be issued in connection
with the Merger Transactions, 26 shares of HA-LO Common Stock will be freely
transferable and the remaining 2,549,974 shares of HA-LO Common Stock will be
received by persons who are deemed to be affiliates of the Target Companies at
the Effective Time. The Plan of Merger and Amalgamation requires, as a condition
to HA-LO's obligation to consummate the Merger Transactions, that each Target
Shareholder, every other holder of shares of Target Company Common Stock and any
other person who may be deemed to have become a shareholder or an affiliate of a
Target Company prior to the Effective Time to execute a written agreement
("Affiliate Agreement") to the effect that such person will not offer to sell,
transfer or otherwise dispose of any of the shares of HA-LO Common Stock,
acquired in or pursuant to the Merger Transactions, unless (i) such sale,
transfer or disposition has been effectively registered under the Securities
Act, (ii) such sale, transfer or other disposition is made in conformity with
the volume and other limitations under Rule 145 or (iii) in the opinion of
counsel reasonably acceptable to HA-LO, such sale, transfer or other disposition
is exempt from registration under the Securities Act. The Affiliate Agreement
also provides that each affiliate executing such agreement for the benefit of
HA-LO may not (i) during the 30 days prior to the Effective Time, sell, transfer
or otherwise dispose of any shares of HA-LO Common Stock or (ii) sell, transfer
or otherwise dispose of any shares of HA-LO Common Stock during the period (the
"Pooling Period") from and after the Effective Time until after such time as
HA-LO publishes results covering at least 30 days of combined operations of
HA-LO and the Target Companies. A form of the Affiliate Agreement is attached as
an exhibit to the Plan of Merger and Amalgamation which is attached hereto as
Appendix A.
In satisfaction of a condition to each Affiliate Agreement, prior to the
Effective Time HA-LO will enter into a Registration Rights Agreement
("Registration Rights Agreement") with each person executing an Affiliate
Agreement for the benefit of HA-LO. The Registration Rights Agreement provides
for registration ("Shelf Registration") under the Securities Act, at HA-LO's
expense, of the shares of HA-LO Common Stock that such holders will receive in
the Merger Transactions, which will permit such holders to collectively sell an
aggregate number of such shares of HA-LO Common Stock having a specified dollar
value at the following times: (i) immediately after completion of the Pooling
Period, a number of shares of HA-LO Common Stock having a market value of $15
million; (ii) immediately after the first anniversary of the Effective Time, a
number of shares of HA-LO Common Stock equal to 50% of the shares of HA-LO
Common Stock then held by such persons which were acquired pursuant to the Plan
of Merger and Amalgamation; and (iii) immediately after the second anniversary
of the Effective Time, the remaining shares of HA-LO Common Stock held by such
persons which were acquired pursuant to the Plan of Merger and Amalgamation
which have not previously been sold or otherwise disposed of. The Registration
Rights Agreement also provides that if at any time prior to HA-LO's satisfaction
of its obligations to effect each Shelf Registration, Lou Weisbach is no longer
the Chairman of the Board of HA-LO, the parties to the Registration Rights
Agreement may require HA-LO to register their shares of HA-LO Common Stock in
connection with a firm commitment underwritten offering thereof; provided,
however, that such persons may not
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require HA-LO to register under the Securities Act a number of shares of HA-LO
Common Stock held by such persons in excess of the number of such shares of
HA-LO Common Stock for which HA-LO is then required to file a Shelf
Registration. Each party to the Registration Rights Agreement, other than HA-LO,
has agreed not to effect a public sale or distribution of any of HA-LO's equity
securities under certain circumstances, including during the 10-day period prior
to, and during the 90-day period beginning on, the closing date of an
underwritten offering of HA-LO's securities if so requested by the underwriter.
Subject to certain exceptions, HA-LO has agreed not to effect the public sale or
distribution of any of its equity securities (and certain derivatives thereof)
during the 15 days prior to, and for a period of 90 days beginning on, the
effective date of any underwritten offering of HA-LO Common Stock for which
registration was required by the parties to the Registration Rights Agreement. A
form of the Registration Rights Agreement is attached as an exhibit to the form
of Affiliate Agreement which is attached as an exhibit to the Plan of Merger and
Amalgamation which is attached hereto as Appendix A.
THE PLAN OF MERGER AND AMALGAMATION
The following is a brief summary of certain provisions of the Plan of Merger
and Amalgamation, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Plan of Merger
and Amalgamation and the exhibits thereto.
THE MERGER TRANSACTIONS
Pursuant to the Plan of Merger and Amalgamation, subject to the terms and
conditions thereof, at the Effective Time, (i) HA-LO Sub-1 will be merged with
and into Market USA; (ii) HA-LO Sub-2 will be amalgamated with Marusa; and (iii)
the New Canadian Service Entity will purchase, subject to discharge or
performance of related liabilities, all of the assets and properties of each of
Marusa Financial and Nerok. The U.S. Merger will have the effects specified in
the IBCA, and the Canada Amalgamation will have the effects specified in the
CBCA.
Upon the satisfaction or waiver of all conditions to the Merger
Transactions, and provided that the Plan of Merger and Amalgamation has not been
terminated or abandoned, HA-LO and the Target Companies will cause (i) Articles
of Merger with respect to the U.S. Merger to be executed, acknowledged and filed
with the Secretary of State of Illinois, (ii) Articles of Amalgamation and an
amalgamation agreement with respect to the Canada Amalgamation to be executed
and filed with the Canadian Department of Industry (and a certificate of
amalgamation will be issued thereby) and (iii) all documents and instruments
required to effectuate the Ancillary Asset Acquisition, or any applicable
alternate transaction, to be filed with the appropriate governmental authority.
The time at which the last of the U.S. Merger, the Canada Amalgamation and the
Ancillary Asset Acquisition becomes effective is referred to as the Effective
Time.
As a result of the U.S. Merger and without any action on the part of the
holders thereof, each share of Market USA Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 19,125 shares of HA-LO Common Stock (a total of 1,912,500 shares of
HA-LO Common Stock) and will cease to be outstanding and will be cancelled and
retired without payment of any consideration therefor. Each holder of a
certificate representing any such shares of Market USA Common Stock will
thereafter cease to have any rights with respect to such shares of Market USA
Common Stock, except the right to receive, without interest, shares of HA-LO
Common Stock upon surrender of such certificate. As a result of the Canada
Amalgamation and without any action on the part of the holders thereof, each
share of Marusa Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into 318,700 shares of HA-LO Common Stock (a
total of 637,400 shares of HA-LO Common Stock) and will cease to be outstanding.
Each holder of a certificate representing any such shares of Marusa Common Stock
will thereafter cease to have any rights with respect to such shares of Marusa
Common Stock. In the Ancillary Asset Acquisition, the New Canadian Service
Entity will purchase all of the assets and properties of each of
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Marusa Financial and Nerok, subject to discharge or performance of related
liabilities, in consideration of HA-LO's issuance to each of Marusa and Nerok of
50 shares of HA-LO Common Stock (a total of 100 shares of HA-LO Common Stock).
As a result of the Merger Transactions, HA-LO will issue an aggregate of
2,550,000 shares of HA-LO Common Stock (approximately 19.5% of the outstanding
HA-LO Common Stock after giving effect to the Merger Transactions).
The Ancillary Asset Acquisition is designed to enable HA-LO to acquire all
of the assets utilized in the business operations conducted by Marusa Financial
and Nerok and is not anticipated to be material to the Merger Transactions,
taken as a whole. HA-LO has reserved the right to consummate the Ancillary Asset
Acquisition upon the terms described in the Plan of Merger and Amalgamation or
effect an alternate transaction acceptable to HA-LO having a substantially
similar purpose and total consideration which does not exceed 100 shares of
HA-LO Common Stock. No fractional shares of HA-LO Common Stock will be issued as
part of the Merger Transactions; the number of shares of HA-LO Common Stock
otherwise issuable pursuant to the Plan of Merger and Amalgamation will be
rounded upward or downward to the nearest whole number of shares of HA-LO Common
Stock.
At the Effective Time, each outstanding equity security of each of Market
USA and Marusa, together with any and all options, warrants or other rights,
agreements, arrangements or commitments to sell or purchase and such equity
securities, whether written, oral, authorized, issued, unissued, outstanding,
vested or unvested (collectively, "Other Target Company Securities"), will be
cancelled and terminated and be of no further force and effect. In the Plan of
Merger and Amalgamation, the Target Companies and the Target Shareholders
represented that, except for options granted by certain Target Shareholders to
Merchant Partners (see "Certain Transactions Relating to the Target Companies"),
no Other Target Company Securities exist and have agreed not to issue or permit
to exist any Other Target Company Securities prior to the Effective Time.
EXCHANGE PROCEDURES
EXCHANGE OF CERTIFICATES. At the Effective Time, each shareholder of Market
USA and Marusa is required to present to HA-LO one or more stock certificates
evidencing such shareholder's shares of Market USA Common Stock or Marusa Common
Stock. See "-- Conditions." As soon as practicable after the Effective Time,
HA-LO will cause its stock transfer agent to issue a stock certificate
evidencing the appropriate number of shares of HA-LO Common Stock to each of the
shareholders of Market USA and Marusa as well as to Marusa Financial and Nerok.
FRACTIONAL SHARES. No fractional shares of HA-LO Common Stock will be
issued in connection with the Merger Transaction and any fractional shares
otherwise issuable will be rounded upward or downward to the nearest whole
number of shares of HA-LO Common Stock.
REPRESENTATIONS AND WARRANTIES
The Plan of Merger and Amalgamation contains various customary
representations and warranties made by the Target Companies and the Target
Company Shareholders relating to, among other things, (i) the due organization,
power and standing of each of the Target Companies and similar corporate
matters; (ii) the capital structure of each of the Target Companies and the
ownership of the capital stock of each of the Target Companies; (iii) the
authorization, execution, delivery and enforceability of the Plan of Merger and
Amalgamation; (iv) the absence of conflicts under articles of incorporation or
by-laws and violations of any instruments or law, and required consents or
approvals; (v) the possession of all licenses and permits necessary to operate
the business of each Target Company and the compliance with applicable laws by
each Target Company; (vi) the filing of all required materials with all
applicable governmental authorities; (vii) the combined financial statements of
the Target Companies; (viii) absence of undisclosed liabilities; (ix) certain
specified material changes or events; (x) litigation; (xi) contracts and
agreements to which a Target Company is party; (xii) employee benefits and
matters relating to the Employee Retirement Income Security Act of 1974, as
amended; (xiii) taxes; (xiv) patents, trademarks, copyrights, licenses,
franchises and other proprietary rights; (xv) absence of certain business
practices; (xvi) insurance; (xvii) qualification for "pooling of interests"
accounting treatment and tax-free reorganization treatment; (xviii) title to
certain
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<PAGE>
properties and assets; (xix) unanimous shareholder approval of the Merger
Transactions; (xx) the hiring of brokers and finders with respect to the Merger
Transactions; (xxi) affiliated party transactions; (xxii) bank accounts,
officers and directors and powers of attorney; (xxiii) customers of the Target
Companies; (xxiv) proprietary software utilized by the Target Companies; (xxv)
Target Company accounts receivable; (xxvi) Target Company sales commission and
bonus policies; (xxvii) certain suppliers to the Target Companies; and (xxviii)
the accuracy of certain information supplied to HA-LO by the Target Companies
and the Target Shareholders.
The Plan of Merger contains various customary representations and warranties
made by HA-LO relating to, among other things, (i) the due organization, power
and standing of HA-LO and its subsidiaries; (ii) the capital structure of HA-LO,
HA-LO Sub-1 and HA-LO Sub-2; (iii) the authorization, execution, delivery and
enforceability of the Plan of Merger and Amalgamation; (iv) the absence of
conflicts under articles of incorporation or by-laws and violations of any
instruments or law, and required consents or approvals; (v) the possession of
all licenses and permits necessary to operate the business of HA-LO and its
subsidiaries; (vi) documents filed by HA-LO with the Commission and the accuracy
of the information contained therein; (vii) the consolidated financial
statements of HA-LO; (viii) absence of undisclosed liabilities; (ix) certain
specified material changes or events; (x) litigation; (xi) qualification for
"pooling of interests" accounting treatment and tax-free reorganization
treatment; (xii) title to certain properties and assets; (xiii) the hiring of
brokers and finders with respect to the Merger Transactions; (xiv) the ownership
of HA-LO Sub-1 and HA-LO Sub-2 and the activities thereof; and (xv) the accuracy
of certain information supplied by HA-LO to the Target Companies and the Target
Shareholders.
CERTAIN COVENANTS
Each of the Target Companies has agreed, among other things, prior to the
Effective Time, unless HA-LO agrees in writing or as otherwise required or
permitted by the Plan of Merger, (i) to operate its business only in the usual
and ordinary course, consistent with reasonable past practices; (ii) to use its
reasonable best efforts to preserve intact its business organization and
goodwill and retain the services of its officers, key employees and managers;
(iii) to use its reasonable best efforts to keep in full force and effect all
liability insurance and bonds in comparable amount and scope of coverage to that
previously maintained; (iv) to confer with HA-LO from time to time to report on
all operational matters and to the general status of the ongoing operations of
the business of such Target Company; (v) to prepare and deliver combined interim
quarterly financial statements as at and for the periods ended March 31, 1996,
June 30, 1996 and, if prior to the Effective Time, September 30, 1996; (vi) to
file all required U.S. and Canadian federal, state, provincial and local tax
returns; and (vii) with respect to Market USA only, immediately prior to the
Effective Time, at the request of HA-LO, to sell all or such portion of its
accounts receivable to a bank or factor designated by HA-LO for a discount from
the face value of such accounts receivable reasonably acceptable to HA-LO. In
addition, each of the Target Companies has agreed that, among other things,
prior to the Effective Time, unless HA-LO agrees in writing or as otherwise
required or permitted by the Plan of Merger, it will not (i) increase
compensation payable to any director, officer, manager or employee, grant any
severance or termination pay, enter into any employment agreement or establish,
adopt or amend any employee benefit plan; (ii) declare or pay any dividend or
other distribution in respect of its common stock (except for amounts necessary
to enable the relevant Target Shareholders to pay all applicable income taxes
relating to the taxable income of Market USA through the Effective Time) (see
"Stock Price and Divided Information"); (iii) incur indebtedness payable to
another Target Company; (iv) redeem, purchase, or otherwise acquire any shares
of its capital stock, effect any reorganization or recapitalization or split,
combine or reclassify any of its capital stock; (v) issue any shares of its
capital stock or any securities which are exercisable or exchangeable for or
convertible into its capital stock; (vi) purchase or otherwise acquire or agree
to acquire any business, entity or assets (other than the purchase of assets
from suppliers in the ordinary course of business); (vii) sell, mortgage, pledge
or otherwise dispose or agree to dispose, of any assets (other than the
retirement of assets in the ordinary course of business); (viii) adopt any
amendments to its articles of incorporation or bylaws; (ix) change
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<PAGE>
any methods of accounting in effect at December 31, 1995 or make or rescind any
express or deemed election relating to taxes, settle or compromise any claim,
action or suit relating to taxes; (x) incur any obligation for borrowed money
(other than borrowings not exceeding $10,000 in the ordinary course of
business); or (xi) without first consulting HA-LO, perform any act which would
prevent or excuse the performance of the Plan of Merger and Amalgamation by
HA-LO or which would result in the breach of any representation or warranty made
by the Target Companies or fail to perform any act which would prevent or excuse
the performance of the Plan of Merger and Amalgamation by HA-LO or which would
result in the breach of any representation or warranty made by the Target
Companies.
