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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from ______to______
Commission file number: 0-20758
HA-LO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Illinois 36-3573412
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5980 TOUHY AVE., NILES, ILLINOIS 60714
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(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code:
(847)647-2300
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
--------------------------
(Title of each class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] No[ ].
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by
stockholders who were not affiliates of the registrant was
approximately $206,328,200 as of March 24, 1997 (based on the
closing sale price on that date as reported by Midwest
Edition of THE WALL STREET JOURNAL). For this computation,
the registrant has excluded the market value of all shares
of its common stock reported as beneficially owned by
executive officers and directors of the registrant and
certain other stockholders; such exclusion shall not be
deemed to constitute an admission that any such person is an
"affiliate" of the registrant. At March 24, 1997, the
registrant had issued and outstanding an aggregate of
19,818,816 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's 1996 Annual
Report to Shareholders and of the proxy statement for the
Annual Meeting of Shareholders to be held on June 2, 1997
described in Parts II, III and IV hereof are incorporated by
reference in this report.
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PART I
ITEM 1. BUSINESS
PROMOTIONAL PRODUCTS:
GENERAL
HA-LO Industries, Inc. and Subsidiaries ("the Company")
is the leading marketer and distributor in the $8 billion
specialty and premium promotional products industry.
Specialty and premium promotional products are generally
articles of merchandise imprinted or otherwise customized
with an advertiser's name, logo or message and used by the
advertiser for marketing, sales incentives and awards and
development of goodwill for a targeted audience. Examples
of these products include jackets, hats, T-shirts,
calendars, pens, coffee mugs and key chains, as well as more
upscale items such as crystalware and desk accessories.
Specialty and premium promotional products can be
valuable components of an advertiser's overall advertising
or marketing campaign. Because such products are designed
to be useful to the recipient, messages imprinted on these
products enjoy repeated exposure. Specialty and premium
advertising can be readily targeted to specific audiences
sought by advertisers because of the wide variety of
merchandise available for such purposes.
The Company enhances its promotional products business
through a variety of value-added services including its in-
house advertising agency, Duncan & Hill, its HA-LO Sports-
Registered Trademark-, Inc. subsidiary and its Events by
HA-LO-Registered Trademark- division. The Company also
provides corporate fulfillment program services, which
enable customers to purchase large quantities of customized
products that are warehoused by the Company and are available
for immediate shipment in small quantities as needed. Value-
added advertising and design capabilities are provided by
Duncan & Hill, which acts as an extension of customers'
marketing departments and advertising agencies. HA-LO Sports
- -Registered Trademark-, Inc. is the Company's sports marketing
agency which consults with sports teams and corporations on
many aspects of sports promotions, including endorsements,
event marketing and vendor programs. Through Events by HA-LO
- -Registered Trademark-, the Company plans, organizes and
promotes corporate events such as business conferences and
grand openings.
The Company enjoys competitive advantages which
differentiate HA-LO from other advertising specialty
companies, as follows:
- CORPORATE FULFILLMENT PROGRAMS. Under
these programs, a customer contractually purchases
large quantities of customized products that are
warehoused by the Company and shipped at the direction
of the customer. Such programs are generally
implemented in conjunction with a customer catalog or
brochure featuring the types of customized products
being warehoused. Further, these programs afford large
customers lower per unit costs and the ability to
receive immediate delivery of small quantities. The
Company also provides computerized inventory reports
which assist the customer in monitoring its marketing
efforts, and, on request, automatically reorders
product at predetermined levels. The Company views the
design and administration of corporate fulfillment
programs as an integrated feature of the customer's
overall marketing plan, thereby
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institutionalizing the Company's relationships with
these customers.
- IN-HOUSE ART DEPARTMENT. The Company
maintains an in-house design center and art department
that designs sample products and provides camera-ready
art work. This allows the Company to assist its
customers in creating innovative specialty and
promotion programs. The art department employs full-
time artists offering illustration, graphics and
typesetting services as well as the design of corporate
logos. The Company has the ability to respond on a same-
day basis to customer requests for art work and
designs. The availability of this department saves the
customer time and money.
- IN-HOUSE PRODUCTION DEPARTMENT. The Company
has an in-house production department with capabilities
for engraving, hot-stamping and silk screening. These
capabilities enable the Company to accommodate
customers placing last-minute orders for a variety of
products and to produce samples, typically on a same-
day basis, for existing and potential customers.
- COMPUTER SOURCING AND CATALOGS. The Company
utilizes computer software to electronically source
product needs from over 2,500 vendors. Product
specifications and pictures are immediately available
to the sales representative and customer. The Company
has also developed its own catalog which depicts the
broad range of products it provides, including some of
the unique items it has developed.
- BUYING POWER. As one of the nation's largest
specialty and premium advertising companies, the
Company has been able to successfully negotiate
preferred pricing from many vendors. The Company has
developed direct relationships with reliable overseas
manufacturers who meet its quality and delivery
standards. This allows the Company to be very
competitive on pricing large orders.
The Company purchases products directly from
manufacturers and typically arranges to have the customer's
name, logo or advertising message imprinted on the products
by the manufacturer or a third party. A majority of all
products sold by the Company are shipped directly by the
Company's suppliers to its customers; the remaining products
are warehoused by the Company in conjunction with the
Company's corporate fulfillment program.
The Company markets its products primarily through a
sales force of independent sales representatives who are
paid commissions by the Company based upon a percentage of
gross profit on individual sales.
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INDUSTRY OVERVIEW
According to the Promotional Product Association
International ("PPA"), an industry trade association, sales
volume in the specialty and premium advertising industry
grew to approximately $8 billion in 1995. There are in
excess of 14,000 United States distributors of specialty and
premium advertising products according to the PPA.
Generally, distributors are closely-held entities with a
local or regional focus. Distributors range from one-
person, one-product businesses to entities similar to the
Company. While certain better-capitalized distributors
maintain showrooms to assist customers in the selection of
the array of products which are available, the majority of
distributors are comprised of one to three sales persons who
bring sample cases and suppliers' catalogs to their
customers. Many of the larger distributors are also
manufacturers (or affiliates of manufacturers) of products
traditionally used in the specialty and premium advertising
industry and which principally market their own product
line.
STRATEGY
The Company's strategy is to continue as the leading
distributor in the promotional products industry. Specific
elements of the Company's operating strategy include:
- NATIONAL SALES FORCE AND SHOWROOM SYSTEM.
The Company's national sales force currently consists
of approximately 650 sales representatives. The Company
currently has 11 showrooms throughout the United States
that provide customers with the opportunity to view
products and develop ideas for additional products and
programs that can be used in their marketing or
advertising campaigns. The Company plans to continue to
add both sales representatives and showrooms.
- STRATEGIC ACQUISITIONS. The Company has
acquired 11 promotional products distributors since
1992 and continues to believe that there are
significant opportunities in the fragmented promotional
products industry to acquire high-quality companies.