HA-LO has agreed, among other things, prior to the Effective Time, unless
the Target Companies agree in writing or as otherwise required or permitted by
the Plan of Merger and Amalgamation, that HA-LO will, and will cause each of its
subsidiaries, to (i) operate its business only in the usual and ordinary course,
consistent with past practices; (ii) use its reasonable best efforts to preserve
intact its business organization and goodwill and retain the services of its
officers, key employees and managers; (iii) use its reasonable best efforts to
keep in full force and effect all liability insurance and bonds in comparable
amount and scope of coverage to that previously maintained. In addition, HA-LO
has agreed that, among other things, prior to the Effective Time, unless the
Target Companies agree in writing or as otherwise required or permitted by the
Plan of Merger and Amalgamation, HA-LO will not, and will not permit any of its
subsidiaries to, (i) amend any of the material terms of HA-LO's securities or
(ii) without first consulting the Target Companies, perform any act which would
prevent or excuse the performance of the Plan of Merger and Amalgamation by the
Target Companies or which would result in the breach of any representation or
warranty made by HA-LO or fail to perform any act which would prevent or excuse
the performance of the Plan of Merger and Amalgamation by the Target Companies
or which would result in the breach of any representation or warranty made by
HA-LO.
NO SOLICITATION OF COMPETING TRANSACTIONS
Each of the Target Companies and each of the Target Shareholders has agreed
that they will not, and will use their best efforts to cause its directors,
officers, managers, employees, affiliates, agents and representatives not to,
initiate, solicit or encourage any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing Transaction
(hereinafter defined), enter into discussions or negotiate with any person or
entity in furtherance of such inquiries or obtain a Competing Transaction, agree
to endorse any Competing Transaction or authorize any officer, manager,
director, or affiliate of such Target Company to take any such action. Each
Target Company has agreed to promptly notify HA-LO if any such inquiries or
proposals are received by a Target Company or any of their respective directors,
officers, managers, employees, affiliates, agents and representatives. In
addition, each Target Company is required to keep HA-LO informed, on a current
basis, of the nature of, and provide HA-LO with true and complete copies of, any
such inquiries, and such Target Company's response thereto. As used in this
Proxy Statement/Prospectus the term "Competing Transaction" means any of the
following involving a Target Company or any subsidiary (other than the
transactions contemplated by this Agreement): (i) any merger, consolidation,
share exchange, business combination, or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of five
percent (5%) or more of the assets of a Target Company or a subsidiary thereof,
in a single transaction; (iii) any public or private tender offer or exchange
offer for any outstanding shares of capital stock of a Target Company or any
subsidiary thereof, or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any solicitation of proxies in
opposition to approval by a Target Company's shareholders of such Target
Company's participation in the Merger Transactions; (v) any person other than
the current beneficial owners of the Target Companies shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Securities Exchange
Act of 1934, as amended) shall have been formed which beneficially owns or has
25
<PAGE>
the right to acquire beneficial ownership of, any of the then outstanding shares
of capital stock of a Target Company; or (vi) any agreement to, or public
announcement by a Target Company of a proposal, plan or intention, to do any of
the foregoing.
GOVERNANCE
HA-LO will take such action as is necessary to increase the size of the
Board of Directors of HA-LO from seven to eight, and it is currently anticipated
that Seymour N. Okner, a principal Target Shareholder, will be nominated and
appointed as of the date following the Effective Time to fill the vacancy
created by such increase in the size of the Board of Directors of HA-LO. It also
is anticipated that after the consummation of the Merger Transactions, Lou
Weisbach, the Chairman of the Board, President and Chief Executive Officer of
HA-LO, will continue to serve in such capacities.
INDEMNIFICATION
HA-LO has agreed to cause (i) Market USA to indemnify, defend and hold
harmless the present and former officers and directors of Market USA and (ii)
the corporation resulting from the Canada Amalgamation to indemnify, defend and
hold harmless the present and former officers and directors of Marusa, in each
case against all losses, expenses, claims, damages or liabilities arising out of
actions or omissions occurring at or prior to the Effective Time to the fullest
extent permitted under the IBCA and the CBCA (and to advance expenses as
incurred to the fullest extent permitted by applicable law). The foregoing
rights to indemnification will survive the Merger Transactions. In addition,
HA-LO has agreed that, in the event a Target Company is unable to obtain
extended coverage under any existing Target Company policies of directors' and
officers' liability insurance, HA-LO is required to use its reasonable efforts
to cause to be maintained in effect for not less than three years after the
Effective Time the existing policies of directors' and officers' liability and
fiduciary liability insurance maintained by such Target Company with respect to
matters occurring prior to the Effective Time.
In the event HA-LO terminates the Plan of Merger and Amalgamation prior to
consummation of the Merger Transactions as a result of the breach by the Target
Companies of the Plan of Merger and Amalgamation or the recommendation by the
board of directors of a Target Company of a Competing Transaction, then, unless
HA-LO shall have elected for the Target Companies to pay HA-LO the $15 million
termination fee described herein plus the amount of expenses incurred by HA-LO
in connection with the Plan of Merger and Amalgamation, the Target Companies
shall be obligated to indemnify and hold HA-LO harmless from and against the
full amount of its damages incurred or suffered by HA-LO and proximately
resulting from or attributable to such termination of the Plan of Merger and
Amalgamation. See "-- Expenses; Termination Fees."
In the event that the Merger Transactions are consummated, the Target
Shareholders have agreed to indemnify and hold harmless HA-LO from and against
any and all damages incurred proximately resulting from or attributable to,
among other things, (i) the breach by the Target Companies of their
representations or warranties in the Plan of Merger and Amalgamation, (ii) the
failure of the Target Companies to comply with any of the covenants and
agreements to be performed by them under the Agreement and Plan of Merger of
Amalgamation, (iii) U.S. federal, state, provincial and local taxes attributable
to, assessed against or levied on Market USA with respect to all periods ending
on or before the Effective Time (but only to the extent that (A) such taxes
would not have been payable by or assessable against Market USA if a valid S
corporation election had been in effect with respect to such tax periods, and
(B) Market USA, during such tax periods, would have been subject to Subchapter S
of the Code, and (iv) any failure to withhold employee health taxes in Canada.
HA-LO has agreed that any and all claims to indemnification pursuant to clauses
(i) and (ii) of the preceding sentence shall be enforceable only against the
shares of HA-LO Common Stock to be issued pursuant to the Merger Transactions.
HA-LO's right to indemnification is subject to certain exceptions and
limitations, including, among other things, (i) HA-LO's right to indemnification
is generally limited to shares of HA-LO Common Stock having an aggregate value
not exceeding 10% of the average value, determined for the 10 trading days prior
to the Effective Time, of all shares of HA-LO Common Stock issued pursuant to
the Merger Transactions and (ii) HA-LO is generally not entitled to recover any
26
<PAGE>
amounts from the Target Shareholders unless and until the aggregate damages
which HA-LO is entitled to recover in respect of all such claims exceed
$500,000, and only to the extent that HA-LO's aggregate damages exceed such
amount.
HA-LO has agreed to indemnify and hold harmless the Target Companies and the
Target Shareholders from and against any and all damages incurred proximately
resulting from or attributable to (i) the breach by HA-LO of its representations
or warranties in the Plan of Merger and Amalgamation and (ii) the failure of
HA-LO to comply with any of the covenants and agreements to be performed by it
under the Agreement Plan of Merger and Amalgamation. The Target Companies and
the Target Shareholders are not entitled to recover any amount from HA-LO
pursuant to the foregoing sentence unless and until the aggregate damages which
the Target Companies are entitled to recover in respect of all such claims
exceed $500,000, and only to the extent that the Target Companies' aggregate
damages exceed such amount.
CONDITIONS
The respective obligations of each of HA-LO and the Target Companies to
consummate the Merger Transactions are subject to the fulfillment of each of the
following conditions, among others: (i) this Proxy Statement/Prospectus shall
have been declared effective by the Commission and HA-LO shall have received all
other Canadian and U.S. securities permits and other authorizations necessary to
issue the HA-LO Common Stock in connection with the Merger Transactions; (ii)
the Merger Transactions and the issuance of HA-LO Common Stock in connection
therewith shall have been approved by the requisite vote of HA-LO's
shareholders; (iii) there shall not have been instituted and there shall not be
pending any action or proceeding by a governmental authority (A) imposing or
seeking to impose limitations on the ability of HA-LO to acquire or hold any
securities of Market USA or Marusa, (B) imposing or seeking to impose
limitations on the ability of HA-LO to combine and operate the business and
assets of any Target Company with any of HA-LO's subsidiaries, (C) imposing or
seeking to impose other sanctions, damages or liabilities arising out of the
Merger Transactions on any party to the Plan of Merger and Amalgamation, (D)
requiring or seeking to require divestiture by HA-LO of all or any significant
portion of the business, assets or properties of any Target Company, or (E)
restraining, enjoining or prohibiting or seeking to restrain, enjoin or prohibit
any of the Merger Transactions; (iv) the applicable waiting period under the HSR
Act shall have expired or been terminated; (v) if deemed reasonably necessary,
the Director under the Competition Act shall have informed the parties in
writing that no approval, consent or application for an order is required under
the Competition Act (or if required, such approval shall have been obtained);
and (vi) the Target Shareholders shall have delivered to HA-LO a certificate
issued under Section 116 of the ITA.
The obligations of HA-LO to consummate the Merger Transactions are subject
to the fulfillment of each of the following additional conditions, among others:
(i) each of the representations and warranties of the Target Companies and the
Target Shareholders shall be true and correct in all material respects as of the
Effective Time, as though made on and as of the Effective Time; (ii) each Target
Company and Target Shareholder shall have performed or complied in all material
respects with all agreements and covenants required to be performed or complied
with by such party on or prior to the Effective Time; (iii) HA-LO shall have
received all material third party consents necessary or advisable to consummate
the Merger Transactions; (iv) each Target Shareholder and every other holder of
shares of Market USA Common Stock and Marusa Common Stock shall have fully
tendered such shares to HA-LO, and HA-LO shall have received from the Target
Shareholders and every other holder of shares of Market USA Common Stock and
Marusa Common Stock a duly executed Affiliate Agreement and a duly executed
Registration Rights Agreement; (v) HA-LO shall have received from Seymour N.
Okner, Samuel P. Okner and certain other Target Company employees, executed
Employment Agreements in the forms attached as exhibits to the Plan of Merger
and Amalgamation (and HA-LO shall have received from each of Messrs. Okner an
executed Agreement and Covenant Against Unfair Competition and General Release
of Claims, in each case in the forms attached as exhibits to the Plan of Merger
and Amalgamation); (vi) HA-LO shall have received the updated opinion of
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<PAGE>
William Blair, dated the date of the Proxy Statement/Prospectus, to the effect
that the Merger Transactions are, from a financial standpoint, fair to HA-LO;
and (vii) HA-LO shall have received the opinion of Altheimer & Gray, legal
counsel for the Target Companies, dated as of the Effective Time, with respect
to various matters, including the federal income tax treatment of the U.S.
Merger.
The obligations of the Target Companies and the Target Shareholders to
consummate the Merger Transactions are subject to the fulfillment of each of the
following additional conditions, among others: (i) each of the representations
and warranties of HA-LO shall be true and correct in all material respects as of
the Effective Time, as though made on and as of the Effective Time; (ii) HA-LO
shall have performed or complied in all material respects with all agreements
and covenants required to be performed or complied with by such party on or
prior to the Effective Time; (iii) HA-LO shall have received all material third
party consents necessary or advisable to consummate the Merger Transactions;
(iv) each person entering into an Affiliate Agreement shall have received from
HA-LO a duly executed Affiliate Agreement and a duly executed Registration
Rights Agreement; (v) each person entering into an employment agreement shall
have received from HA-LO a duly executed Employment Agreement; and (vi) the
Target Companies and the Target Shareholders shall have received the opinions of
each of Marc S. Roth & Associates, Ltd. and Neal, Gerber & Eisenberg, legal
counsel for the Target Companies, dated as of the Effective Time, with respect
to various matters, including, in the case of Marc S. Roth & Associates, Ltd.,
the federal income tax treatment of the U.S. Merger.
TERMINATION
The Plan of Merger and Amalgamation may be terminated and the Merger
Transactions may be abandoned at any time prior to the Effective Time, before or
after the approval by the shareholders of HA-LO, in a number of circumstances,
which include, among others, (i) by the mutual consent of HA-LO and the Target
Companies (or the Target Shareholders acting on their behalf); (ii) by HA-LO if
there has been a breach by a Target Company or a Target Shareholder of any of
its or his respective covenants or agreements in the Plan of Merger and
Amalgamation or if any of the representations and warranties of the Target
Companies or Target Shareholders shall have become untrue such that a condition
to the consummation of the Merger Transactions shall not have been satisfied and
such breach or condition has not been cured within 30 days after receipt of
written notice; (iii) by the Target Companies (or the Target Shareholders acting
on their behalf) if there has been a breach by HA-LO of any of its respective
covenants or agreements in the Plan of Merger and Amalgamation or if any of the
representations and warranties of HA-LO shall have become untrue such that a
condition to the consummation of the Merger Transactions shall not have been
satisfied and such breach or condition has not been cured within 30 days after
receipt of written notice; (iv) by HA-LO or the Target Companies (or the Target
Shareholders acting on their behalf) if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or
governmental entity preventing or prohibiting consummation of the Merger
Transactions shall have become final and nonappealable; (v) by HA-LO or the
Target Companies if the Merger Transactions have not been consummated by October
31, 1996; (vi) by HA-LO, if the Board of Directors of a Target Company shall
have recommended to the shareholders of such Target Company any Competing
Transaction; or (vii) by the Target Companies (or the Target Shareholders acting
on their behalf) if HA-LO has entered into a written agreement under which HA-LO
will be acquired by or merge with another entity, where, after such transaction,
persons who were directors of HA-LO prior to such transaction will not
constitute a majority of the board of directors of the acquiring or surviving
corporation (a "HA-LO Change in Control").
EXPENSES; TERMINATION FEES
Except as provided in the following paragraph, each party to the Plan of
Merger and Amalgamation is responsible for all costs and expenses paid or
incurred by it in connection with the Merger Transactions.
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<PAGE>
If the Plan of Merger and Amalgamation is terminated by HA-LO, on the one
hand, or the Target Companies (or the Target Shareholders acting on their
behalf), on the other, pursuant to clause (ii) or (iii) of the paragraph under
"-- Termination" due to an intentional breach by the terminating party, and
without fault of the terminating party, the non-terminating party is required to
pay the terminating party an amount equal to all of the terminating party's
out-of-pocket expenses incurred in connection with the Agreement and Plan of
Merger of Amalgamation. If HA-LO terminates the Plan of Merger and Amalgamation
and at the time of such termination a Competing Transaction exists, the Target
Companies are required to pay HA-LO a $15 million termination fee and HA-LO's
out-of-pocket expenses incurred in connection with the Plan of Merger and
Amalgamation. If the Target Companies (or the Target Shareholders acting on
their behalf) terminate the Plan of Merger and Amalgamation and at the time of
such termination there shall exist a written agreement with respect to a HA-LO
Change in Control, HA-LO is required to pay the Target Companies a $15 million
termination fee and the Target Companies' out-of-pocket expenses incurred in
connection with the Plan of Merger and Amalgamation. In addition, if the Target
Companies (or the Target Shareholders acting on their behalf) terminate the Plan
of Merger and Amalgamation, HA-LO is required to pay the Target Companies an
additional termination fee equal to the discount (if any) applicable to accounts
receivable sold by Market USA to a bank at HA-LO's request. See "The Merger
Transactions -- Certain Covenants."
AMENDMENT AND WAIVER
The parties to the Plan of Merger and Amalgamation may modify or amend the
Plan of Merger and Amalgamation by written agreement at any time prior to the
Effective Time, to the extent permitted by applicable law. The conditions to
each party's obligations to consummate the Merger Transactions may be waived by
such party in whole or in part to the extent permitted by applicable law.
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STOCK PRICE AND DIVIDEND INFORMATION
HA-LO
HA-LO Common Stock is traded in the over-the-counter market on The Nasdaq
National Market under the symbol "HALO." The following table sets forth the
range of high and low bid quotations for the quarterly periods indicated and
reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter..................................... $19 1/4 $13 1/2
Second Quarter.................................... 29 3/4 18
Third Quarter.....................................
(through August 22, 1996)
1995
First Quarter..................................... 7 4
Second Quarter.................................... 7 1/4 6
Third Quarter..................................... 12 1/4 6 3/4
Fourth Quarter.................................... 20 1/2 9 3/4
1994
First Quarter..................................... 5 1/4 3 1/4
Second Quarter.................................... 4 3/4 3 3/4
Third Quarter..................................... 4 1/2 3 3/4
Fourth Quarter.................................... 4 1/4 3 3/4
</TABLE>
On June 3, 1996, HA-LO effected a 3-for-2 stock split in the form of a 50%
common stock dividend to shareholders of record on May 17, 1996. All information
included in this Proxy Statement/Prospectus, including the information presented
in the foregoing table, has been adjusted to give effect to such stock split. On
June 14, 1996, the last trading day immediately prior to the date on which HA-LO
and the Target Companies first publicly announced their intent to undertake the
Merger Transaction, the closing price of HA-LO Common Stock as reported by The
Nasdaq National Market was $26.75 per share. On August 22, 1996, the last
trading day for which quotations were available at the time of printing this
Proxy Statement/Prospectus, the closing price of HA-LO Common Stock as reported
by the Nasdaq National Market was $ per share.
No cash dividends have been paid on shares of HA-LO Common Stock. However, a
corporation acquired by HA-LO in December 1995 in a transaction accounted for as
a pooling-of-interests paid cash dividends of $555,000, $610,000 and $299,000 in
1995, 1994 and 1993, respectively.
As of July 31, 1996, HA-LO had 10,509,055 shares of HA-LO Common Stock
outstanding and approximately 525 holders of record.
THE TARGET COMPANIES
MARKET USA. Market USA Common Stock is not traded on any established public
trading market or the over-the-counter market and trading activity is
nonexistent.
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<PAGE>
During 1994 and 1995, and for the six months ended June 30, 1996, Market USA
paid cash dividends to its shareholders of $666,000, $4,682,000 and $1,256,0000,
respectively. In addition, it is anticipated that Market USA will make a
distribution to its shareholders of approximately $2,166,000 immediately prior
to the Effective Time. Such distribution will be designed to be equal to Market
USA's estimate of the amount of federal and state income taxes which will be
imposed upon its shareholders with respect to Market USA's activities for the
period prior to the Effective Time.
As of the date of this Proxy Statement/Prospectus, Market USA had 100 shares
of Market USA Common Stock outstanding and 4 holders of record.
MARUSA. Marusa Common Stock is not traded on any established public trading
market or the over-the-counter market and trading activity is nonexistent.
No cash dividends have been paid with respect to the Marusa Common Stock
since Marusa's organization in 1992.
As of the date of this Proxy Statement/Prospectus, Marusa had two shares of
Marusa Common Stock outstanding and two holders of record.
31
<PAGE>
HA-LO AND TARGET COMPANIES PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited Pro Forma Combined Condensed Balance Sheet as of
June 30, 1996 and the unaudited Pro Forma Combined Condensed Income Statements
for each of the three years ended December 31, 1993, 1994 and 1995, and the six
months ended June 30, 1995 and 1996 give effect to the Merger Transactions as if
they had occurred at the beginning of the earliest period presented. The pro
forma information gives effect to the Merger Transactions under the pooling of
interests method of accounting and to the assumptions and adjustments described
in the accompanying notes to the pro forma combined condensed financial
statements.
The pro forma combined condensed financial statements are based on the
historical financial statements of HA-LO and the related notes thereto
incorporated herein by reference and the historical financial statements of the
Target Companies and the related notes thereto included elsewhere herein. These
pro forma statements are presented for informational purposes only and may not
necessarily be indicative of the results that actually would have occurred had
the Merger Transactions been consummated at the dates indicated, nor are they
necessarily indicative of future operating results or financial position.
31
<PAGE>
HA-LO AND TARGET COMPANIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
TARGET PRO FORMA
HA-LO COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 1,343 $ 2,027 -- $ 3,370
Short-term investments........................................ 4,477 -- -- 4,477
Receivables................................................... 31,975 6,584 -- 38,559
Inventories................................................... 7,428 -- -- 7,428
Prepaid expenses and deposits................................. 3,405 591 -- 3,996
--------- ----------- ----------- ---------
Total current assets...................................... 48,628 9,202 -- 57,830
--------- ----------- ----------- ---------
PROPERTY AND EQUIPMENT, NET:.................................... 5,146 4,070 -- 9,216
--------- ----------- ----------- ---------
OTHER ASSETS:
Intangible assets relating acquired businesses, net........... 7,333 -- -- 7,333
Samples....................................................... 1,160 -- -- 1,160
Other......................................................... 825 37 -- 862
--------- ----------- ----------- ---------
Total other assets........................................ 9,318 37 -- 9,355
--------- ----------- ----------- ---------
$ 63,092 $ 13,309 $ -- $ 76,401
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable................................................. $ -- $ 592 $ -- $ 592
Book overdraft................................................ 666 -- -- 666
Accounts payable.............................................. 11,351 912 -- 12,263
Accrued expenses.............................................. 6,406 4,973 718 12,097
Dividend payable.............................................. -- -- 2,166 2,166
Deferred taxes -- current..................................... 780 162 -- 942
--------- ----------- ----------- ---------
Total current liabilities..................................... 19,203 6,639 2,884 28,726
--------- ----------- ----------- ---------
LONG-TERM DEBT.................................................. -- 78 -- 78
--------- ----------- ----------- ---------
DEFERRED LIABILITIES:........................................... 1,765 300 -- 2,065
--------- ----------- ----------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value................................... -- -- -- --
Common stock, no par value.................................... 38,443 2 4,103 42,548
Unearned compensation -- restricted stock..................... (880) -- -- (880)
Deferred marketing costs...................................... (1,448) -- -- (1,448)
Cumulative translation adjustment............................. -- 21 -- 21
Retained earnings............................................. 6,009 6,269 (6,987) 5,291
--------- ----------- ----------- ---------
Total shareholders' equity................................ 42,124 6,292 (2,884) 45,532
--------- ----------- ----------- ---------
$ 63,092 $ 13,309 $ -- $ 76,401
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
(See Notes to Pro Forma Combined Condensed Financial Statements)
32
<PAGE>
HA-LO AND TARGET COMPANIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ 104,954 $ 145,821 $ 211,265 $ 84,060 $ 110,706
Cost of sales/service............................. 75,654 99,489 148,477 58,807 79,053
----------- ----------- ----------- --------- -----------
Gross profit.................................... 29,300 46,333 62,788 25,253 31,653
Selling expenses.................................. 11,787 19,124 25,559 11,134 13,575
General and administrative expenses............... 14,363 19,868 28,107 11,306 13,397
----------- ----------- ----------- --------- -----------
Income from operations.......................... 3,150 7,340 9,122 2,813 4,681
Other income (expense), net....................... (39) (800) (1,214) (642) 260
----------- ----------- ----------- --------- -----------
Income before taxes............................. 3,110 6,540 7,908 2,171 4,941
Provision for income taxes........................ 1,245 2,616 3,163 868 1,976
----------- ----------- ----------- --------- -----------
Pro forma net income for the period............... $ 1,866 $ 3,924 $ 4,745 $ 1,303 $ 2,965
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
Pro forma net income per share assuming full
dilution......................................... $ 0.19 $ 0.40 $ 0.42 $ 0.12 $ 0.21
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
Weighted average shares outstanding assuming full
dilution......................................... 9,624 9,750 11,272 10,505 13,813
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
REVENUES:
HA-LO........................................... $ 80,463 $ 110,396 $ 172,866 $ 66,314 $ 85,973
Target Companies................................ 24,491 35,425 38,399 17,746 24,733
----------- ----------- ----------- --------- -----------
Combined...................................... $ 104,954 $ 145,821 $ 211,265 $ 84,060 $ 110,706
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
PRO FORMA NET INCOME:
HA-LO........................................... $ 566 $ 1,419 $ 2,988 $ 614 $ 1,538
Target Companies................................ 1,300 2,505 1,757 689 1,427
----------- ----------- ----------- --------- -----------
Combined...................................... $ 1,866 $ 3,924 $ 4,745 $ 1,303 $ 2,965
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
</TABLE>
(See Notes to Pro Forma Combined Condensed Financial Statements)
33
<PAGE>
HA-LO AND TARGET COMPANIES
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The pro forma combined condensed balance sheet reflects the issuance of
2,550,000 shares of HA-LO Common Stock in connection with the Merger
Transactions. The Merger Transactions are intended to be accounted for as a
pooling-of-interests. Therefore, all undistributed earnings of Market USA,
an S corporation for federal income tax purposes prior to the Merger
Transactions, have been transferred to HA-LO's Common Stock account.
2. Market USA had elected to be treated as an S corporation for federal income
taxes prior to the consummation of the U.S. Merger. The accompanying pro
forma combined condensed financial statements include an unaudited pro forma
income tax provision for all periods at an effective rate of 40%.
3. Earnings per share for all periods is based on the weighted average number
of shares of HA-LO Common Stock outstanding, including common stock
equivalents, plus the 2,550,000 shares to be issued in connection with the
Merger Transactions.
4. The pro forma combined condensed balance sheet reflects an anticipated
$2,166,000 dividend which will be paid to the shareholders of Market USA
immediately prior to the consummation of the Merger Transactions. This
distribution is intended to reflect Market USA's estimate of federal and
state income taxes to be imposed on its shareholders resulting from its
operations for the period from January 1, 1996 through the Effective Time.
5. On June 3, 1996, HA-LO completed a 3-for-2 split of the outstanding HA-LO
Common Stock pursuant to the payment of a 50% common stock dividend to
shareholders of record on May 17, 1996. All information in the accompanying
pro forma combined condensed financial statements has been adjusted to
reflect the foregoing common stock dividend.
6. The pro forma combined condensed financial statements of HA-LO and the
Target Companies exclude any non recurring costs and expenses associated
with consummating the Merger Transactions and combining the operations of
the companies. Such costs are expected to result in a one time, material
charge to HA-LO's earnings of approximately $950,000 after tax. Of the
expected charge, approximately $639,000 relates to transaction costs,
$200,000 relates to the recognition of deferred tax liabilities and the
remainder relates to combining the operations of the companies. HA-LO's
management expects the charge to occur in the third quarter of 1996, the
quarter in which the Merger Transactions are expected to be consummated.
34
<PAGE>
TARGET COMPANIES
SELECTED FINANCIAL INFORMATION
The following tables set forth selected historical financial data and other
operating information for the Target Companies for each of the fiscal years in
the five-year period ended December 31, 1995 and for the six months ended June
30, 1995 and 1996. The selected financial information for each of the three
years ended December 31, 1993, 1994 and 1995 has been derived from the Combined
Financial Statements of the Target Companies, which have been audited by Arthur
Andersen LLP, independent auditors to the Target Companies, and from the
underlying accounting records of the Target Companies. The selected financial
information for the two years ended December 31, 1991 and 1992 and the six-month
periods has been derived from unaudited combined financial statements of the
Target Companies and reflects all adjustments (consisting of normal recurring
adjustments) that, in the opinion of the management of the Target Companies, are
necessary for a fair presentation of such information. Operating results for the
six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for fiscal 1996.
All information contained in the following tables should be read in
conjunction with "Target Companies' Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Pro Forma Financial
Information" and with the Combined Financial Statements and related notes of the
Target Companies included herein. Certain amounts from the combined statements
of income of the Target Companies have been reclassified to conform with the
presentation below.
TARGET COMPANIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................... $ 11,445 $ 14,049 $ 24,491 $ 35,425 $ 38,399 $ 17,746 $ 24,733
Cost of service............................. 7,795 9,625 16,392 23,170 25,495 13,173 18,350
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................ 3,650 4,424 8,099 12,255 12,904 4,573 6,383
--------- --------- --------- --------- --------- --------- ---------
Selling expenses............................ 153 448 459 911 959 435 548
General and administrative expenses......... 1,779 2,412 5,487 7,205 9,062 3,013 3,469
Income from operations...................... 1,718 1,564 2,153 4,139 2,883 1,125 2,366
Other income (expense), net................. 38 (378) 14 36 46 23 13
--------- --------- --------- --------- --------- --------- ---------
Income before taxes......................... 1,756 1,186 2,167 4,175 2,929 1,148 2,379
Provision for income taxes.................. 26 3 209 337 508 47 167
--------- --------- --------- --------- --------- --------- ---------
Net income for the period................... $ 1,730 $ 1,183 $ 1,958 $ 3,838 $ 2,421 $ 1,101 $ 2,212
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income for the period(1)...... $ 1,054 $ 712 $ 1,300 $ 2,505 $ 1,757 $ 689 $ 1,427
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA(2):
Pro forma net income(1)................... 0.41 0.28 0.51 0.98 0.69 0.27 0.56
Dividends................................. 0.25 0.28 0.14 0.26 1.84 0.17 0.49
Shares used in computation................ 2,550 2,550 2,550 2,550 2,550 2,550 2,550
BALANCE SHEET DATA (END OF PERIOD):
Total assets................................ $ 3,282 $ 4,774 $ 7,945 $ 11,271 $ 10,492 $ 12,472 $ 13,308
Working capital............................. 1,796 839 2,130 4,900 2,368 5,819 2,562
Long-term debt, net ofcurrent portion....... 99 95 87 79 81 78 78
Shareholders' equity........................ 2,390 2,703 4,311 7,478 5,338 8,156 6,292
</TABLE>
- ------------------------
(1) Market USA has elected to be treated as an S corporation for federal income
tax purposes. Pro forma net income and pro forma net income per share
amounts include an unaudited pro forma income tax provision for all periods
at an effective rate of 40%.
(2) All per share data is based on the number of shares of HA-LO Common Stock to
be issued by HA-LO in connection with the Merger Transactions.
35
<PAGE>
TARGET COMPANIES' MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the statements of condition and
results of operations should be read in conjunction with the related financial
statements and notes thereto which are included elsewhere herein.
GENERAL
The Target Companies provide outbound telemarketing services to large
corporations primarily engaged in the insurance and financial services
industries. Calling programs are typically conducted pursuant to short-term
contracts and for payment of a specified rate per calling hour. Revenues are
based upon the total hours required to complete the program and the specified
contract rate per calling hour. Cost of service includes direct labor, telephone
charges, insurance agent license fees, depreciation and direct costs required to
operate the call center. Selling expenses consist of commissions and are earned
based on the difference between actual contract rates and targeted minimum
billing rates. General and administrative expenses relate to corporate overhead
and other call center expenses.
Since its organization, Market USA elected to be taxable as an S corporation
and, accordingly, was not subject to income taxes. The Target Companies' pro
forma net income includes an unaudited pro forma provision for income taxes as
if Market USA had been treated as a C corporation during the relevant periods.
The following table sets forth for the periods indicated the percent of net
sales represented by each line item from the Target Companies' Combined
Statements of Operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of service..................................... 66.9 65.4 66.4 74.2 74.2
--------- --------- --------- --------- ---------
Gross profit........................................ 33.1 34.6 33.6 25.8 25.8
Selling expenses.................................... 1.9 2.6 2.5 2.5 2.2
General and administrative expenses................. 22.4 20.3 23.6 17.0 14.0
--------- --------- --------- --------- ---------
Income from operations.............................. 8.8 11.7 7.5 6.3 9.6
Other income, net................................... 0.1 0.1 0.1 0.1 --
--------- --------- --------- --------- ---------
Income before taxes................................. 8.9 11.8 7.6 6.4 9.6
Provision for income taxes.......................... 0.9 1.0 1.3 0.2 0.7
--------- --------- --------- --------- ---------
Net income.......................................... 8.0% 10.8% 6.3% 6.2% 8.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
RESULTS OF OPERATIONS. Net sales for the six months ended June 30, 1996
increased 39.4% to $24.7 million compared to $17.7 million in the same period in
1995. The increase is primarily attributable to additional programs and clients
and the addition of four main call centers and three satellite locations which
were not open during the six months ended June 30, 1995.
Gross profit as a percentage of sales for the six months ended June 30, 1996
was 25.8% ($6.4 million), unchanged for the same period a year earlier ($4.6
million).
Selling expenses as a percentage of sales for the six months ended June 30,
1996 decreased to 2.2% ($548,000) from 2.5% ($435,000) compared to the same
period a year earlier. The decrease is primarily attributable to a change in
sales mix toward non-commissionable sales.