The Company believes this will increase existing
business by providing additional sales representatives
and new customers and allow the Company to enter new
geographic areas. The Company has demonstrated its
ability to improve upon the performance and
profitability of these companies. The Company believes
acquisitions have been and will continue to be an
expeditious and cost-efficient method of growth.
- EXPANSION OF EXISTING CUSTOMER RELATIONSHIPS
AND STRATEGIC ALLIANCES. The Company has developed
strong customer relationships with large organizations,
many of which have large advertising specialty budgets.
The Company's relationships allow it to identify new
business opportunities and react to customer needs in
the early stages of a marketing program and thereby
maintain and increase its sales volume with particular
customers. The Company believes that it has
opportunities to increase the amount of advertising
purchases made by its customers by continuously
introducing new and creative products and programs. In
addition, as customers seek to consolidate their
advertising specialty purchases, the Company believes
it has a substantial
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opportunity to increase its share of its customers' total
purchases.
- BROAD LINE OF SPECIALTY PRODUCTS/BUYING
POWER. The Company seeks to differentiate itself from
competitors by making available to its customers a
broad line of promotional products. Currently, the
Company has access to products from more than 2,500
vendors located primarily throughout North America and
the Far East. The Company's broad product line provides
its customers with comprehensive, one-stop shopping for
most of their promotional products. As one of the
nation's largest purchasers of promotional products,
the Company has successfully negotiated preferred
pricing from many of its vendors and has developed
relationships with reliable overseas manufacturers
which satisfy its quality and delivery standards.
- SOPHISTICATED DESIGN AND DELIVERY
CAPABILITIES. The Company seeks to position itself as
an integral part of its customers' overall marketing
and advertising programs by offering more services than
typical small distributors. Through its in-house design
and production departments, the Company can respond to
customers' needs with individually designed approaches
to customers' overall marketing programs. When an
advertising specialty concept is designed, the
Company's full-service, self-contained art department
generally has the capability to produce a visual
representation of the product for customer approval in
one day. In addition, the Company's relationships with
reliable manufacturers allow it to deliver quality
products on a timely basis. The Company uses these
capabilities to attract new customers and to increase
the volume of orders placed by existing customers.
- SOPHISTICATED SYSTEMS CAPABILITIES. The
Company operates a consolidated accounting,
warehousing, order tracking, pricing, billing and job
cost management information systems at its
headquarters. This system is currently under further
development to link the Company's offices and sales
representatives so that representatives will be able to
receive detailed information including customer
purchasing patterns, payment history and order status.
- FLEXIBLE EXPENSE STRUCTURE. The Company has
structured its organization to lessen its fixed
overhead costs. It has achieved this through: (i)
compensating its sales force on a commission basis,
(ii) sourcing its products from vendors, thereby
avoiding fixed manufacturing expenses and (iii)
handling a substantial majority of its sales via direct
shipment to the customer, thereby minimizing inventory
carrying costs.
PRODUCTS AND SERVICES
Promotional products are generally articles of
merchandise imprinted or otherwise customized with an
advertiser's name, logo or message which are used for
marketing, sales incentives and awards and development of
goodwill for a targeted audience. The products include (i)
apparel 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 and mugs. The Company's representatives work with
customers to develop marketing
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programs that utilize advertising specialty products
designed to reach the specific audience targeted by the
customers.
When a promotional product concept is designed, the
Company's full-service, self-contained art department
generally has the capability to produce a visual
representation of the product for customer approval within
one day. The art department employs full-time artists with
varying backgrounds in illustration, graphics and
typography, as well as in designing corporate logos.
Further, the Company's personnel utilize the latest design
software and equipment and have access to thousands of
pieces of art work. The Company also has an in-house
production department which performs limited engraving, hot
stamping and silk screening on samples and on finished
products which enables the Company to produce samples on
short notice and satisfy customer requests for last minute
orders. The Company's design and production facilities
distinguish it from many of its competitors.
SALES REPRESENTATIVES
The Company's products are sold primarily through a
network of approximately 650 independent sales
representatives. Historically, the Company has not
experienced significant turnover among its experienced
independent sales representatives. The Company believes
that the existence of its broad range of services, buying
power, stock option program and name recognition facilitate
its ability to attract and retain sales representatives.
The terms of the Company's customary form of sales
representative arrangement provides for the representative
to receive a commission in an amount equal to a percentage
of the gross profit from the sale of products attributable
to that person. All orders taken by the representative must
comply with the policies of the Company and are subject to
acceptance by the Company. Typically, a representative has
no assigned or exclusive territory.
COMPETITION
The promotional products industry is highly fragmented
and competitive, and some of the Company's competitors may
have substantially greater financial and other resources
than the Company. The Company also competes for advertising
dollars against other media, such as television, radio,
newspapers, magazines and billboards. In addition, entry
into the specialty and premium advertising industry is not
difficult, and new competitors are continually commencing
operations.
The primary bases for competition are customer service,
creativity, customer relationships, product innovation and
pricing. Few in the industry possess the capabilities to
offer potential customers the services available from the
Company. However, several of the Company's competitors are
manufacturers as well as distributors and may enjoy an
advantage over the Company with respect to the cost of the
goods they manufacture.
CUSTOMERS
The Company's customers include manufacturing,
financial service, broadcasting, consumer product and
communications companies as well as professional sports
teams. Approximately 15% and 14% of net sales in 1996 and
1995, respectively, were generated from Montgomery Ward and
Co., Inc. In 1994, another customer accounted for
approximately 11% of
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net sales. Selected customers of the Company include
Motorola, Inc., The Quaker Oats Company, Time-Warner Inc.,
Ameritech Corporation, Turner Broadcasting System, Inc.,
Abbott Laboratories, and Andersen Consulting.
The Company has a diverse customer base which it
believes serves to limit its exposure to industry downturns.
Historically, the Company's largest customers have varied
from year to year depending upon numerous factors affecting
its customers, including advertising and promotion budgets,
the introduction of new products, operating results and
economic conditions.
BACKLOG
As of February 28, 1997, the Company had a backlog of
firm orders of approximately $16,113,000, substantially all
of which the Company believes will be shipped during 1997.
SUPPLIERS
The Company has direct access to more than 300,000
different products furnished by over 2,500 manufacturers.
The Company is not dependent upon any single manufacturer,
and alternative manufacturers are available for virtually
all products.
EMPLOYEES
As of December 31, 1996, the Company employed
approximately 400 people in its premium advertising
business. The Company is not a party to any collective
bargaining agreements and has not experienced a strike or
work stoppage. The Company believes that its employee
relations are excellent.
PATENTS AND TRADEMARKS
The Company believes the "HA-LO" name is important to
its business. The Company has registered the following
trademarks: "HA-LO Advertising Specialties-Registered
Trademark-", "HA-LO Marketing and Promotions-Registered
Trademark-", "Events by HA-LO-Registered Trademark-" and
"HA-LO Sports-Registered Trademark-".