36
<PAGE>
General and administrative expenses as a percentage of sales for the six
months ended June 30, 1996 decreased to 14.0% ($3.5 million) from 17.0% ($3.0
million) for the same period in 1995. This decrease is primarily a function of
increased revenues without significant incremental overhead costs.
Other income for the six months ended June 30, 1996 relates primarily to
interest income and remained constant as a percentage of sales compared with the
same period from 1995.
The Target Companies' effective income tax rate for the six months ended
June 30, 1996 increased to 7.0% ($167,000) from 4.1% ($47,000) for the same
period in 1995. The increase reflects the greater contribution of Marusa's
operations to the combined operations for the six months ended June 30, 1996.
FISCAL YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1994
RESULTS OF OPERATIONS. Net sales increased 8.4% to $38.4 million in 1995
from $35.4 million in 1994. The increase is primarily attributable to both
volume and rate increases, which were offset by a decrease in revenue from
programs subcontracted to other service bureaus. During 1995, the Target
Companies increased their capacity by approximately 12%, resulting in an
increase in billed hours of 3.7%. At the same time, the Target Companies'
average rate per hour billed increased by approximately 3.5%.
During 1995 and 1994, approximately 71% and 80%, respectively, of the Target
Companies' net sales were concentrated in the insurance industry. The decrease
in 1995 reflects the Target Companies' efforts to diversify their service
offerings to other industries. During 1995, the Target Companies' largest
customer accounted for approximately 19.5% of net sales, while three others
accounted for 14.8%, 12.6% and 10.0%, respectively. During 1994, the Target
Companies' largest customer accounted for 25.4% of net sales, while the next
three largest accounted for 22.1%, 13.2% and 13.1% of net sales, respectively.
The reduction in comparative customer concentration is also a reflection of the
Target Companies' efforts to diversify.
Gross profit as a percentage of sales in 1995 decreased to 33.6% ($12.9
million) from 34.6% ($12.3 million) in 1994. The decrease is primarily
attributable to increased capacity without a corresponding increase in billed
hours because new call centers are not immediately as efficient as existing
ones. As such, associated fixed costs are not absorbed by incremental revenue.
Selling expenses as a percentage of net sales remained relatively constant
at 2.5% ($959,000) for 1995 compared to 2.6% ($911,000) in 1994. General and
administrative expenses as a percentage of sales increased to 23.6% ($9.1
million) in 1995 from 20.3% ($7.2 million) in 1994. The increase is primarily
attributable to overhead costs added to enhance the Target Companies'
infrastructure and to support the capacity growth discussed above.
Other income, which consists primarily of interest, remained constant at .1%
of net sales for both 1995 and 1994.
The Target Companies' effective income tax rate increased to 17.3% in 1995
from 8.1% in 1994. The increase is a result of increases in Marusa's net income
between 1995 and 1994. While Market USA is an S corporation for federal income
tax purposes, and does not pay corporate income taxes, Marusa pays Canadian
income taxes on its corporate earnings. Marusa's effective tax rate for 1995 and
1994 was 23.5% and 18.3%, respectively.
FISCAL YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1993
RESULTS OF OPERATIONS. Net sales increased 44.6% in 1994 to $35.4 million
compared to $24.5 million in 1993. The increase is primarily attributable to the
addition of one new call center which increased capacity approximately 12% and
an increase in billed hours from existing call centers. During 1994 and 1993,
approximately 80% and 78%, respectively, of the Target Companies' net sales were
derived from the insurance industry. Further, during 1994, the Target Companies'
largest customer accounted for approximately 25.4% of net sales, while the next
three largest accounted for
37
<PAGE>
22.1%, 13.2% and 13.1% of net sales, respectively. During 1993, the Target
Companies' largest customer accounted for approximately 41.4% of net sales,
while two others accounted for 14.9% and 10.2% of net sales, respectively. No
other customer in either year accounted for more than 10% of net sales. The
comparative decrease in concentration reflects the Target Companies' efforts to
diversify their customer base to minimize their reliance on any one customer.
Gross profit as a percentage of sales for 1994 increased to 34.6% ($12.3
million) from 33.1% ($8.1 million) in 1993. The increase is primarily
attributable to the more efficient utilization of call centers in 1994 versus
1993.
Selling expenses, which consist of commissions, increased as a percentage of
revenue to 2.6% ($911,000) in 1994 from 1.9% ($459,000) in 1993. The increase
reflects an increase in the amount of commissionable programs performed during
1994.
General and administrative expenses as a percentage of net sales decreased
to 20.3% ($7.2 million) in 1994 from 22.4% ($5.5 million) in 1993. The decrease
is the result of an increase in net sales without an incremental increase in
overhead costs.
Other income, which consists primarily of interest, remained constant as a
percentage of net sales at .1% for 1994 and 1993.
The Target Companies' effective income tax rate decreased in 1994 to 8.1%
from 9.6% in 1993. The decrease reflects a decline of Marusa's proportionate
contribution to combined pretax income in 1994. While Market USA is an S
corporation for federal income tax purposes, and does not pay corporate income
taxes, Marusa pays Canadian income taxes on its corporate earnings. For 1994 and
1993, Marusa's effective tax rate was 18.3% and 13.7%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Target Companies have funded their operations and capital
expenditures primarily through cash flow from operations. The Target Companies
have a credit facility with Harris Bank Glencoe-Northbrook, N.A. ("Harris") that
provides for the borrowings of up to $1,000,000. Borrowings under the credit
facility are unsecured and bear interest at the prime rate announced by Harris
from time to time. The credit facility terminates in September 1996, but is in
the process of being extended. As of June 30, 1996, $91,700 was outstanding
under the credit facility. The Target Companies also borrowed $500,000 from a
bank during the six months ended June 30, 1996. The loan was secured by
certificates of deposit and was repaid in full in July 1996.
Net cash provided by operating activities was $3.3 million for the six
months ended June 30, 1996, $4.0 million in 1995 and $2.2 million in 1994.
Net cash used in investing activities was $1.4 million for the six months
ended June 30, 1996, $388,000 in 1995 and $1.4 million in 1994. Such activities
primarily consist of capital expenditures relating to acquiring and outfitting
new call centers and upgrading existing call centers with state-of-the-art
technology.
Net cash used in financing activities was $667,000 for the six months ended
June 30, 1996, $4.8 million in 1995 and $960,000 in 1994. The foregoing amounts
include dividends paid of $1.3 million for the six months ended June 30, 1996,
$4.7 million in 1995 and $666,000 in 1994. The remainder relates to the
repayment of indebtedness. In addition, the Target Companies borrowed $591,700
during the six months ended June 30, 1996 primarily for working capital needs,
$500,000 of which was repaid in July 1996.
The Target Companies believe that cash from operations, together with
existing cash and available borrowings under its credit facility, will be
sufficient to finance the Target Companies' current operations, planned capital
expenditures and anticipated growth at least through 1997. However, if the
Target Companies were unable to make any significant acquisitions for cash, it
may be necessary for the Company to obtain additional debt or equity financing.
38
<PAGE>
INFLATION
Inflation has not had a material impact upon operating results, and the
Target Companies do not expect inflation to have such an impact in the future.
To date, in those instances where the Target Companies have experienced cost
increases, they have been able to increase their rates to offset the increased
costs. There can be no assurance, however, that the Target Companies' business
will not be so affected by inflation or that they can continue to increase their
rates and remain competitive.
QUARTERLY RESULTS
The Target Companies could experience quarterly variations in net revenues
and operating income as a result of many factors, including the timing of
clients' marketing campaigns and customer service programs, the timing of
additional selling, general and administrative expenses to acquire and support
such new business and changes in the Target Companies' revenue mix among its
various service offerings. In addition, the Target Companies must plan their
operating expenditures based on revenue forecasts, and a revenue shortfall below
such forecast in any quarter would likely adversely affect the Target Companies'
operating results for that quarter. While the effects of seasonality on the
Target Companies' business have historically been obscured by their growing net
revenues, the Target Companies' business tends to be slower in the first quarter
of their fiscal year due to client marketing programs which are typically slower
in the early part of the year.
BUSINESS OF THE TARGET COMPANIES
GENERAL
The Target Companies create, manage and conduct large scale telephone based
marketing programs for large corporate clients throughout the United States and
Canada. Through a network of more than 1,400 telephone service representatives
("TSRs") and 550 licensed insurance agents, the Target Companies provide script
development, telephone-based direct sales, database analysis and management,
consultation and program design as well as customer lead acquisition services to
clients, primarily in the insurance and financial services industries. The
Target Companies make extensive use of technology, including predictive dialers
and digital switches to initiate outbound calls, electronically transmit
applicable program scripts and customer information to their TSR workstations
and record and report the customer and transaction data captured during each
call. The Target Companies currently operate over 900 workstations in 17 call
centers located primarily throughout the Midwestern United States and Canada.
INDUSTRY OVERVIEW
The telephone based marketing industry is highly fragmented and includes
both captive and independent companies. In 1994, industry sources estimated that
$77 billion was spent on telephone based direct marketing approximately twice
the amount spent a decade earlier. This significant industry growth has prompted
the need for technologically advanced high volume call centers dedicated to
providing telephone-based marketing services for clients on an outsourced basis.
In addition, many large companies are continuing to focus on their core
competencies and outsourcing non-core functions. The advantages of telephone
based marketing, which include high response rates, low cost per transaction,
direct interaction with customers and the ability to immediately respond to
customer inquiries, make it an attractive alternative to other forms of direct
marketing.
GROWTH STRATEGY
In light of increasing direct marketing expenditures by large corporations,
greater emphasis on telemarketing programs and the trend toward outsourcing of
telemarketing activities, the Target Companies believe there are significant
opportunities to expand their business. The Target Companies' growth strategy
includes the following components:
INCREASE REVENUES FROM EXISTING CLIENTS. The Target Companies believe
there is a significant opportunity to increase revenues from existing
clients. Specifically, the Target Companies are targeting opportunities to
capture an increasing share of their clients' direct sales activities
39
<PAGE>
and to cross-sell their other telemarketing services. For example, the
Target Companies recently worked closely with Allstate Insurance to create a
lead acquisition program for Allstate's insurance agents. Prior to this
program, the Target Companies provided strictly insurance sales calls for
Allstate.
OBTAIN NEW CLIENTS WITHIN EXISTING INDUSTRY SPECIALIZATIONS. The
insurance and financial services industries include many large corporations
which rely on telemarketing for a substantial portion of their direct sales
needs. The Target Companies believe there is significant opportunity to grow
by targeting new clients in these industries that are seeking to outsource
their existing or new telemarketing programs. The Target Companies believe
they have a competitive advantage in competing for these new clients because
of their expertise and reputation for quality service with clients in these
industries. For example, the Target Companies currently have approximately
550 licensed insurance agents in the United States and Canada, more than any
of their direct competitors.
ADD NEW INDUSTRY SPECIALIZATIONS. The Target Companies are evaluating
several industries which are expected to substantially increase expenditures
on direct sales and customer service telemarketing applications, including
the telecommunications and natural gas industries, both of which are, or may
become, even more competitive due to ongoing or potential deregulation
efforts.
CREATE NEW VALUE ADDED TELEMARKETING APPLICATIONS. The Target Companies
regularly seek to create new value-added services which have not
historically been offered by independent telemarketers. Creating additional
value-added services should both increase the average account size and, more
importantly, strengthen the long-term relationships between the Target
Companies and their clients.
EXPLORE STRATEGIC ACQUISITIONS. The Target Companies intend to take
advantage of the fragmented nature of the telemarketing industry by making
strategic acquisitions. Through selected strategic acquisitions, the Target
Companies seek to serve new industries or complement their client base in
one of their current industry specializations. The Target Companies will
evaluate acquisitions using numerous criteria including management strength,
service quality, industry focus, diversification of client base and
operating characteristics.
BUSINESS STRATEGY
The following are key components of the Target Companies' business strategy:
FOCUS ON LARGE CORPORATE CLIENTS: The Target Companies seek clients
with large customer bases which can generate revenues because of their
ongoing telemarketing service needs. Establishing such relationships creates
additional business opportunities and can help improve the predictability of
facility and labor requirements, both of which enhance profitability and
service levels. The Target Companies believe revenues from major clients is
an indication of their ability to provide quality client service on a
long-term basis. In 1993, 1994 and 1995 the same 10 customers, including JC
Penney Life Insurance Co., Allstate Insurance, Sears and Union Fidelity Life
Insurance Co., have accounted for 88.0%, 89.3% and 77.2%, respectively, of
the Target Companies' revenues. During that time, no significant customer
losses have occurred.
COMMITMENT OF QUALITY SERVICE: The Target Companies stress quality
service throughout their organization and believe their philosophy is
central to their ability to add and retain desirable clients. Employees at
all levels have compensation incentives tied to quality measures. Further,
during 1995, the Target Companies invested heavily in infrastructure
enhancements designed to bolster their employee selection, training and
management process and strengthen their information systems department. Such
investments have positioned the Target Companies for growth and, in
combination with existing call and data management technology, have
increased their ability to provide quality client service.
40
<PAGE>
SOPHISTICATED AND FLEXIBLE CALL AND DATA MANAGEMENT TECHNOLOGY: The
Target Companies make extensive use of call and data management technology,
including predictive dialers and digital switches to provide superior client
service and perform large scale telemarketing programs.
OPERATIONS OVERVIEW
The Target Companies provide outbound telemarketing for clients primarily in
the insurance and financial service industries.
CALLING: Outbound telemarketing refers to direct sales, research and
service activities that commence when the Target Companies place calls to
parties targeted by their client to offer products or services. In most
instances, the Target Companies receive customer data electronically from
their clients. These files have been selected to match the demographic
profile of the targeted customer for the product or service being offered
and contain each targeted customer's name, address, phone number and other
relevant data. The Target Companies' data management systems sort the
records and electronically assign them to one of their call centers.
Telephone calls are controlled by computerized call management systems that
utilize predictive dialers to automatically dial the numbers in the files,
determine if a live connection is made and present connected calls to a TSR
who has been trained for the client's program. When a call is presented, the
customer's name, other information about the customer and the program script
simultaneously appear on the TSR's computer screen. The TSR then uses the
script to solicit an order for the product or service or to request
information that will be added to the client's database.
QUALITY ASSURANCE: During the course of each telemarketing program, the
Target Companies carefully monitor their representatives to insure strict
compliance with the script and to maintain quality and efficiency. Sales
confirmations are recorded with the customer's consent to insure accuracy
and provide a record in the event a customer later questions or challenges
the accuracy of a transaction. The Target Companies also have extensive call
monitoring programs to facilitate TSR evaluation and provide clients the
ability to obtain program feedback on a real time basis. The Target
Companies' information systems enable them to provide their clients with
hourly reports, if necessary, on the status of an outgoing telemarketing
campaign and can transmit summary data and captured information
electronically to clients, if desired. Access to this data enables the
Target Companies' clients to modify or enhance an ongoing program to improve
their effectiveness.
SALES: Historically, the Target Companies have acquired new clients and
marketed their services primarily through personal contacts, referrals from
existing customers and by attending trade shows, advertising in industry
publications and responding to requests for proposals. Although the Target
Companies will continue to utilize these sources to identify potential
clients, the Target Companies are developing a more targeted approach to
identifying new clients and the potential additional needs of existing
clients. The Target Companies believe their services compliment those of
HA-LO and believe the opportunities to cross-sell their services to HA-LO's
current customers are significant.
PERSONNEL AND TRAINING: The Target Companies believe a key component of
their success is the quality of their employees. Therefore, the Target
Companies are continually refining their approach to hiring, training and
managing qualified personnel. The Target Companies' call centers are
strategically located in an effort to attract a high quality, dedicated work
force and lower their operating costs. The Target Companies believe that
their relatively high proportion of full-time employees provides a more
stable work force and reduces their recruiting and training expenditures. At
each call center, the Target Companies utilize a management structure
designed to insure that their telephone representatives are properly
supervised, managed and developed.
41
<PAGE>
The Target Companies currently employ over 1,400 TSRs and 550 insurance
agents. None of the Target Companies' employees are subject to a collective
bargaining agreement. The Target Companies consider their relations with
their employees to be good.