SEASONALITY OF THE BUSINESS
Some customers tend to utilize a greater portion of
their advertising and promotion budgets in the latter part
of the year, which has historically resulted in and may
continue to result in a disproportionately large share of
the Company's net sales being recognized in the fourth
quarter. In addition, the Company incurs general and
administrative expenses evenly throughout the year which has
historically resulted in a disproportionate share of its net
income being reported in the fourth quarter. In addition,
the timing of, and method of accounting used in connection
with, an acquisition may cause substantial fluctuation in
operating results from quarter to quarter. Therefore, the
operating results for one quarter should not be relied upon
as an indication of the results to be expected in any future
quarter.
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TELEMARKETING
GENERAL
The Company acquired Market USA, Inc. and Marusa
Marketing, LTD. (together MUSA) in September, 1996. MUSA
creates, manages and conducts 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, MUSA provides 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. MUSA makes
extensive use of telecommunications 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. MUSA currently operates 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. The industry has experienced significant growth
in recent years which 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.
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 Company believes there are significant
opportunities to expand its telemarketing business. The
Company's strategy includes the following components:
- INCREASE REVENUES FROM EXISTING CLIENTS. MUSA
believes there is a significant opportunity to increase
revenues from existing clients. Specifically, MUSA is
targeting opportunities to capture an increasing share of
its clients' direct sales activities and to cross-sell their
other telemarketing services.
- 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
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of their direct sales needs. MUSA believes there is significant
opportunity to grow by targeting new clients in these industries
that are seeking to outsource their existing or new telemarketing
programs. MUSA believes it has a competitive advantage in competing
for these new clients because of its expertise and reputation for
quality service with clients in these industries. For example, MUSA
currently has approximately 550 licensed insurance agents in the
United States and Canada, more than any of their direct competitors.
- CROSS-SELLING: Historically, MUSA has acquired
new clients and marketed its 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 MUSA will
continue to utilize these sources to identify potential
clients, MUSA believes its services compliment those of HA-LO
and believe the opportunities to cross-sell its services to
HA-LO's current customers are significant.
- ADD NEW INDUSTRY SPECIALIZATIONS. MUSA is evaluating
several industries which are expected to substantially
increase expenditures on direct sales and customer service
telemarketing applications, including the natural gas
industry, which may become even more competitive due to
ongoing or potential deregulation efforts.
- CREATE NEW VALUE ADDED TELEMARKETING APPLICATIONS.
MUSA regularly seeks 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
MUSA and its clients.
- EXPLORE STRATEGIC ACQUISITIONS. MUSA intends to take
advantage of the fragmented nature of the telemarketing
industry by making strategic acquisitions. Through selected
strategic acquisitions, MUSA seeks to serve new industries
or complement its client base in one of its current industry
specializations. MUSA will evaluate acquisitions using
numerous criteria including management strength, service
quality, industry focus, diversification of client base and
operating characteristics.
OPERATIONS OVERVIEW
MUSA provides outbound telemarketing for clients
primarily in the insurance and financial services industries.
CALLING: Outbound telemarketing refers to direct
sales, research and service activities that commence
when MUSA places calls to parties targeted by its
corporate clients to offer products or services. In
most instances, MUSA receives customer data
electronically from its clients. These files have been
selected to
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match the demographic profile of the targeted
customer for the product or service being offered.
MUSA's data management systems sort the records
and electronically assign them to one of its 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 information 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, MUSA carefully monitors its
representatives to insure accurate presentation of the
product or service offered 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 transaction must be reconfirmed
at a later date. MUSA also has extensive call
monitoring programs to facilitate TSR evaluation and
provide clients the ability to obtain program feedback
on a real time basis. MUSA's information systems enable
it to provide clients with hourly reports, if
necessary, on the status of an outgoing telemarketing
campaign and can transmit summary data electronically
to clients, if desired.
PERSONNEL AND TRAINING: MUSA believes a key component
of its success is the quality of its employees.
Therefore, MUSA continually refines its approach to
hiring, training and managing qualified personnel.
MUSA's call centers are strategically located in an
effort to attract a high quality, dedicated work force.
MUSA believes its relatively high proportion of
full-time employees provides a more stable work force
and reduces its recruiting and training expenditures.
MUSA currently employs over 2,400 people. None of the
MUSA's employees are subject to a collective bargaining
agreement. MUSA considers its relations with its
employees to be excellent.
COMPETITION
The telemarketing industry is very competitive and
highly fragmented. MUSA's competitors range in size from
very small firms offering specialized applications or short
term projects, to large independent firms. A number of
competitors have capabilities and resources equal to, or
greater than, MUSA's. 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 MUSA's services also compete with other
forms of direct marketing such as
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mail, television and radio. MUSA believes 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
In the United States, 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.
MUSA believes it is in compliance with the TCPA and the
FCC rules thereunder and with the FTC rules under the
TCFAPA. MUSA trains its TSR's to comply with the FTC and FCC
rules and programs its call management system to avoid
telephone calls during restricted hours or to individuals
maintained on MUSA's "do-not-call" list.
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. 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).
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 MUSA are also
subject to varying degrees of government regulation. MUSA
has never been held responsible for regulatory noncompliance
by a client. MUSA's employees who complete the sale of
insurance products are required to be licensed
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by various state and provincial insurance commissions and
participate in regular continuing education programs, access
to which are currently provided in-house by MUSA.
Reference is made to foonote 14 of the financial
statements contained in the Company's 1996 Annual Report and
incorporated by reference herein for segment information
regarding the Company's business segments.
ITEM 2. PROPERTIES
The Company leases its 150,000 square feet headquarters
in Niles, Illinois (a suburb of Chicago), which includes a
2,500 square foot showroom. A wholly owned subsidiary of
the Company owns land and two buildings from which it
operates in Charlotte and Greensboro, North Carolina.
MUSA's corporate headquarters are located in Des
Plaines, Illinois in leased facilities consisting of
approximately 14,000 square feet of office space.
MUSA also leases the facilities listed below:
CURRENT NO.
OF
LOCATION OPENED WORKSTATIONS
- -------- ------ ------------
Des Plaines, IL 1988 16
Beloit, WI 1989 48
Hollywood, FL 1989 80
Oak Lawn, IL 1991 47
Fairborn, OH 1991 48
Montreal, Quebec 1992 100
Toronto, Ontario 1992 116
Ottawa, IL 1993 80
Houston, TX 1994 70
Loves Park, IL 1995 32
Springfield, OH 1995 64
Worth, IL 1995 16
Welland, Ontario 1995 32
Winnipeg, Manitoba 1995 80
Chicago, IL 1996 62
Morris, IL 1996 32
Middletown, OH 1996 48
The leases of these facilities generally expire between
1997 and 2000, and most contain renewal options. MUSA
believes its current facilities are adequate for current
operations, but additional facilities will be required to
support growth. MUSA believes that suitable or alternative
spaces will be available as needed at commercially
reasonable terms.
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ITEM 3. LEGAL PROCEEDINGS
The Internal Revenue Service (the "IRS") has commenced
and is currently engaged in a field audit examination of the
Company'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 the
Company's position that its independent sales
representatives have properly been treated as independent
contractors for federal employment tax purposes. To date,
the IRS has proposed adjustments to increase the Company's
federal withholding, federal unemployment and social
security tax liabilities for 1993 and 1994, and similar
proposed adjustments are possible for subsequent periods.
However, the Company believes its characterization of its
sales representatives as independent contractors is proper
and is evaluating its various alternatives, including
appeal. This process could take several years to resolve.
If the IRS were to prevail and require the Company to treat
all or any portion of its independent sales representatives
as employees, such change in status could adversely affect
the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's
security holders, through solicitation of proxies or
otherwise, during the fourth quarter of 1996.
13
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Reference is made to "Note 17. Market for the
Registrant's Common Equity and Related Stockholder Matters"
of the Company's financial statements included in the
Company's Annual Report to Shareholders for 1996 ("Annual
Report"), as well as to note (d) in the Selected Financial
Data of the Annual Report, all of which are incorporated
herein by reference.
The Company has not paid a cash dividend on its common stock
since its initial public offering in 1992. The Company does
not intend to pay such dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the Selected Financial Data on
page 3 of the Annual Report which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to Management's Discussion and
Analysis of Financial Conditions and Results of Operations
set forth on pages 4 and 5 of the Annual Report which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Balance Sheets as of December 31,
1996 and 1995, Consolidated Statements of Income,
Consolidated Statements of Shareholders' Equity, and
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996, and Notes to
Financial Statements set forth on pages 6 to 19 of the
Annual Report, and the Report of Arthur Andersen LLP on page
20 of the Annual Report, are incorporated herein by
reference.
Selected Quarterly Operating Results (Unaudited) set
forth on page 19 of the Annual report are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as
follows:
Name Age Position with the Company
---- --- --------------------------
Lou Weisbach 48 Chairman of the Board, President and
Chief Executive Officer
Linden D. Nelson 36 Director, Vice Chairman of the Board
and Chief Executive Officer of
Creative Concepts in Advertising, Inc.
Seymour N. Okner 70 Director, Chief Executive Officer of
Market USA, Inc. and Marusa Marketing,
Ltd.
Richard A. Magid 38 Director, Treasurer, Chief Operating
Officer and Assistant Secretary
David C. Robbins 44 Director, Executive Vice President
Gregory J. Kilrea 33 Chief Financial Officer
Michael P. Nemlich 45 Vice President - Corporate Development/
Financial Relations
Barbara G. Berman 52 Vice President - Retail Accounts and
Secretary
Barry T. Margolin 30 Vice President - Finance, Corporate
Controller and Assistant Secretary
Sabina Filipovic 36 Vice President - Human Relations and
Assistant Secretary
David Blumenthal 34 Vice President - Information Systems
Officers are elected annually and serve at the
discretion of the Board of Directors. Mr. Okner is the
father-in-law of Mr. Robbins. There are no other family
relationships between any directors and executive officers
of the Company.
Mr. Weisbach has been the President and Chief Executive
Officer of the Company since January 1, 1988. From 1972
through 1987, he operated the predecessor of the Company as
a sole proprietorship.
Mr. Nelson has served as the Vice Chairman of HA-LO and
Chief Executive Officer of Creative Concepts in Advertising,
Inc. since its acquisition by HA-LO in January, 1997. Mr.
Nelson was the Chairman and Chief Executive Officer of
Creative Concepts in Advertising since its inception in
July, 1979 through December, 1996.
Mr. Okner has served as a director of HA-LO and Chief
Executive Officer of Market USA, Inc. and Marusa Marketing,
Ltd. Since their acquisition by HA-LO in September, 1996.
Mr. Okner was the President, Treasurer, Secretary and a
director of Market USA since its inception in 1988. He was
also the President and Secretary of Marusa Marketing from
April 1992 through September, 1996. Prior to 1988, Mr.
Okner served in
15
<PAGE>
various executive capacities, primarily in the insurance
industry, including President of Montgomery Ward Life
Insurance Company and Signature Life Insurance Company of
America.
Mr. Magid was appointed Chief Operating Officer in July
of 1996. He has been the Treasurer since August, 1992 and
was also appointed Assistant Secretary as of March 1996.
Additionally, he was the Chief Financial Officer from
August, 1992 until July of 1996 and Vice President - Finance
from August, 1992 through March of 1996. From 1981 until
joining HA-LO in 1992, he was employed by the accounting
firm of Arthur Andersen LLP, most recently as an audit and
financial consulting manager.
Mr. Robbins has been Executive Vice President since
November, 1992. From 1978 to November 1992, he was an
independent sales representative marketing specialty and
premium advertising products.
Mr. Kilrea was appointed Chief Financial Officer in
July of 1996. Additionally, he was the Vice President of
Planning from April, 1996 through July, 1996. From 1985
until joining the Company in 1996, he was employed by the
accounting firm of Arthur Andersen LLP, most recently as an
audit and financial consulting manager.
Mr. Nemlich was appointed Vice President - Corporate
Development/Financial Relations in April of 1996. From
March of 1993 until joining the Company in 1996, he was a
Vice President in Trust Investment Services at Northern
Trust Bank. Prior to this, he spent 15 years in various
positions within the financial services industry including
investment banking.
Ms. Berman was appointed Vice President - Retail
Accounts in March of 1996 and has been Secretary of the
Company since August, 1992. She was also the Vice President
of Administration from August 1992 to March of 1996. From
1985 to August 1992, she was the Director of Administration
for the Company and its predecessor. From 1982 to 1985, she
was the administrative assistant for the Company's
predecessor.
Mr. Margolin was appointed Vice President -
Finance and Assistant Secretary in March of 1996 and has
been the Corporate Controller since January of 1993. From
1988 until joining HA-LO in 1993, he was employed by the
accounting firm of Arthur Andersen LLP as an audit and
financial consultant.
Ms. Filipovic was appointed Vice President - Human
Relations and Assistant Secretary in March of 1996. She
was the Director of Administration/Human Relations from
March of 1994 to March of 1996. From July of 1984 through
March of 1994, she held various positions throughout the
Company and for the Company's predecessor.
Mr. Blumenthal was appointed Vice President -
Information Systems in March of 1996. From March of 1995
through March of 1996, he was Director of Information
Systems. He started with HA-LO in 1981 and has held various
positions with the Company and its predecessor.