COMPETITION
The industry in which the Target Companies operate is very competitive and
highly fragmented. The Target Companies' competitors range in size from very
small firms offering specialized applications or short term projects, to large
independent firms and the in-house operations of many clients and potential
clients. A number of competitors have capabilities and resources equal to, or
greater than, the Target Companies'. The market includes non-captive
telemarketing and customer service operations such as APAC Teleservices, MATRIXX
Marketing, Inc., SITEL Corporation, ITI Marketing Services, Inc., West
Telemarketing, and TeleService Resources, as well as in-house telemarketing and
customer service organizations throughout the United States. In-house
telemarketing and customer services organizations comprise by far the largest
segment of the industry. In addition, some of the Target Companies' services
also compete with other forms of direct marketing such as mail, television and
radio. The Target Companies believe the principle competitive factors in the
telephone-based marketing industry are reputation for quality, sales and
marketing results, price, technological expertise, and the ability to promptly
provide clients with customized solutions to their sales and marketing needs.
GOVERNMENT REGULATION
United States Government Regulation. Telephone sales practices are regulated
at both the federal and state level. The Federal Communications Commission's
(the "FCC") rules under the Federal Telephone Consumer Protection Act of 1991
(the "TCPA") prohibit the initiation of telephone solicitations to residential
telephone subscribers before 8:00 A.M. or after 9:00 P.M., local time, and
prohibit the use of automated telephone dialing equipment to call certain
telephone numbers. In addition, the FCC rules require the maintenance of a list
of residential consumers who have stated that they do not wish to receive
telephone solicitations and avoidance of making calls to such consumers'
telephone numbers.
The Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of
1996 (the "TCFAPA") broadly authorizes the FTC to issue regulations prohibiting
misrepresentation in telephone sales. In August 1995, the FTC issued rules under
the TCFAPA which generally prohibit abusive telephone solicitation practices and
impose disclosure and record keeping requirements.
The Target Companies believe that they are in compliance with the TCPA and
the FCC rules thereunder and with the FTC rules under the TCFAPA. The Target
Companies train their telephone service representatives to comply with the FTC
and FCC rules and programs their call management system to avoid telephone calls
during restricted hours or to individuals maintained on the Target Companies'
"do-not-call" list.
A number of states have enacted or are considering legislation to regulate
telephone solicitations. At least one state also prohibits telemarketers from
requiring credit card payment and several other states require certain
telemarketers to obtain licenses and post bonds. From time to time bills are
introduced in Congress which, if enacted, would regulate the use of credit
information. The Target Companies cannot predict whether this legislation will
be enacted and what effect, if any, it would have on the Target Companies or
their industry.
CANADIAN GOVERNMENT REGULATION. Telemarketing in Canada is governed by both
federal and provincial legislation. At the federal level, telemarketing
practices may be dealt with under the fraud provisions of the Criminal Code
(Canada) or under the misleading advertising provisions of the Competition Act.
A telemarketer can be found guilty of fraud under the Criminal Code if, by
deceit, falsehood or other fraudulent means, the telemarketer defrauds the
public or any person of any property, money or valuable security. A telemarketer
found guilty of fraud is subject to fines and/or imprisonment. Pursuant to the
misleading advertising provisions of the Competition Act, no person,
42
<PAGE>
for the purposes of promoting, directly or indirectly, the supply or use of a
product or any business interest, by any means whatever, may make a
representation to the public that is false or misleading in a material respect.
Telemarketers convicted under the misleading advertising provisions of the
Competition Act are subject to fines and/or imprisonment. In addition, pursuant
to the civil remedy provisions of the Competition Act, those who have suffered
loss or damage as a result of such misleading advertising may sue for and
recover from the person who engaged in the conduct an amount equal to such loss
or damages, together with an additional amount not exceeding the full cost of
any investigation in connection with the matter and of proceedings under the
civil remedy provisions.
In June 1995, the Director under the Competition Act circulated for public
comment a Discussion Paper on possible amendments to the Competition Act which,
among other things, address telemarketing practices directly. The Director then
established a Consultative Panel to review and provide advice in respect of the
comments from the public and the proposals in the Discussion Paper. The report
of the Consultative Panel (the "Report") was issued on March 6, 1996 and notes
the need for federal legislation in order to deal effectively with deceptive
telemarketing practices due to their multi-jurisdictional nature. For purposes
of discussion, the Report includes, among other things, proposals prepared by
the Director to amend the Competition Act to (i) establish deceptive
telemarketing as a specific strict liability criminal offense; (ii) allow
proceedings in respect of deceptive telemarketing by way of summary conviction
in less serious matters, or on indictment in more serious matters; and (iii)
increase the maximum fine available upon summary conviction from Cdn. $25,000 to
Cdn. $200,000. The Report is expected to result in draft legislation proposing
amendments to the Competition Act being introduced to the House of Commons in
the fall of 1996.
Provinces and Territories in Canada have legislation dealing with consumer
protection and/or business practices. Some of such legislation also governs
telemarketing practices. In certain instances, telephone solicitations are
excluded from the application of the legislation; however, in other instances,
the legislation requires registration and bonds to be posted by telemarketers
and cooling off periods are prescribed. Such legislation may provide for both
private remedies, including rescission, damages, and injunctive or declaratory
relief, and public remedies, including cease and desist orders and criminal
penalties.
Aspects of telemarketing in Canada are also regulated by the Canadian
Radio-television and Telecommunications Commission (the "Commission"), which has
authority under the Telecommunications Act, to prohibit or regulate certain uses
of telecommunications facilities for the provision of unsolicited
telecommunications. The Commission has exercised its authority in relation to
the use of automatic dialing-announcing devices ("ADADs"). Currently, the use of
ADADs to make unsolicited calls for the purpose of solicitation (defined as the
selling or promoting of a product or a service, or the soliciting of money,
whether directly or indirectly) is prohibited (charities excluded). For
unsolicited calls for purposes other than solicitation (e.g., market research),
new tariff provisions are to be adopted which, among other things, limit calling
hours during which telephone solicitation can occur, require that each permitted
unsolicited ADAD call begin and, in certain cases, repeat a message identifying
the person on behalf of whom the call is being made, and, subject to limited
exceptions, display the calling party's originating calling number. While there
is a prohibition on sequential dialing, random dialing for permitted unsolicited
ADAD calls can occur if the parties ensure that no calls are made to emergency
lines and healthcare facilities. Callers using ADADs must make all reasonable
efforts to ensure that their dialing equipment disconnects within 10 seconds of
the called party hanging up their telephone. Additional restrictions on the use
of live voice operators or facsimile equipment to make unsolicited telephone
calls for the purpose of solicitation exist for territories served by Bell
Canada (i.e., Ontario and Quebec).
OTHER REGULATION. The industries served by the Target Companies are also
subject to varying degrees of government regulation. The Target Companies have
never been held responsible for regulatory noncompliance by a client. The Target
Companies' employees who complete the sale of
43
<PAGE>
insurance products are required to be licensed by various state and provincial
insurance commissions and participate in regular continuing education programs,
access to which are currently provided in-house by the Target Companies. See "--
Legal Proceedings."
FACILITIES
The Target Companies' corporate headquarters are located in Des Plaines,
Illinois in leased facilities consisting of approximately 11,000 square feet of
office space. The term of this lease expires in November, 1996. In addition, a
portion of the office space is being acquired by the City of Des Plaines through
eminent domain proceedings. The Target Companies are currently in the process of
selecting an alternative site for their corporate office and believe suitable
space at commercially reasonable terms will be found.
The Target Companies also lease the facilities listed below:
<TABLE>
<CAPTION>
CURRENT NO.
LOCATION OPENED OF WORKSTATIONS
- ---------------------------------------------------- ----------- -----------------
<S> <C> <C>
Des Plaines, IL 1988 16
Beloit, WI 1989 48
Hollywood, FL 1989 64
Oak Lawn, IL 1991 47
Fairborn, OH 1991 58
Montreal, Quebec 1992 100
Toronto, Ontario 1992 116
Ottawa, IL 1993 80
Houston, TX 1994 70
Loves Park, IL 1995 32
Springfield, OH 1995 48
Worth, IL 1995 16
Hollywood, FL (2) 1995 16
Welland, Ontario 1995 32
Winnipeg, Manitoba 1995 80
Chicago, IL 1996 62
Morris, IL 1996 32
</TABLE>
The leases of these facilities generally expire between 1996 and 2000, and
most contain renewal options. The Target Companies believe their current
facilities are adequate for their current operations, but additional facilities
will be required to support growth. The Target Companies believe that suitable
or alternative spaces will be available as needed at commercially reasonable
terms. In addition, the Target Companies intend to open a call station
containing 48 workstations in Middletown, Ohio prior to September 30, 1996.
LEGAL PROCEEDINGS
On May 21, 1996, governmental authorities in the Province of British
Columbia issued a cease and desist order with respect to Marusa's activities in
such Province requiring each employee of Marusa to cease conducting
telemarketing activities on behalf of Marusa until such employees obtain the
required Province of British Columbia licenses. On May 24, 1996, Marusa appealed
such cease and desist order and applied for and obtained a stay of the British
Columbia cease and desist order, which stay is effective until the court renders
a decision on the Target Companies' appeal. The hearing relating to the Target
Companies' appeal is scheduled for October 1996. The failure of Marusa to
obtain, and maintain in effect, all required licenses to conduct telemarketing
activities with respect to insurance products would have a material adverse
effect on the results of operations of the Target Companies taken as a whole.
See "Risk Factors -- Licensing Requirements."
44
<PAGE>
From time to time, the Target Companies are involved in litigation
incidental to their business. In the opinion of the Target Companies, no
litigation to which the Target Companies are currently a party is likely to have
a materially adverse effect on the Target Companies' results of operations or
financial condition.
45
<PAGE>
MANAGEMENT OF THE TARGET COMPANIES
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of each Target Company who will serve
as a director or executive officer of HA-LO are set forth below. All Target
Company directors hold office until the annual meeting of such Target Company
following their election or until their successors are duly elected and
qualified. Officers of a Target Company are appointed by such Target Company's
board of directors and serve at the discretion thereof.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- ------------------------------------------------------------------------------
<S> <C> <C>
69 President, Secretary, Treasurer and a Director of Market USA; President and
Seymour N. Okner Secretary of Marusa; and President and Secretary of Marusa Financial
44 Vice President and Assistant Secretary of Market USA; Vice President and
Assistant Secretary of Marusa; and Vice President and Assistant Secretary of
Samuel P. Okner Marusa Financial
42 Vice President Operations of Market USA; Vice President -- Operations of
Patricia E. Richert Marusa
</TABLE>
Seymour N. Okner has served as (i) the President, Secretary, Treasurer and a
Director of Market USA since Market USA's inception in November 1988; (ii) the
President and Secretary of Marusa since April 1992; and (iii) the President and
Secretary of Marusa Financial since April 1993. From November 1985 until October
1987, Mr. Okner served as the President of Montgomery Ward Life Insurance
Company, Montgomery Ward Insurance Company and Forum Insurance Company, all
affiliates of Montgomery Ward. From September 1986 until October 1987, Mr. Okner
served as the President of Signature Life Insurance Company of America, also an
affiliate of Montgomery Ward. In 1985, Mr. Okner was named "Insurance Direct
Marketer of the Year" by and received the "Telemarketing Pioneer Award" from the
Direct Marketing Association. Mr. Okner is the father of Samuel P. Okner. At the
Effective Time, Mr. Okner will be appointed to the Board of Directors of HA-LO.
See "The Merger Transactions -- Interests of Certain Persons in the Merger
Transactions."
Samuel P. Okner has served as (i) the Vice President and Assistant Secretary
of Market USA since November 1991; (ii) the Vice President and Assistant
Secretary of Marusa since April 1992; and (iii) the Vice President and Assistant
Secretary of Marusa Financial since April 1993. Mr. Okner is a founding board
member and director of the Canadian Telemarketing Association and a
representative on the Chicago Direct Marketing Association's telemarketing
council. Mr. Okner is the son of Seymour N. Okner.
Patricia E. Richert has served as (i) the Vice President -- Operations of
Market USA since November 1988 and (ii) the Vice President -- Operations of
Marusa since April 1996. From October 1981 until November 1987, Ms. Richert
served as the Director of Telemarketing of Signature Life Insurance Company of
America, an affiliate of Montgomery Ward.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Target Companies in 1995 by each of
the directors and executive officers of the Target Companies who will serve as a
director or executive officer of HA-LO. The Company does not have a pension plan
or a long-term incentive plan, has not issued any restricted stock awards and
did not grant any stock options during its most recent fiscal year.
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1995 ANNUAL COMPENSATION
-------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- -------------------------------------------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Seymour N. Okner
President, Secretary, Treasurer and a Director of
Market USA; President and Secretary of Marusa; and
President and Secretary of Marusa Financial............ $ 84,000 $ 1,000,000 $ 0
Samuel N. Okner
Vice President and Assistant Secretary of Market USA;
Vice President and Assistant Secretary of Marusa; and
Vice President and Assistant Secretary of Marusa
Financial.............................................. $ 200,000 $ 188,300 $ 0
Patricia E. Richert
Vice President -- Operations of Market USA; Vice
President -- Operations of Marusa...................... $ 100,000 $ 81,250 $ 0
</TABLE>
EMPLOYMENT AGREEMENTS
At the Effective Time, each of Seymour N. Okner and Samuel P. Okner will
enter into an Employment Agreement with HA-LO, and an Agreement and Covenant
Against Unfair Competition and a General Release of Claims for the benefit of,
among other parties, HA-LO and its subsidiaries and each of the Target
Companies. In addition, at the Effective Time Patricia E. Richert will enter
into an Employment Agreement with HA-LO. See "The Merger Transactions --
Interests of Certain Persons in the Merger Transactions."
47
<PAGE>
CERTAIN TRANSACTIONS RELATING TO THE TARGET COMPANIES
Seymour N. Okner and Samuel P. Okner own a shopping center in Beloit,
Wisconsin known as Northgate Plaza. Market USA is a tenant of such shopping
center under a Lease dated March 1, 1990, as amended. Market USA paid aggregate
triple-net lease payments to Messrs. Okner of $52,000 in 1995.
Pursuant to an Agreement dated November 9, 1995 memorializing an oral
understanding reached in October 1993 (the "Option Agreement"), among Seymour N.
Okner, Samuel P. Okner and Merchant Partners, in consideration of $1,000 paid by
Merchant Partners, Messrs. Okner together granted Merchant Partners the right
and option to purchase, at any time prior to November 10, 2000, up to 25% of the
number of outstanding shares of each class of capital stock of each of Market
USA and Marusa. The actual percentage of the outstanding capital stock of each
of Market USA and Marusa which may be acquired by Merchant Partners pursuant to
the Option Agreement is reduced by 0.25% for each $1,000,000 by which the
combined enterprise value of Market USA and Marusa exceeds $20.0 million. As a
result of the execution of the Plan of Merger and Amalgamation, Merchant
Partners has the right to acquire 20% of the outstanding capital stock of each
of Market USA and Marusa. See "Principal Shareholders of the Target Companies."
The exercise price payable by Merchant Partners pursuant to the Option Agreement
is $4.0 million. Merchant Partners has indicated to Messrs. Okner that it
intends to exercise its rights under the Option Agreement in full, and deliver
the full exercise price to Messrs. Okner, immediately prior to the Effective
Time. As a condition to HA-LO's obligations to consummate the Merger
Transactions, Merchant Partners, as an owner of Market USA Common Stock and
Marusa Common Stock, will be required to execute and deliver to HA-LO an
Affiliate Agreement and a Registration Rights Agreement. See "The Merger
Transactions -- Resale Restrictions."
The shareholders of each of Marusa and Marusa Financial have entered into a
unanimous shareholder agreement pursuant to Section 146(2) of the CBCA pursuant
to which (i) all of the powers of the directors of each such corporation to
manage or supervise the management of the business and affairs of each such
corporation is restricted to the fullest extent permitted by the CBCA and (ii)
the shareholders of each such corporation have retained for themselves all of
the rights, powers, duties and liabilities to manage the business and affairs of
each such corporation.
Market USA made distributions to its shareholders of $666,000, $4.7 million
and $1.3 million in fiscal 1994 and 1995 and for the first six months of 1996,
respectively.