Additional information required by Item 10 regarding
Directors and Executive Officers is incorporated by
reference from the "Election of Directors", "Executive
Compensation" and "Security Ownership of Certain Beneficial
Owners and Management" sections of the Company's 1997 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
16
<PAGE>
The information required by Item 11 is incorporated by
reference from the "Executive Compensation" and "Certain
Transactions" sections of the Company's 1997 Proxy
Statement; provided, however, that neither the Report of the
Compensation Committee on Executive Compensation nor the
Performance Graph set forth therein shall be incorporated by
reference herein, in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or in any of
the Company's future filings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated by
reference from the "Security Ownership of Certain Beneficial
Owners and Management" section of the Company's 1997 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by
reference from the "Executive Compensation" and "Certain
Transactions" sections of the Company's 1997 Proxy
Statement; provided, however, that neither the Report of the
Compensation Committee on Executive Compensation nor the
Performance Graph set forth therein shall be incorporated by
reference herein, in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or in any of
the Company's future filings.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements (incorporated herein by
reference to the Company's Annual Report for the
year ended December 31, 1996)
(i) Report of Independent Public Accountants;
(ii) Consolidated Balance Sheets-December 31,
1996 and 1995;
(iii) Consolidated Statements of Income for each
of the three years in the period ended
December 31, 1996;
(iv) Consolidated Statements of Shareholders'
Equity for each of the three years in the
period ended December 31, 1996;
(v) Consolidated Statements of Cash Flows for
each of the three years in the period ended
December 31, 1996; and
(vi) Notes to Financial Statements.
2. Schedules
All schedules for which provision is made in the
applicable accounting regulations of the
Securities and Exchange Commission are omitted
because such schedules are not required or the
information required has been presented in the
aforementioned financial statements.
3. Exhibits
The exhibits to this report are listed in the
Exhibit Index included elsewhere herein (pages
20 through 22).
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during
the fourth quarter of 1996.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 27, 1997
HA-LO INDUSTRIES, INC.
Registrant
By: GREGORY J. KILREA
-----------------------
Gregory J. Kilrea
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated on March 27, 1997:
Signature Title
--------- -----
/s/ LOU WEISBACH Director, Chairman of the Board,
-------------------- President and Chief
Lou Weisbach Executive Officer(Principal
Executive Officer)
/s/ LINDEN D. NELSON Director, Vice Chairman of
-------------------- the Board and Chief
Linden D. Nelson Executive Officer
of Creative Concepts in
Advertising, Inc.
/s/ DAVID C. ROBBINS Director, Executive Vice President
--------------------
David C. Robbins
/s/ RICHARD A. MAGID Director, Treasurer,
--------------------- Chief Operating Officer, and Assistant Secretary
Richard A. Magid
/s/ THOMAS HERSKOVITS Director
---------------------
Thomas Herskovits
/s/ JORDON R. KATZ Director
---------------------
Jordon R. Katz
/s/ MARSHALL J. KATZ Director
---------------------
Marshall J. Katz
/s/ DAVID B. HERMELIN Director
---------------------
David B. Hermelin
/s/ NEIL A. RAMO Director
---------------------
Neil A. Ramo
/s/ S. N. OKNER Director, Chief Executive
--------------------- Officer of
S. N. Okner Market USA, Inc. and
Marusa Marketing, Ltd.
19
<PAGE>
HA-LO INDUSTRIES, INC.
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- --------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Company. (1)
3.2 * Amended and Restated Bylaws of the Company.
3.3 Articles of Amendment to the Articles of Incorporation of the
Company, dated August 29, 1994. (4)
3.4 * Articles of Amendment to the Articles of Incorporation of the
Company, dated February 21, 1997.
4. Specimen of Stock Certificate for Common Stock. (1)
10.1 Employment Agreement, dated as of January 1, 1992, between the
Company and Lou Weisbach. (1,8)
10.2 Agreement and Plan of Merger and Amalgamation dated as of June 14,
1996 among the Company, 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. (6)
10.3 * Agreement and Plan of Merger and Plan of Reorganization dated as of
October 29, 1996 by and among the Company, HA-LO Acquisition
Corporation of Michigan, Inc., Creative Concepts in Advertising,
Inc., Creadis Group Inc., 1132832 Ontario Inc., 1132831 Ontario
Corp., and the shareholders of Creative Concepts in Advertising,
Inc., 1132832 Ontario Inc., and 1132831 Ontario Corp.
10.4 Employment Agreement, dated as of September 30, 1996, between the
Company, Market USA, Inc. and Seymour N. Okner. (6,8)
10.5 Agreement, dated October 15, 1991, between the Company and RMI,
Inc. (1,8)
10.6 Agreement, dated March 15, 1994, by and between the Company and
Marshall J. Katz. (4,8)
10.7 HA-LO Industries, Inc. Stock Plan. (1,8)
10.8 HA-LO Industries, Inc. Key Employee Incentive Plan. (1,8)
10.9 Exclusive Premium Purchasing Agreement, dated January 11, 1995,
between Montgomery Ward & Co., Incorporated and the Company. (4)
10.10 Stock Purchase Agreement, dated January 11, 1995, between the
Company and Merchant Partners, L.P. (4)
10.11 Warrant agreement between the Company and Merchant Partners, L.P.,
dated January 11, 1995. (4)
10.12 Form of Indemnity Agreement between the Company and each of its
directors and officers. (1,8)
10.13 Agreement between David C. Robbins and the Company dated October
25, 1994. (4)
20
<PAGE>
10.14 Agreement between David C. Robbins and the Company dated February
1, 1995. (4)
10.15 Building Lease, dated December 30, 1992, between the Company and
LaSalle National Trust N.A. No. 115722. (2)
10.16 * Agreement, dated as of March 17, 1997, between the Company and
Marshall J. Katz.(8)
10.18 * Amendment of October 1996 to Bonus Shares Agreement, dated February
1, 1995, between the Company and David C. Robbins. (8)
10.19 * Employment Agreement, dated as of January 3, 1997, between the
Company and Linden D. Nelson. (8)
10.20 * Employment Agreement, dated as of April 15, 1996, between the
Company and Gregory J. Kilrea. (8)
10.21 * Employment Agreement, dated as of April 15, 1996, between the
Company and Michael Nemlich. (8)
10.22 Negotiable Promissory Note, dated August 16, 1993 from the Company
to Facility Capital Corporation and Notice and Acknowledgment of
Assignment to Comerica Bank - Illinois. (3)
10.23 HA-LO Industries, Inc. Stock Plan (as amended and restated) (4,8)
10.24 Sales Representative Agreement, dated July 21, 1993, between the
Company and Neil Ramo. (3,8)
10.25 Second Amendment to the HA-LO Industries, Inc. Stock Plan (as
amended and restated), adopted October 28, 1995. (5)
10.26 Third Amendment to the HA-LO Industries, Inc. Stock Plan (as
amended and restated), adopted on February 26, 1996. (5)
10.27 First Amendment to Exclusive Premium Purchasing Agreement, dated
December 27, 1995, between Montgomery Ward & Co., Incorporated and
the Company. (5)
10.28 First Amendment to Warrant, dated December 27, 1995, between the
Company and Merchant Partners, L.P. (relative to January 11, 1995
Warrant). (5)
10.29 Warrant, dated December 27, 1995, from the Company to Merchant
Partners, L.P. (5)
10.30 Employment Agreement, dated as of March 15, 1995, between the
Company and Richard A. Magid. (5,8)
10.31 Employment Agreement, dated as of December 29, 1995, by and among
FBW Acquisition Corporation, the Company and Philip C. Blount III.
(7,8)
10.32 * HA-LO Industries, Inc. 1997 Stock Plan. (8)
10.33 * Credit Agreement, dated as of January 31, 1997, among the Company,
American National Bank and Trust Company of Chicago, individually
and as Agent, and the Lenders which are or become parties thereto.
10.34 * Guaranty Agreement, dated as of January 31, 1997, by Fletcher,
Barnhardt & White, Inc., Market U.S.A., Inc., and Creative Concepts
in Advertising, Inc.
10.37 Asset Purchase Agreement and Plan of Reorganization, dated December
22, 1995, between the Company, one of its subsidiaries, Fletcher
Barnhardt & White, Inc., and its shareholders. (5)
21
<PAGE>
10.38 First Amendment to Asset Purchase Agreement and Plan of
Reorganization, dated December 29, 1995, between the Company, one
of its subsidiaries, Fletcher Barnhardt & White, Inc., and its
shareholders. (5)
13. * Annual Report to Shareholders for 1996 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).
21 * List of subsidiaries of registrant
23.1 * Consent of independent public accountants.
27. * Financial Data Schedule
- ----------
(1) Incorporated by reference to the correspondingly numbered exhibit
to the Registration Statement (no. 33-51698) on Form S-1, as
amended, filed by the Company under the Securities Act of 1933, as
amended.
(2) Incorporated by reference to the correspondingly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
(3) Incorporated by reference to the correspondingly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
(4) Incorporated by reference to the correspondingly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
(5) Incorporated by reference to the correspondingly numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(6) Incorporated by reference to the Registration Statement (no.
333-10481) on Form S-4, as amended, filed by the Company under the
Securities Act of 1933, as amended.
(7) Incorporated by reference to the Registration Statement (no.
333-03928) on Form S-8 filed by the Company under the Securities
Act of 1933, as amended.
(8) Management contract or compensatory plan or arrangement.
* Filed herewith.
22
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
HA-LO INDUSTRIES, INC.*
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
in the State of Illinois shall be located in the City of Skokie and County of
Cook. The Corporation may have such other offices, either within or without the
State of Illinois, as the Board of Directors may determine or the business of
the Corporation may require from time to time.
SECTION 2. REGISTERED OFFICE. The registered office of the Corporation
required by the Illinois Business Corporation Act to be maintained in the State
of Illinois may be, but need not be, identical with the principal office in the
State of Illinois, and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II
MEETING OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of shareholders shall be
held on the first Monday of June, at the hour of 10:00 a.m., or in the event the
annual meeting is not held at such time, then at the time designated by the
Board of Directors, for the purpose of electing a Board of Directors and for the
transaction of such other business as may properly be brought before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day. If the election of
directors shall not be held on the day designated herein for an annual meeting,
or any adjournment thereof, the Board of Directors shall cause the election to
be held at a meeting of the shareholders as soon thereafter as may be
convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the President or by a majority of the Board of
Directors and shall be called by the
- --------------------
* AS AMENDED AND RESTATED IN THEIR ENTIRETY AND ADOPTED BY ACTION OF THE
BOARD OF DIRECTORS EFFECTIVE ON JANUARY 12, 1995.
<PAGE>
Secretary upon the written request of shareholders holding of record at least
twenty percent (20%) of the issued and outstanding shares entitled to vote at
such meeting. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at any special meeting of shareholders shall be
limited to the purposes stated in the notice.
SECTION 3. PLACE OF MEETINGS. The Board of Directors may designate any
place, either within or without the State of Illinois, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors by designating such place in the notice thereof. A waiver of notice
signed by all shareholders may designate any place, either within or without the
State of Illinois, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the Corporation in the State of
Illinois.
SECTION 4. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
shareholder of record entitled to vote at such meeting, either personally or by
mail, by or at the direction of the President, Secretary or the persons calling
the meeting, not less than ten (10) nor more than sixty (60) days before the
date of the meeting, or, in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty (20) nor
more than sixty (60) days before the date of the meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the records of the
Corporation, with first-class postage thereon prepaid.
SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders
shall meet at any time and place, either within or without the State of
Illinois, and shall consent to the holding of a meeting at such time and place,
such meeting shall be valid without call or notice, and any corporate action may
be taken at such meeting.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten (10) days,
or in the case of
-2-
<PAGE>
a merger, consolidation, share exchange, dissolution or sale, lease or exchange
of assets, at least twenty (20) days, immediately preceding such meeting, but in
neither case for a period exceeding sixty (60) days. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than sixty (60) days and, for a meeting of shareholders, not less
than ten (10) days, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty (20)
days, immediately preceding such meeting but in neither event more than sixty
(60) days. When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this Section, such determination
shall apply to any adjournment thereof; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders.
SECTION 7. SHAREHOLDER LIST. The officer or agent who has charge of
the stock transfer books for shares of the Corporation shall prepare and make,
within twenty (20) days after the record date for a meeting of shareholders or
ten (10) days before such meeting, whichever is earlier, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order
and indicating the address of and number of shares held by each, which list, for
a period of ten (10) days before such meeting, shall be kept on file at the
registered office of the Corporation and shall be subject to the examination of
any shareholder, or his duly authorized legal representative, at any time during
ordinary business hours. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share ledger or
transfer book, or a duplicate thereof kept in the State of Illinois, shall be
PRIMA FACIE evidence as to who are the shareholders entitled to examine such
list or share ledger or transfer book or to vote at any meeting of shareholders.
SECTION 8. QUORUM. A majority of the outstanding shares entitled to
vote, present in person or represented by proxy, shall constitute a quorum at
all meetings of the shareholders for the transaction of business, except as
otherwise provided by statute or by the Articles of Incorporation, but in no
event shall a quorum consist of less than one-third (1/3) 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,
-3-
<PAGE>
unless the vote of a greater number or voting by classes is required by the
Business Corporation Act of the State of Illinois, the Articles of Incorporation
or these By-laws.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact delivered by the beginning of the meeting. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 10. VOTING OF SHARES. Unless otherwise provided in the Articles
of Incorporation, or in any Certificate of Designation containing the rights and
preferences of any class or series of stock of the Corporation, each outstanding
share, regardless of class, shall be entitled to one vote in person or by proxy
upon each matter submitted to a vote of the shareholders.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered in
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the by-laws of such corporation may prescribe, or, in
the absence of such provision, as the Board of Directors of such corporation may
determine.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his administrator, executor,
court-appointed guardian or conservator, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor,
court-appointed guardian or conservator.