Market USA and its shareholders have elected to be taxable as an S
corporation under the Code. Consequently, Market USA is not generally subject to
federal and certain state income taxes; rather, its shareholders are required to
include in their separate income tax returns their pro rata portion of Market
USA's taxable income. As a result, Market USA intends to make a distribution of
approximately $2,166,000 to its shareholders immediately prior to the Effective
Time. Such distribution will be equal to Market USA's estimate of the amount of
federal and state income taxes which will be imposed upon its shareholders with
respect to Market USA's activities for such period.
48
<PAGE>
PRINCIPAL SHAREHOLDERS OF THE TARGET COMPANIES
The following tables set forth certain information regarding the beneficial
ownership of the common stock of each of the Target Companies as of the date of
this Proxy Statement/Prospectus (i) by each person who is known to the Target
Companies to beneficially own more than 5% of any class of a Target Company's
outstanding common stock; (ii) each director of the Target Companies; (iii) each
executive officer of the Target Company; and (iv) by all of a Target Company's
directors and officers as a group.
PRINCIPAL SHAREHOLDERS OF MARKET USA
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME SHARES (1) OWNERSHIP
- -------------------------------------------------------------------------- --------------- -----------
<S> <C> <C>
Seymour N. Okner ......................................................... 23 23.0%
701 Lee Street
Des Plaines, Illinois 60016
Ellyn Robbins Family Trust (2) ........................................... 17 17.0%
701 Lee Street
Des Plaines, Illinois 60016
Joel C. Okner Family Trust (3) ........................................... 19 19.0%
701 Lee Street
Des Plaines, Illinois 60016
Samuel P. Okner Family Trust (4) ......................................... 21 21.0%
701 Lee Street
Des Plaines, Illinois 60016
Merchant Partners, Limited Partnership (5) ............................... 20 20.0%
9690 Deereco Road
Timonium, Maryland 21093
Samuel P. Okner........................................................... -- --
Patricia E. Richert....................................................... -- --
All Directors and Executive Officers as a group (3 persons) (6)........... 80 80.0%
</TABLE>
PRINCIPAL SHAREHOLDERS OF MARUSA
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME SHARES (1) OWNERSHIP
- -------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Seymour N. Okner ......................................................... 0.80 40.0%
701 Lee Street
Des Plaines, Illinois 60016
Samuel P. Okner .......................................................... 0.80 40.0%
701 Lee Street
Des Plaines, Illinois 60016
Merchant Partners, Limited Partnership (5) ............................... 0.40 20.0%
9690 Deereco Road
Timonium, Maryland 21093
Stephane Deland........................................................... -- --
Patricia E. Richert....................................................... -- --
All Directors and Executive Officers as a group (4 persons) (6)........... 1.60 80.0%
</TABLE>
49
<PAGE>
PRINCIPAL SHAREHOLDERS OF MARUSA FINANCIAL
<TABLE>
<CAPTION>
NUMBER OF CLASS NUMBER OF CLASS
A PERCENTAGE B PERCENTAGE OF
NAME COMMON STOCK OF CLASS COMMON STOCK CLASS
- --------------------------------------------------------- --------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Seymour N. Okner ........................................ 1 50% 49 49%
701 Lee Street
Des Plaines, Illinois 60016
Samuel P. Okner ......................................... 1 50% -- --
701 Lee Street
Des Plaines, Illinois 60016
Ernest E. Gershon (7) ................................... -- -- 51 51%
360 Bloor Street East
Suite 1601
Toronto, Ontario
Canada M4W 3M3
Stephane Deland.......................................... -- -- -- --
All Directors and Executive Officers as a group (3
persons) (6)............................................ 2 100% 49 49%
</TABLE>
PRINCIPAL SHAREHOLDERS OF NEROK
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME SHARES OWNERSHIP
- -------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Anne Okner ............................................................... 50 50.0%
701 Lee Street
Des Plaines, Illinois 60016
Debra Okner .............................................................. 50 50.0%
701 Lee Street
Des Plaines, Illinois 60016
Stephane Deland........................................................... -- --
All Directors and Executive Officers as a group (3 persons) (6)........... 100 100.0%
</TABLE>
- ------------------------------
* Less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Target Company Common Stock which
such person has the right to acquire within 60 days after the date of this
Proxy Statement/ Prospectus.
(2) The Ellyn Robbins Family Trust is a trust primarily for the benefit of Ellyn
Robbins with Ellyn Robbins and Anne Okner as Co-Trustees.
(3) The Joel C. Okner Family Trust is a trust primarily for the benefit of Joel
C. Okner with Joel C. Okner and Anne Okner as Co-Trustees.
(4) The Samuel P. Okner Family Trust is a trust primarily for the benefit of
Samuel P. Okner with Samuel P. Okner and Anne Okner as Co-Trustees.
(5) Represents shares subject to the Option Agreement. See "Certain Transactions
Relating to the Target Companies." Merchant Partners, Limited Partnership is
a Delaware limited partnership, the general partner of which is Merchant
Advisors, Limited Partnership, a Delaware limited partnership. The general
partner of Merchant Advisors, Limited Partnership is Merchant Development
Corp., a Delaware corporation.
(6) Includes shares of Target Company Common Stock owned by Seymour N. Okner,
Samuel P. Okner, Anne Okner and Debra Okner.
(7) Pursuant to a Memorandum of Agreement dated April 19, 1993 between Ernest E.
Gershon, Seymour N. Okner and Marusa Financial, the 51 shares of Class B
Common Stock of Marusa Financial owned by Ernest E. Gershon are subject to a
voting trust which grants to Seymour N. Okner the exclusive right, power and
discretion pertaining to such shares, including the right to vote such
shares.
50
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF HA-LO COMMON STOCK
AND TARGET COMPANY COMMON STOCK
HA-LO is an Illinois corporation and is governed by the IBCA, its Restated
Articles of Incorporation (the "HA-LO Articles") and its Amended and Restated
Bylaws (the "HA-LO Bylaws"). Market USA is also an Illinois corporation and is
governed by the IBCA, its Articles of Incorporation (the "Market USA Articles")
and its Bylaws (the "Market USA Bylaws"). Marusa is a Canadian federal
corporation and is governed by the CBCA, its Articles of Incorporation (the
"Marusa Articles") and its Bylaws (the "Marusa Bylaws").
Upon consummation of the Merger Transactions, the shareholders of Market USA
and Marusa will become shareholders of HA-LO. The rights of HA-LO shareholders
and Market USA shareholders are substantially similar because there are few
differences between the HA-LO Articles and HA-LO Bylaws and the Market USA
Articles and Market USA Bylaws. The rights of HA-LO shareholders differ from the
rights of Marusa shareholders because of differences between the IBCA and the
CBCA and because the HA-LO Articles and HA-LO Bylaws differ in certain respects
from the Marusa Articles and Marusa Bylaws. The following is a brief summary of
the principal similarities and differences in the rights of shareholders of
HA-LO, Market USA and Marusa.
COMMON STOCK
Pursuant to the HA-LO Articles, HA-LO is authorized to issue 25,000,000
shares of HA-LO Common Stock. As of July 31, 1996, 10,509,055 shares of HA-LO
Common Stock were issued and outstanding. Shares of HA-LO Common Stock are
quoted and traded on The Nasdaq National Market under the symbol "HALO."
Pursuant to the Market USA Articles, Market USA is authorized to issue 1,000
shares of Market USA Common Stock. As of the date of this Proxy
Statement/Prospectus, Market USA had 100 shares of Market USA Common Stock
issued and outstanding. Market USA Common Stock is not traded on any established
public trading market or the over-the-counter market and trading is nonexistent.
Pursuant to the Marusa Articles, Marusa is authorized to issue an unlimited
number of shares of Marusa Common Stock and an unlimited number of shares of
Class B common stock, Class A preferred stock, Class B preferred stock, Class C
preferred stock and Class D preferred stock. As of the date of this Proxy
Statement/Prospectus, Marusa had two shares of Marusa Common Stock issued and
outstanding. Marusa Common Stock is not traded on any established public trading
market or the over-the-counter market and trading is non-existent.
DIVIDENDS
Generally, shareholders of HA-LO, Market USA and Marusa are entitled to
receive dividends when and as declared by their respective Boards of Directors,
out of funds legally available therefor.
VOTING RIGHTS
Holders of HA-LO Common Stock, Market USA Common Stock and Marusa Common
Stock are entitled to one vote for each share of common stock held of record on
all matters submitted to a vote of shareholders, except with respect to the
election of directors, each holder of Market USA Common Stock has cumulative
voting rights.
INDEMNIFICATION
Section 8.75 of the IBCA expressly grants to Illinois corporations, such as
HA-LO and Market USA, the power to indemnify directors, officers, employees and
agents against certain liabilities and expenses incurred in the performance of
their duties. Indemnification may not be made, however with respect to liability
incurred in connection with actions involving gross negligence, willful
misconduct and criminal acts.
With respect to all proceedings other than shareholders derivative actions,
Section 8.75 of the IBCA permits an Illinois corporation to indemnify any of its
directors, officers, employees or agents
51
<PAGE>
only if such person acted in good faith and in a manner which such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, in the case of a criminal proceeding, had no reason to believe
his or her conduct was unlawful. In the case of derivative actions, an Illinois
corporation may indemnify any party if such person acted in good faith and in a
manner he or she believes to be in the best interests of the corporation.
Furthermore, in derivative actions, no indemnification is permitted with respect
to any matter in which the person to be indemnified has been held liable to the
corporation unless such indemnification is approved by the court. To the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits in defense of any proceeding for which indemnification is
permitted by Section 8.75 of the IBCA, a corporation is obligated to indemnify
such person against expenses actually and reasonably incurred by such person in
connection with the proceeding.
The HA-LO Articles require HA-LO to indemnify any current or former director
or officer to the fullest extent permitted by IBCA. HA-LO maintains officers'
and directors' liability insurance which insures against liabilities that
officers and directors of HA-LO may incur in such capacities. HA-LO has also
entered into indemnity agreements with each of its directors and officers
pursuant to which it has agreed to indemnify such persons against any and all
losses and expenses to the fullest extent permitted under the HA-LO Articles and
HA-LO Bylaws and the IBCA and to advance to such persons any and all expenses
arising in connection therewith.
The Market USA Bylaws provide for indemnification consistent with Section
8.75 of the IBCA. The Market USA Bylaws also permit Market USA to purchase and
maintain officers' and directors' liability insurance to insure against
liabilities that officers and directors of Market USA may incur in such
capacities.
Section 124 of the CBCA provides that, except in respect of an action by or
on behalf of the corporation or body corporate to procure a judgment in its
favor, a corporation may indemnify a current or former director or officer of
the corporation, or a person who acts or acted at a corporation's request as a
director or officer of a corporation of which the corporation is or was a
shareholder or creditor, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of being or having been a director or officer
of such corporation, if (a) he acted honestly and in good faith with a view to
the best interests of the corporation, and (b) in the case of a criminal or
administrative action or proceeding that is enforced by a monetary penalty, he
had reasonable grounds for believing that his conduct was lawful. Court approval
is required by the corporation for indemnification of individuals or
corporations in derivative actions, although such persons are entitled to
indemnity from the corporation if the person seeking the indemnity was
substantially successful on the merits in his defense of the action or
proceeding and was in good faith or had reasonable grounds for believing that
his conduct was lawful. Section 124 of the CBCA also provides that a corporation
may purchase and maintain insurance for the benefit of any officer or director
of the corporation against any liability incurred by him in his capacity as a
director or officer of the corporation, except where the liability relates to
his failure to act honestly and in good faith with a view to the best interests
of the corporation, or in his capacity as a director or officer of another body
corporate where he acts or acted in that capacity at the corporation's request,
except where the liability relates to his failure to act honestly and in good
faith with a view to the best interests of the body corporate. Section 124 also
provides that a corporation or an individual may apply to a court for an order
approving an indemnity under this section and the court may make any further
order that it thinks fit.
The Marusa Bylaws provide for indemnification of directors, officers, or
persons acting at the corporation's request as a director or officer of a body
corporate of which the corporation is or was a shareholder or creditor, and his
heirs or legal representatives, in accordance with the provisions of Section 124
of the CBCA. The Marusa Bylaws also provide that no director or officer shall be
liable for the acts, neglects or defaults of any other person including any
director or officer or employee, or for any loss, damage or expense happening to
the corporation through the insufficiency or deficiency of
52
<PAGE>
title to any property acquired by or on behalf of the corporation, or for the
insufficiency or deficiency of any security in or upon which any of the moneys
of the corporation shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency, delictual, quasi-delictual or tortious acts of any
person with whom any of the moneys, securities or other property of the
corporation shall be deposited or for any loss occasioned by an error of
judgment or oversight on his part, or for any other loss, damage or misfortune
whatever which may arise out of the execution of the duties of his office or in
relation thereto, unless the same are occasioned by his own wilful neglect or
default.
PREEMPTIVE RIGHTS
Holders of HA-LO Common Stock, Market USA Common Stock and Marusa Common
Stock do not have any preemptive or preferential rights to subscribe to (i) any
additional shares or (ii) any obligations convertible into stock.
ASSESSMENTS
The outstanding shares of capital stock of HA-LO, Market USA and Marusa are
fully paid and are not subject to assessment.
LIQUIDATION RIGHTS
Holders of capital stock of HA-LO, Market USA and Marusa are entitled to
receive their pro rata portion of any assets distributable to shareholders upon
a liquidation.
QUORUM
Pursuant to the bylaws of each of HA-LO, Market USA and Marusa, a majority
of the outstanding shares of the corporation, represented in person or by proxy,
shall constitute a quorum at any meeting of shareholders; PROVIDED, HOWEVER,
with respect to the HA-LO Bylaws, a quorum shall not consist of less than
one-third of the outstanding shares entitled to vote. If a quorum is present at
any meeting, the affirmative vote of the holders of a majority of the shares
represented at such meeting shall be the act of the shareholders, unless the
vote of a greater number is required by applicable law.
BOARD OF DIRECTORS
Pursuant to the HA-LO Bylaws, the Board of Directors of HA-LO shall consist
of not less than five nor more than eleven and shall be fixed from time to time,
within such minimum and maximum, by the shareholders. At present, the HA-LO
Board of Directors consists of seven directors. It is currently anticipated that
Seymour N. Okner, the principal Target Shareholder, will be nominated and
appointed as of the date following the Effective Time the Board of Directors of
HA-LO. See "The Plan of Merger and Amalgamation -- Governance."
Pursuant to the Market USA Bylaws, the number of directors of Market USA
shall not be less than one nor more than five. At present, the Market USA Board
of Directors consists of one director.
Pursuant to the Marusa Bylaws, the number of directors of Marusa shall not
be less than one nor more than ten. At present, the Marusa Board of Directors
consists of one director.
AMENDMENT OF ARTICLES AND BYLAWS
Pursuant to Article 10 of the IBCA, the HA-LO Articles and Market USA
Articles may be amended by the affirmative vote of the holders of at least
two-thirds of the outstanding shares entitled to vote on such amendment. The
HA-LO Bylaws and Market USA Bylaws may be amended by the affirmative vote of the
holders of a majority of the outstanding shares of the corporation or by the
action of the Board of Directors.
Pursuant to Section 103 of the CBCA, unless the articles, bylaws, or
unanimous shareholder agreement otherwise provide, the directors may, by
resolution, make, amend or repeal any bylaws that regulate the business or
affairs of the corporation. The directors shall submit such bylaw, or an
amendment, or a repeal of a bylaw, to the shareholders at the next meeting of
shareholders, and the shareholders may, by ordinary resolution (i.e., a
resolution passed by a majority of the votes cast by the shareholders who voted
in respect of that resolution) confirm, reject or amend the bylaw, amendment
53
<PAGE>
or repeal. Pursuant to Section 173 of the CBCA, the articles of a corporation
may be amended by special resolution (i.e., a resolution passed by a majority of
not less than two-thirds of the votes cast by the shareholders who voted in
respect of that resolution or signed by all the shareholders entitled to vote on
that resolution).