Shares registered in the name of a trustee may be voted by him, either in
person or by proxy.
Shares registered in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do is
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
SECTION 12. INSPECTORS. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting.
-4-
<PAGE>
Such inspectors shall ascertain and report the number of shares represented
at the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting to ensure impartiality and fairness to
all of tho shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of the inspectors if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be PRIMA FACIE evidence thereof.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed (i) by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voting or
(ii) by all of the shareholders entitled to vote with respect to the subject
matter thereof. If such consent is signed by less than all of the shareholders
entitled to vote, then such consent shall become effective only if at least five
(5) days prior to the execution of the consent a notice in writing is delivered
to all the shareholders entitled to vote with respect to the subject matter
thereof and, after the effective date of the consent, prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be delivered in writing to those shareholders who have not
consented in writing.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any election
may be VIVA VOCE unless the presiding officer or any shareholder shall demand
that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
which shall constitute the whole Board of Directors shall be not less than five
nor more than eleven and shall be fixed from time to time, within such minimum
and maximum, by the Board of Directors. The minimum and maximum number of
directors constituting the Board of Directors may be increased or decreased
from time to time by amendment to these by-laws. Each director elected shall
hold office until the next annual meeting of the
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shareholders or until his successor shall have been elected and shall have
qualified. Directors need not be residents of Illinois nor shareholders of the
Corporation.
SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from an increase in the number of directors may be filled by election
at a meeting of the directors then in office, though less than a quorum, or by a
sole remaining director, or at any annual meeting of the shareholders or special
meeting of the shareholders called for that purpose. A director elected by the
shareholders to fill a vacancy shall hold office for the balance of the term for
which he or she was elected. A director elected by the directors to fill a
vacancy shall serve until the next meeting of shareholders at which directors
are to be elected.
SECTION 3. DUTIES OF DIRECTORS. The business and affairs of the
Corporation shall be managed by its Board of Directors, except as may be
otherwise provided by statute or the Articles of Incorporation.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held, without other notice than this by-law, immediately
following, and at the same place as, the annual meeting of the shareholders.
The Board of Directors may provide, by resolution, the time and place, either
within or without the State of Illinois, for the holding of additional regular
meetings without other notice than this by-law.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President, any
Vice-President or one-third of the directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place, either
within or without the State of Illinois, as the place for holding any special
meeting of the Board of Directors called by them.
SECTION 6. NOTICE. Notice of special meetings shall be given to each
director, in person or by mail, at least five (5) days prior to the date
designated therein for such meetings. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail so addressed, with
first-class postage thereon prepaid. Any director may waive notice of any
meeting. The attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 7. QUORUM. A majority of the directors in office shall
constitute a quorum for the transaction of business at any
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meeting of the Board of Directors; provided, that if less than a majority of
such number of directors are present at any meeting of the Board of Directors, a
majority of the directors present may adjourn the meeting from time to time
without further notice. The vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless the vote of a greater number is required by the Business Corporation Act
of the State of Illinois, the Articles of Incorporation or these by-laws. The
Board may participate in and act at any meeting through the use of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other, provided that a written record
of such action and meeting are made a permanent part of the Corporation's
records.
SECTION 8. RESIGNATIONS. Any director may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary of the
Corporation. A resignation need not be accepted in order to be effective.
SECTION 9. INFORMAL ACTION BY DIRECTORS. Any action required to be
taken at a meeting of the Board of Directors, or any other action which may be
taken at a meeting of the Board of Directors or a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors shall have the same effect as
an unanimous vote of all of the directors or all of the members of such
committee, as the case may be, at a duly called meeting thereof, and may be
stated as such in any document filed with any third party, including but not
limited to, the Secretary of State of Illinois, any bank or savings and loan
association, Internal Revenue Service, Illinois State Department of Revenue,
Cook County Recorder's Office and the Attorney General of Illinois, and shall be
filed with the minutes of the proceedings of the Board or such committee.
SECTION 10. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the Corporation as directors,
officers or otherwise. By resolution of the Board of Directors the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
SECTION 11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
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unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered or certified mail to the Secretary of the Corporation
within three (3) business days after the adjournment of the meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
SECTION 12. REMOVAL OF DIRECTORS. One or more of the directors of the
Corporation may be removed, with or without cause, at a meeting of shareholders
by the affirmative vote of the holders of a majority of the outstanding shares
then entitled to vote at an election of directors as provided by law.
SECTION 13. COMMITTEES. A majority of the directors may create one or
more committees and appoint members of the Board to serve on the committee or
committees. Each committee shall have two or more members, who shall serve at
the pleasure of the Board. Each committee, to the extent provided in the
resolution creating the same, may exercise the authority of the Board of
Directors except as otherwise provided by law. The committees shall keep
regular minutes of their proceedings and when required by the Board of Directors
shall report the same to the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary, a Treasurer and
one or more Vice-Presidents. There shall be such other officers and assistant
officers as the Board of Directors may from time to time deem necessary. Any
number of offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. Vacancies
may be filled or new offices created and filled at any meeting of the Board of
Directors. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. New
offices may be created at any meeting of the Board of Directors. Election or
appointment of an officer or agent shall not of itself create contract rights.
SECTION 3. COMPENSATION. The salaries and additional compensation, if
any, of all officers of the Corporation shall be
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fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving
notice to the Board of Directors or to the President or Secretary. A
resignation of an officer need not be accepted in order to be effective.
SECTION 5. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
SECTION 6. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled at any
meeting of the Board of Directors for the unexpired portion of the term.
SECTION 7. DUTIES OF OFFICERS. The duties and powers of the officers
shall be as follows:
PRESIDENT
The President shall be the principal executive officer of the Corporation
and, subject to the control of the Board of Directors, shall, in general, be
responsible for the administration and operation of the business and affairs of
the Corporation. He shall preside at all meetings of the shareholders and the
Board of Directors. He may sign with the Secretary, or any other proper officer
of the Corporation thereunto authorized by the Board of Directors, certificates
for shares of the Corporation and any deeds, mortgages, bonds, contracts, or
other instruments which the Board of Directors has authorized to be executed or
the execution of which is in the ordinary course of the Corporation's business,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these bylaws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise signed or
executed, and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Board of Directors
from time to time.
VICE-PRESIDENTS
The Vice-President, or if there shall be more than one, the Vice-Presidents
in the order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence,
disability or refusal to act of the President, perform the duties of the
President, and when so
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acting, shall have all the power of and be subject to all the restrictions upon
the President. He may sign with the Secretary, or any other proper officer of
the Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation and any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed or the
execution of which is in the ordinary course of the Corporation's business,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these bylaws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise signed or
executed, and shall perform such other duties as may be prescribed by the Board
of Directors from time to time.