LEGAL MATTERS
The validity of the issuance of the HA-LO Common Stock being offered hereby
and certain other legal matters relating to the Merger Transactions will be
passed upon for HA-LO by Neal, Gerber & Eisenberg, Chicago, Illinois. The
federal income tax consequences in connection with the U.S. Merger will be
passed upon for HA-LO by Marc S. Roth & Associates, Ltd., Glencoe, Illinois, and
for the Target Companies by Altheimer & Gray, Chicago, Illinois.
EXPERTS
The consolidated financial statements of HA-LO incorporated by reference in
this Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto. Such financial statements have been incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of the Target Companies as of December 31,
1995 and 1994 and for each of the three fiscal years ended December 31, 1995
included in this Proxy Statement/ Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto. Such financial statements have been included herein in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
SHAREHOLDER PROPOSALS
As described in HA-LO's proxy statement relating to its 1996 Annual Meeting
of Shareholders, any proposals that shareholders of HA-LO desire to have
presented at the 1997 Annual Meeting of Shareholders must have been received by
HA-LO at its principal executive offices not less than 60 days nor more than 90
days prior to the scheduled date of the meeting (or, if less than 70 days'
notice or prior public disclosure of the date of the meeting is given, the 10th
day following the earlier of (i) the day such notice was mailed or (ii) the day
such public disclosure was made), for inclusion in HA-LO's 1997 proxy materials.
The 1997 Annual Meeting of Stockholders is scheduled to be held on June 2, 1997.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TARGET COMPANIES AUDITED FINANCIAL STATEMENTS:
Report of Independent Public Accountants........................................... F-2
Combined Balance Sheets as of December 31, 1994 and 1995........................... F-3
Combined Statements of Operations for the three years ended December 31, 1993, 1994
and 1995.......................................................................... F-4
Combined Statements of Shareholders' Equity for the years ended December 31, 1993,
1994 and 1995..................................................................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995.............................................................................. F-6
Notes to Combined Financial Statements............................................. F-7
TARGET COMPANIES UNAUDITED FINANCIAL INFORMATION:
Combined Condensed Balance Sheets at June 30, 1996................................. F-14
Combined Condensed Statements of Operations for the three months ended and six
months ended June 30, 1995 and 1996............................................... F-15
Combined Condensed Statements of Cash Flows for the six months ended June 30, 1995
and 1996.......................................................................... F-16
Notes to Combined Condensed Interim Financial Statements........................... F-17
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Market USA and Shareholders of MARUSA Marketing Inc.:
We have audited the accompanying combined balance sheets of Market USA,
MARUSA Marketing Inc. and subsidiary (the Company) as of December 31, 1994 and
1995, and the related combined statements of operations, shareholders' equity
and cash flows for each of the three years ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Market USA, MARUSA
Marketing Inc. and subsidiary as of December 31, 1994 and 1995, and the combined
results of their operations and their cash flows for each of the three years
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 1996
F-2
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
COMBINED BALANCE SHEETS -- DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 1,898,275 $ 739,149
Accounts receivable --
Trade, less allowance for doubtful accounts of $128,619 and $155,859 in 1994
and 1995, respectively...................................................... 6,123,205 5,955,975
Other receivables.............................................................. 56,858 13,953
Prepaid expenses............................................................... 269,948 431,993
-------------- --------------
Total current assets....................................................... 8,348,286 7,141,070
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION.......................... 2,910,655 3,320,002
OTHER ASSETS..................................................................... 12,158 31,214
-------------- --------------
Total assets............................................................... $ 11,271,099 $ 10,492,286
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............................................. $ 117,400 $ --
Accounts payable................................................................. 17,650 923,294
Accrued expenses--...............................................................
Payroll, bonuses and related items............................................... 1,517,644 760,847
Accrued telephone and other accrued expenses..................................... 1,569,482 2,355,838
Foreign and state income taxes payable........................................... 88,295 571,443
Deferred income taxes............................................................ 137,772 161,780
-------------- --------------
Total current liabilities........................................................ 3,448,243 4,773,202
-------------- --------------
LONG-TERM DEBT, LESS CURRENT MATURITIES.......................................... 78,769 81,336
-------------- --------------
OTHER LONG-TERM LIABILITIES...................................................... 266,000 300,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
SHAREHOLDERS' EQUITY:
Common Shares, $1.00 par value--
Authorized -- 1,795 shares
Issued and outstanding -- 1,795 shares........................................... 1,795 1,795
Cumulative translation adjustment................................................ (254) 22,681
Retained earnings................................................................ 7,476,546 5,313,272
-------------- --------------
Total shareholders' equity....................................................... 7,478,087 5,337,748
-------------- --------------
Total liabilities and shareholders' equity....................................... $ 11,271,099 $ 10,492,286
-------------- --------------
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE COMBINED FINANCIAL
STATEMENTS.
F-3
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES......................................................... $ 24,491,477 $ 35,424,712 $ 38,399,421
-------------- -------------- --------------
OPERATING EXPENSES:
Cost of services............................................... 16,850,808 24,080,572 26,453,720
Selling, general and administrative expenses................... 5,487,200 7,205,357 9,062,416
-------------- -------------- --------------
Total operating expenses..................................... 22,338,008 31,285,929 35,516,136
-------------- -------------- --------------
Income from operations....................................... 2,153,469 4,138,783 2,883,285
-------------- -------------- --------------
OTHER INCOME (EXPENSES):
Interest income................................................ 21,671 57,614 53,825
Interest expense............................................... (9,418) (21,585) (7,766)
Other income................................................... 1,245 -- --
-------------- -------------- --------------
Other income, net............................................ 13,498 36,029 46,059
-------------- -------------- --------------
Income before provision for income taxes..................... 2,166,967 4,174,812 2,929,344
PROVISION FOR INCOME TAXES....................................... 208,739 336,912 508,241
-------------- -------------- --------------
Net income................................................... $ 1,958,228 $ 3,837,900 $ 2,421,103
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE COMBINED FINANCIAL
STATEMENTS.
F-4
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON SHARES
-------------------- CUMULATIVE TOTAL
SHARES RETAINED TRANSLATION SHAREHOLDERS'
ISSUED AMOUNT EARNINGS ADJUSTMENTS EQUITY
--------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992....................... 1,795 $ 1,795 $ 2,698,449 $ 2,900 $ 2,703,144
Net income..................................... -- -- 1,958,228 -- 1,958,228
Translation adjustment......................... -- -- -- 2,298 2,298
Cash dividends paid............................ -- -- (351,902) -- (351,902)
--------- --------- -------------- ----------- --------------
BALANCE, DECEMBER 31, 1993....................... 1,795 1,795 4,304,775 5,198 4,311,768
Net income..................................... -- -- 3,837,900 -- 3,837,900
Translation adjustment......................... -- -- -- (5,452) (5,452)
Cash dividends paid............................ -- -- (666,129) -- (666,129)
--------- --------- -------------- ----------- --------------
BALANCE, DECEMBER 31, 1994....................... 1,795 1,795 7,476,546 (254) 7,478,087
Net income..................................... -- -- 2,421,103 -- 2,421,103
Cash dividends paid............................ -- -- (4,682,154) -- (4,682,154)
Translation adjustment......................... -- -- -- 22,935 22,935
MARUSA Marketing Inc.'s net loss for the three
months ended March 31, 1995................... -- -- 97,777 -- 97,777
--------- --------- -------------- ----------- --------------
BALANCE, DECEMBER 31, 1995....................... 1,795 $ 1,795 $ 5,313,272 $ 22,681 $ 5,337,748
--------- --------- -------------- ----------- --------------
--------- --------- -------------- ----------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE COMBINED FINANCIAL
STATEMENTS.
F-5
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 1,958,228 $ 3,837,900 $ 2,421,103
Adjustments to reconcile net income to net cash provided by
operating activities-
MARUSA Marketing Inc.'s net loss for the three months ended
March 31, 1995............................................... -- -- 97,777
Depreciation and amortization................................. 522,487 743,192 852,760
Deferred taxes................................................ 48,909 80,916 24,008
Change in assets and liabilities-
Accounts receivables........................................ (1,394,435) (2,702,916) 167,230
Other receivables............................................. (24,025) (10,798) 42,905
Prepaid expenses and deposits............................... (60,359) (127,519) (181,290)
Accounts payable............................................ (826,812) -- 32,055
Accrued expenses............................................ 1,780,499 276,071 512,683
Other long-term liabilities................................. 132,000 134,000 34,000
-------------- -------------- --------------
Net cash provided by operating activities................. 2,136,492 2,230,846 4,003,231
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for purchases of property and equipment............... (824,879) (1,396,360) (388,305)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................................... 500,000 550,000 --
Payments on long-term debt...................................... (6,270) (6,967) (4,833)
Payments of notes payable....................................... (100,000) (840,000) (110,000)
Dividends paid.................................................. (351,902) (666,129) (4,682,154)
-------------- -------------- --------------
Net cash provided by (used in) financing activities....... 41,828 (963,096) (4,796,987)
-------------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS...... 2,298 (5,452) 22,935
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. 1,335,739 (134,062) (1,159,126)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................... 676,598 2,032,337 1,898,275
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR............................ $ 2,032,337 $ 1,898,275 $ 739,149
-------------- -------------- --------------
-------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......................... $ 9,418 $ 21,585 $ 7,766
-------------- -------------- --------------
-------------- -------------- --------------
Cash paid during the year for income taxes...................... $ 4,182 $ 24,052 $ 122,672
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE COMBINED FINANCIAL
STATEMENTS.
F-6
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) BUSINESS AND ORGANIZATION
The accompanying combined financial statements include the accounts of
Market USA (an Illinois company) and MARUSA Marketing Inc. (a Canadian company)
(MARUSA) (collectively, the Company). Market USA was founded in 1987 and MARUSA
was founded in 1992 as a provider of telemarketing services.
The Company provides high-volume, telephone-based sales; marketing; and
customer management solutions for corporate clients operating in the financial,
insurance, telecommunications, and business and consumer industries throughout
the United States and Canada. The nature of the industry is such that the
Company is dependent on several large clients for a significant portion of its
annual revenues. The Company had four clients which each accounted for more than
10% of the Company's net revenues for each of the three years ended December 31,
1995. The loss of one or more of these major clients could have a materially
adverse effect on the Company's business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of these combined financial statements.
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(B) PRINCIPLES OF COMBINATION
The accompanying combined financial statements include accounts of
Market USA and MARUSA. Market USA is owned by a single shareholder and
MARUSA is owned by the Market USA shareholder and his son. All
significant intercompany accounts and transactions have been eliminated.
(C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash and cash equivalents.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Leasehold improvements are capitalized and charged to
expense through depreciation. Upon sale or retirement, the related cost
and accumulated depreciation are removed from the accounts, and any gain
or loss is recorded in the combined statement of operations. Depreciation
is
F-7
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
determined using the straight-line method for financial reporting
purposes and accelerated methods for income tax reporting purposes over
the estimated useful lives of the respective assets. Estimated useful
lives are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
ASSET CLASSIFICATION LIFE
- -------------------------------------------------- ----------
<S> <C>
Telecommunications equipment 5 Years
Office furniture and equipment 7 Years
Leasehold improvements 15 Years
Automobiles 5 Years
Building 15 Years
</TABLE>
The Company's depreciation method and useful lives were retroactively
revised in connection with these combined financial statements in order to more
fairly allocate the cost of the assets over the period of actual service.
Previously, the Company had used accelerated tax depreciation methods and lives
for financial reporting.
Repairs and maintenance are charged to expense as incurred. General and
administrative costs associated with the opening of new Company call centers are
expensed as incurred.
(E) REVENUE RECOGNITION
The Company recognizes revenues on programs as services are performed
for its clients, generally based on hours incurred.
(F) CONCENTRATION OF CREDIT RISK
Concentration of credit risk is limited to trade accounts receivable
and is subject to the financial conditions of certain major clients
described in Note 1. The Company does not require collateral or other
security to support clients' receivables. The Company conducts periodic
reviews of its clients' financial conditions and vendor payment practices
to minimize collection risks on trade accounts receivable.
(G) TRAINING COSTS
The Company maintains ongoing training programs for its employees.
The cost of this training is expensed when incurred. In addition, certain
contracts require clients to reimburse the Company for specific training.
These costs are billed to clients and expensed as incurred.
(H) FISCAL YEAR-END
Market USA's fiscal year-end is December 31 and MARUSA's fiscal
year-end is March 31. The accompanying combined statements of operations
for the years ended December 31, 1993 and 1994 include MARUSA's
statements of operations for the 12 months ended March 31, 1994 and 1995,
respectively. The accompanying combined statement of operations for the
year ended December 31, 1995 includes MARUSA's statement of operations
for the 12 months ended December 31, 1995. MARUSA's statement of
operations for the three months ended March 31, 1995, which is included
in the accompanying combined statements of operations for the years ended
December 31, 1994 and 1995, had revenues, expenses and net loss of
$1,794,255, $1,962,836 and $97,777, respectively. The accompanying
combined balance sheets as of December 31, 1994 and 1995 include MARUSA's
balance sheets as of March 31, 1995 and December 31, 1995, respectively.
F-8
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(I) FOREIGN CURRENCY TRANSLATION
All assets and liabilities of MARUSA are translated at year-end
exchange rates while revenues and expenses are translated at the average
exchange rate for the year. The gains or losses, net of applicable
deferred income taxes, resulting from such translation are included in
shareholders' equity.
(J) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The fair market value of the Company's financial instruments (cash
equivalents, accounts receivable, accounts payable and long-term debt)
approximates its financial statement carrying value.
(3) INCOME TAXES
Market USA elected to include its income and expenses with those of its
shareholder for federal and state income tax purposes (an S corporation
election). Accordingly, the accompanying combined statements of operations for
the three years ended December 31, 1995, do not include a provision for federal
income taxes. MARUSA's income is taxed in accordance with the corporate tax
requirements of Canada and the accompanying combined statements of operations
for the three years ended December 31, 1995 include a provision for MARUSA's
income pursuant to Canadian corporate income tax requirements.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, ACCOUNTING FOR INCOME TAXES, for the year ended December 31, 1993, which
required a change from the deferred method to the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of TEMPORARY DIFFERENCES by
applying enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. Under SFAS No. 109, the effect on deferred taxes of a
change in tax rates is recognized as income in the period that includes the
enactment date.
The adoption of SFAS No. 109 did not impact the Company's combined statement
of operations for the year ended December 31, 1993, and there was no cumulative
effect as of the date of adoption.
The provision for income taxes consists of the following at December 31,
1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Current--
State........................................................... $ 6,947 $ 15,047 $ 47,738
Canadian........................................................ 17,559 107,207 400,595
--------- ----------- -----------
24,506 122,254 448,333
--------- ----------- -----------
Deferred--
State........................................................... 15,816 38,490 (19,686)
Canadian........................................................ 36,417 42,168 45,594
--------- ----------- -----------
52,233 80,658 25,908
--------- ----------- -----------
$ 76,739 $ 202,912 $ 474,241
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
F-9
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(3) INCOME TAXES (Continued)
A reconciliation between the provision for income taxes computed at the
statutory rates and the amount reflected in the accompanying combined statements
of operations for the three years ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- -------------- -------------
<S> <C> <C> <C>
Computed expected federal tax provision for the three years ended
December 31, 1995.................................................... $ 759,889 $ 1,441,876 $ 1,065,308
Increase (decrease) in taxes resulting from -- Impact of S corporation
not taxable.......................................................... (722,545) (1,516,875) (794,818)
Incremental tax rate for foreign taxes................................ 20,886 28,612 83,865
State income taxes.................................................... 18,509 53,537 28,052
Other................................................................. -- 195,762 91,834
----------- -------------- -------------
Provision for income taxes............................................ $ 76,739 $ 202,912 $ 474,241
----------- -------------- -------------
----------- -------------- -------------
</TABLE>
Deferred tax (assets) liabilities consist of the following at December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Tax assets--
Accruals.......................................................... $ (50,802) $ (24,403)
Other............................................................. (3,068) (5,352)
----------- -----------
(53,870) (29,755)
----------- -----------
Tax liabilities--
Receivables....................................................... 57,860 50,533
Prepaid Canadian Provincial taxes................................. 100,102 115,629
Other............................................................. 33,680 25,373
----------- -----------
191,642 191,535
----------- -----------
Net deferred tax liability.......................................... $ 137,772 $ 161,780
----------- -----------
----------- -----------
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Leasehold improvements............................................... $ 23,726 $ 24,330
Telecommunications equipment......................................... 3,371,867 4,401,081
Furniture and office equipment....................................... 906,643 1,088,571
Automobiles.......................................................... 46,305 54,477
Building and land.................................................... 175,285 212,912
------------- -------------
Total property and equipment......................................... 4,523,826 5,781,371
Less -- Accumulated depreciation..................................... 1,613,171 2,461,369
------------- -------------
Property and equipment, net.......................................... $ 2,910,655 $ 3,320,002
------------- -------------
------------- -------------
</TABLE>
F-10
<PAGE>
MARKET USA, MARUSA MARKETING INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(5) DEBT
The Company has a term loan with Harris Bank and Trust, personally
guaranteed by a shareholder and expiring in September 1999. At December 31,
1995, $81,336 was outstanding under the term loan.
(6) LEASE COMMITMENTS
The Company leases administrative offices and telephone call centers at
several locations through January 4, 2001. Rent expense for the fiscal years
ended December 31, 1993, 1994 and 1995 was $484,880, $621,785 and $743,827,
respectively. Minimum future rental payments at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
1996................................................................... $ 489,177
1997................................................................... 336,327
1998................................................................... 292,397
1999................................................................... 208,772
2000................................................................... 94,903
----------------
$ 1,421,576
----------------
----------------
</TABLE>
One of the telephone call centers leased by the Company is owned by a
shareholder of the Company. The annualized rent for this lease is $52,272.
Management believes that the rent is equivalent to the amount that would be
charged by an unrelated party.
(7) COMMITMENTS AND CONTINGENCIES
Various lawsuits have arisen in the ordinary course of the Company's
business. The Company believes that its defenses are meritorious and that the
eventual outcome of those lawsuits will not have a material effect on the
Company's financial position or results of operations.
F-11
<PAGE>
TARGET COMPANIES
UNAUDITED COMBINED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------- JUNE 30,
1996
--------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 739,149 $ 2,025,549
Receivables.................................................................... 5,955,975 6,583,540
Prepaid expenses and deposits.................................................. 445,946 591,340
-------------- --------------
Total current assets......................................................... 7,141,070 9,200,429
-------------- --------------
PROPERTY AND EQUIPMENT, NET...................................................... 3,320,002 4,070,252
-------------- --------------
OTHER ASSETS:.................................................................... 31,214 37,312
-------------- --------------
$ 10,492,286 $ 13,307,993
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 923,294 $ 911,584
Notes payable.................................................................. -- 591,700
Accrued expenses............................................................... 3,116,685 4,083,247
Income taxes payable........................................................... 571,443 889,702
Deferred taxes -- current...................................................... 161,780 161,780
-------------- --------------
Total current liabilities...................................................... 4,773,202 6,638,013
-------------- --------------
LONG-TERM DEBT,
less maturities shown above.................................................... 81,336 78,095
-------------- --------------
DEFERRED LIABILITIES:............................................................ 300,000 300,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value.................................................. -- --
Common stock, no par value..................................................... 1,795 1,795
Cumulative translation adjustment.............................................. 22,681 20,641
Retained earnings.............................................................. 5,313,272 6,269,449
-------------- --------------
Total shareholders' equity................................................... 5,337,748 6,291,885
-------------- --------------
$ 10,492,286 $ 13,307,993
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL INFORMATION
F-12
<PAGE>
TARGET COMPANIES
UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1995 1996 1995 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales........................................ $ 9,665,217 $ 13,280,474 $ 17,745,971 $ 24,733,149
Cost of service.................................. 7,223,556 9,877,132 13,172,817 18,349,570
------------- -------------- -------------- --------------
Gross Profit................................... 2,441,661 3,403,342 4,573,154 6,383,579
------------- -------------- -------------- --------------
Selling expenses................................. 233,401 315,279 435,099 548,508
General and administrative expenses.............. 1,470,593 1,901,524 3,012,611 3,469,028
------------- -------------- -------------- --------------
Income from operations......................... 737,667 1,186,539 1,125,444 2,366,043
Other income (expense)........................... 14,442 (5,016) 22,641 13,369
------------- -------------- -------------- --------------
Income before taxes............................ 752,109 1,181,523 1,148,085 2,379,412
Provision for income taxes....................... 49,896 167,333 46,641 167,333
------------- -------------- -------------- --------------
Net income for the period........................ $ 702,213 $ 1,014,190 $ 1,101,444 $ 2,212,079
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL INFORMATION
F-13
<PAGE>
TARGET COMPANIES
UNAUDITED COMBINED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net Income...................................................................... $ 1,101,444 $ 2,212,079
Adjustments to reconcile income to operating cash
Depreciation and amortization................................................. 443,728 601,296
Change in assets and liabilities:
Receivables................................................................... 1,195,200 (613,612)
Prepaid expenses and deposits................................................. (457,300) (165,445)
Accounts payable.............................................................. 64,817 (11,710)
Accrued expenses.............................................................. 549,913 966,562
Foreign and state taxes payable............................................... 25,154 318,259
------------- -------------
Net cash provided by operations............................................. 2,922,956 3,307,429
------------- -------------
Cash flows used for investing activities:
Purchases of property and equipment............................................. (201,773) (1,351,546)
------------- -------------
Cash flows from financing activities:
Proceeds from notes payable..................................................... -- 591,700
Repayments of debt.............................................................. (117,847) (3,241)
Payment of dividends............................................................ (423,549) (1,255,902)
------------- -------------
Net cash used for financing activities........................................ (541,396) (667,443)
------------- -------------
Effect of exchange rate changes on cash and cash equivalents...................... -- (2,040)
------------- -------------
Net increase in cash and equivalents.............................................. 2,179,787 1,286,400
Cash and equivalents, beginning of period......................................... 1,898,275 739,149
------------- -------------
Cash and equivalents, end of period............................................... $ 4,078,062 $ 2,025,549
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL INFORMATION
F-14
<PAGE>
TARGET COMPANIES
NOTES TO UNAUDITED COMBINED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company,
without audit, in accordance with generally accepted accounting principles for
interim information and in conjunction with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring matters) considered necessary for a fair
presentation have been included.
The results of operations for the six-month period ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with the
Company's audited financial statements and footnotes located elsewhere in this
registration statement.
2. SIGNIFICANT CUSTOMERS
For the six months ended June 30, 1996, 70.6% of the Company's revenue was
derived from its top five customers. Specifically, Allstate Insurance accounted
for 22.7% of revenue for the six-month period, Maryland Bank of North America
12.8%, Liberty Life Insurance 12.5%, Sears, Roebuck & Co. 11.4% and JC Penney
Life Insurance Co. 11.2%.
For the six months ended June 30, 1995, 74.9% of the Company's revenue was
derived from its top five customers. Specifically, Allstate Insurance accounted
for 26.8% of revenue for the six-month period, Union Fidelity Life Insurance Co.
19.9%, JC Penney Life Insurance Co. 13.2%, Liberty Life Insurance 8.8% and
Sears, Roebuck & Co. 6.2%.
F-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The IBCA provides for indemnification by HA-LO of its directors and
officers. In addition, HA-LO's Restated Articles of Incorporation require HA-LO
to indemnify any current or former director or officer to the fullest extent
permitted by IBCA. HA-LO maintains officers' and directors' liability insurance
which insures against liabilities that officers and directors of HA-LO may incur
in such capacities. HA-LO has also entered into indemnity agreements with each
of its directors and officers pursuant to which it has agreed to indemnify such
persons against any and all losses and expenses to the fullest extent permitted
under HA-LO's Articles and By-laws and the IBCA and to advance to such persons
any and all expenses arising in connection therewith.
Reference is made to Section 6.10 of the Agreement and Plan of Merger and
Amalgamation (filed as Exhibit 2.1 to this Registration Statement) for
provisions respecting indemnification of officers and directors of the Target
Companies against certain liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger and Amalgamation dated as of June 14, 1996 among HA-LO, HA-LO
Acquisition Corporation, Inc., HA-LO Acquisition Corporation of Canada Ltd., Market USA, Inc., Marusa
Marketing Inc., Marusa Financial Services Ltd., Nerok Verifications, Inc. and the shareholders of
Market USA, Inc. and Marusa Marketing Inc. (included as Appendix A to the Proxy Statement/Prospectus
included in Part I of this Registration Statement).
3.1 Restated Articles of Incorporation of HA-LO.(1)
3.2 Amended and Restated Bylaws of HA-LO.(1)
3.3 Articles of Amendment to the Articles of Incorporation of HA-LO, dated August 29, 1994.(4)
3.4 Amendment to the Bylaws of HA-LO effective January 12, 1995.(4)
4. Specimen of Stock Certificate for Common Stock.(1)
5.1 Opinion of Neal, Gerber & Eisenberg.*
10.1 Employment Agreement, dated as of January 1, 1992, between HA-LO and Lou Weisbach.(1,5)
10.2 Third Amendment to Loan and Security Agreement by and between American National Bank and HA-LO.(4)
10.3 Amended and Restated Second Term Promissory Note, dated January 3, 1995, from HA-LO to American
National Bank of Chicago.(4)
10.4 Third Amended and Restated Revolving Promissory Note, dated January 3, 1995, between American
National Bank and HA-LO.(4)
10.5 Agreement, dated October 15, 1991, between HA-LO and RMI, Inc.(1,5)
10.6 Agreement, dated March 15, 1994, by and between HA-LO and Marshall J. Katz.(4,5)
10.7 HA-LO Industries, Inc. Stock Plan.(1,5)
10.8 HA-LO Industries, Inc. Key Employee Incentive Plan.(1,5)
10.9 Exclusive Premium Purchasing Agreement, dated January 11, 1995, between Montgomery Ward & Co.,
Incorporated and HA-LO.(4)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.10 Stock Purchase Agreement, dated January 11, 1995, between HA-LO and Merchant Partners, L.P.(4)
10.11 Warrant agreement between HA-LO and Merchant Partners, L.P., dated January 11, 1995.(4)
10.12 Form of Indemnity Agreement between HA-LO and each of its directors and officers.(1,5)
10.13 Agreement between David C. Robbins and HA-LO dated October 25, 1994.(4)
10.14 Agreement between David C. Robbins and HA-LO dated February 1, 1995.(4)
10.15 Building Lease, dated December 30, 1992, between HA-LO and LaSalle National Trust N.A. No. 115722.(2)
10.18 Asset Purchase Agreement, dated December 20, 1993, between HA-LO and Lee Wayne Company, Inc.(3)
10.19 Amendment to Loan and Security Agreement, dated December 30, 1993, from HA-LO to American National
Bank of Chicago.(3)
10.20 Second Amendment to Loan and Security Agreement, dated September 20, 1994, between American National
Bank and Trust Company of Chicago, and HA-LO.(4)
10.21 Term Promissory Note, dated December 30, 1993, from HA-LO to American National Bank of Chicago.(3)
10.22 Negotiable Promissory Note, dated August 16, 1993 from HA-LO to Facility Capital Corporation and
Notice and Acknowledgment of Assignment to Assignment to Comerica Bank Illinois.(3)
10.23 HA-LO Industries, Inc. Stock Plan (as amended and restated)(4)
10.24 Sales Representative Agreement, dated July 21, 1993, between HA-LO and Neil Ramo.(3,5)
10.25 Second Amendment to the HA-LO Industries, Inc. Stock Plan (as amended and restated), adopted October
28, 1995.(6)
10.26 Third Amendment to the HA-LO Industries, Inc. Stock Plan (as amended and restated), adopted on
February 26, 1996.(6)
10.27 First Amendment to Exclusive Premium Purchasing Agreement, dated December 27, 1995, between
Montgomery Ward & Co., Incorporated and HA-LO.(6)
10.28 First Amendment to Warrant, dated December 27, 1995, between HA-LO and Merchant Partners, L.P.
(relative to January 11, 1995 Warrant).(6)
10.29 Warrant, dated December 27, 1995, from HA-LO to Merchant Partners, L.P.
10.30 Employment Agreement, dated as of March 15, 1995, between HA-LO and Richard A. Magid.(5)
10.31 Fourth Amendment to Loan and Security Agreement, dated July 1, 1995, between American National Bank
and Trust Company of Chicago, and HA-LO.(6)
10.32 Fourth Amended and Restated Revolving Promissory Note, dated July 1, 1995, between American National
Bank and HA-LO.(6)
10.33 Fifth Amendment to Loan and Security Agreement, dated September 29, 1995, between American National
Bank and Trust Company of Chicago, and HA-LO.(6)
10.34 Fifth Amended and Restated Revolving Promissory Note, dated September 29, 1995, between American
National Bank and HA-LO.(6)
10.35 Sixth Amendment to Loan and Security Agreement, dated November 1, 1995, between American National
Bank and Trust Company of Chicago, and HA-LO.(6)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.36 Sixth Amended and Restated Revolving Promissory Note, dated November 1, 1995, between American
National Bank and HA-LO.(6)
10.37 Asset Purchase Agreement and Plan of Merger, dated December 22, 1995, between HA-LO, one of its
subsidiaries, Fletcher Barnhardt & White, Inc., and its shareholders.(6)
10.38 First Amendment to Asset Purchase Agreement and Plan of Merger, dated December 29, 1995, between
HA-LO, one of its subsidiaries, Fletcher Barnhardt & White, Inc., and its shareholders.(6)
13. Annual Report to Shareholders for 1995 of registrant (for the information of the Securities and
Exchange Commission and not to be deemed "filed" with the Commission, except for the portions
expressly incorporated by reference in this report)
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Neal, Gerber & Eisenberg (included in Exhibit 5.1)*
23.3 Consent of Seymour N. Okner*
24.1 Powers of Attorney of certain officers and directors of HA-LO*
99.1 Form of Proxy for HA-LO's Special Meeting*
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Registration Statement (no. 33-51698) on Form S-1, as amended, filed by
HA-LO under the Securities Act of 1933, as amended.
(2) Incorporated by reference to the correspondingly numbered exhibit to HA-LO's
Annual Report on Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to the correspondingly numbered exhibit to HA-LO's
Annual Report on Form 10-K for the year ended December 31, 1993.
(4) Incorporated by reference to the correspondingly numbered exhibit to HA-LO's
Annual Report on Form 10-K for the year ended December 31, 1994.
(5) Management contract or compensatory plan or arrangement.
(6) Incorporated by reference to the correspondingly numbered exhibit to HA-LO's
Annual report on Form 10-K for the year ended December 31, 1995.
(b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering o securities subject to Rule 415, will be filed as a part Of an
amendment to the registration statement and will not be used until such
amendment is effective. and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-
II-3
<PAGE>
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein. and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject to and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on August 21, 1996.
HA-LO INDUSTRIES, INC.
(Registrant)
By: /s/ LOU WEISBACH
-----------------------------------
Lou Weisbach
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
/s/ LOU WEISBACH Director, Chairman, President and
------------------------------------------- Chief Executive Officer (Principal August 21, 1996
Lou Weisbach Executive Officer)
/s/ GREGORY J. KILREA Chief Financial Officer (Principal
------------------------------------------- Financial Officer and Principal August 21, 1996
Gregory J. Kilrea Accounting Officer)
THOMAS HERSKOVITS*
------------------------------------------- Director August 21, 1996
Thomas Herskovits
JORDON R. KATZ*
------------------------------------------- Director August 21, 1996
Jordon R. Katz
MARSHALL J. KATZ*
------------------------------------------- Director August 21, 1996
Marshall J. Katz
RICHARD A. MAGID*
------------------------------------------- Director, Treasurer and Chief August 21, 1996
Richard A. Magid Operating Officer
NEIL RAMO*
------------------------------------------- Director August 21, 1996
Neil Ramo
DAVID C. ROBBINS*
------------------------------------------- Director, Executive Vice President August 21, 1996
David C. Robbins
*By: /s/ GREGORY J. KILREA
------------------------------------
Gregory J. Kilrea, as
Attorney-in-Fact
</TABLE>
II-5