SECRETARY
The Secretary shall: (a) keep the minutes of the meetings of the
shareholders, the Board of Directors and committees of directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all certificates for shares prior
to the issue thereof and to all documents the execution of which on behalf of
the Corporation under its seal is duly authorized in accordance with the
provisions of these bylaws; (d) keep or cause to be kept a register of the name
and post-office address of each shareholder, which shall be furnished to the
Corporation by such shareholder, and the number and class of shares held by each
shareholder; (e) sign with the President, or a Vice-President, certificates for
shares of the Corporation, the issue of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the Corporation; and (g) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned by the President or by the Board of Directors.
TREASURER
If required by the Board of Directors, the Treasurer shall give a bond for
the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine. The Treasurer shall be the
principal financial and accounting officer of the Corporation, and shall: (a)
have charge and custody of, and be responsible for, all funds and securities of
the Corporation; (b) keep or cause to be kept complete books and records of
account including a record of all receipts and disbursements; (c) receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys not otherwise employed in the name of
the Corporation in such bank, savings and loan association, trust
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company or other depositories as shall be selected in accordance with the
provisions of Article V of these by-laws; (d) from time to time prepare or cause
to be prepared and render financial statements of the Corporation at the request
of the President or the Board of Directors; and (e) in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned by the President or the Board of Directors.
ASSISTANT SECRETARIES AND ASSISTANT TREASURERS
The Assistant Treasurers, if any, shall respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. In
the absence of the Treasurer or Secretary or in the event of the inability or
refusal of the Treasurer or Secretary to act, the Assistant Treasurer and the
Assistant Secretary (or in the event there is more than one of either, in the
order designated by the Board of Directors or in the absence of such
designation, in the order of election) shall perform the duties of the Treasurer
and Secretary, respectively, and when so acting, shall have all the authority of
and be subject to all the restrictions upon such office. The Assistant
Treasurers and Assistant Secretaries shall also perform such duties as shall be
assigned to them from time to time by the Treasurer or the Secretary,
respectively, or by the President or the Board of Directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents, of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
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SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such bank, savings and loan association, trust company or other depositories
as the Board of Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. The issued shares of the
Corporation shall be represented by certificates or shall be uncertificated
shares. Certificates representing shares of the Corporation shall be in such
form as may be determined by the Board of Directors. Such certificates shall be
signed by the President or a Vice-President and by the Secretary or an Assistant
Secretary and shall be sealed with the seal of the Corporation. Any or all of
the signatures on the certificates may be a facsimile. All certificates for
shares shall be consecutively numbered or otherwise identified. The name of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
SECTION 2. TRANSFER OF SHARES. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The Board of
Directors shall have the power to make all such rules and regulations,
consistent with applicable law, as the Board of Directors may deem appropriate
concerning the issue, transfer and registration of certificates for shares of
the Corporation. The person in whose name shares stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
ARTICLE VII
VOTING OF SECURITIES
The President shall have full authority, in the name and on behalf of the
Corporation, to attend, act and vote at any meeting
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of security holders of any corporation in which the Corporation may from time to
time hold securities, and at any such meeting shall possess and may exercise any
and all rights and powers incident to the ownership of such securities and
which, as the holder thereof, the Corporation might possess and exercise if
personally present, and may exercise such power and authority through the
execution of proxies, or the President or the Board of Directors may delegate
such power and authority to any other officer, agent or employee of this
Corporation.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 of each year,
unless otherwise determined by the Board of Directors.
ARTICLE IX
INDEMNIFICATION
SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Corporation, or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner in which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or
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completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to have been liable to the Corporation
unless, and only to the extent that, the court in which such action or suit is
finally adjudicated shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
SECTION 3. INDEMNIFICATION AGAINST EXPENSES. Anything in Sections 1 or
2 of this Article IX to the contrary notwithstanding, to the extent that any
person referred to therein has been successful, on the merits or otherwise, in
the defense of any action, suit or proceeding referred to therein or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
Sections 1 and 2 of this Article IX (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case by the Board of
Directors and upon a determination that the indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 1 and 2 of this
Article IX. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum (as defined in the bylaws of the Corporation)
consisting of directors who are not parties to such action, suit or proceeding,
or (ii) if such quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the shareholders.
SECTION 5. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation.
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SECTION 6. PROVISIONS NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by or granted under the other subsections of
this Article IX shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such official capacity and as to action in
another capacity while holding such office.
SECTION 7. INSURANCE. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions of
this Article IX.
SECTION 8. NOTICE TO SHAREHOLDERS. If a Corporation has paid indemnity
or has advanced expenses to a director, officer, employee or agent, the
Corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholder's meeting.
SECTION 9. DEFINITIONS. For purposes of this Article IX, references to
"the Corporation" shall include, in addition to the surviving corporation, any
merging corporation (including any corporation having merged with a merging
corporation) absorbed in a merger which, if its separate existence had
continued, would have had the power and authority to indemnify its directors,
officers, and employees or agents, so that any person who was a director,
officer, employee or agent of such merging corporation, or was serving at the
request of such merging corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article IX with
respect to the surviving corporation as such person would have with respect to
such merging corporation if its separate existence had continued. For the
purposes of this Article IX, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries. A person who
acted in good faith and in a manner he or she reasonably believed to be in the
best interests of the participants and beneficiaries of an employee
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benefit plan shall be deemed to have acted in a manner "not opposed to the best
interest of the Corporation" as referred to in this Article IX.
SECTION 10. CONTINUANCE OF INDEMNIFICATION. The indemnification and
advancement of expenses provided by or granted under this Section shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of that person.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of these
by-laws, the Articles of Incorporation or the Business Corporation Act of the
State of Illinois, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ARTICLE XI
AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be
adopted at any properly constituted meeting of the shareholders or Board of
Directors by a majority vote of a quorum (as defined in the by-laws of this
Corporation), provided that notice of the proposed change was given in the
notice of such meeting of the shareholders or the Board of Directors, as the
case may be.
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EXHIBIT A
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
HA-LO INDUSTRIES, INC.
RESOLVED, that Paragraph 1 of Article Four of the Corporation's Articles of
Incorporation is amended to read in its entirety as follows:
ARTICLE FOUR
PARAGRAPH 1: The number of shares which the Corporation shall be
authorized to issue, itemized by class, series and par value, if any, is:
Class Series Per Share Par Value Shares Authorized
----- ------ ------------------- -----------------
Common None No par value 100,000,000
Preferred None No par value 10,000,000
FURTHER RESOLVED, that the Articles of Incorporation of the Corporation are
further amended by the addition of Article Nine which shall read as follows:
Article Nine OTHER PROVISIONS.
Pursuant to the authorization of the Business Corporation Act of 1983 of
the State of Illinois (as amended from time to time), the requirement of
approval of certain acts by the affirmative vote of at least two-thirds of the
votes of shares entitled to vote is hereby reduced to the affirmative vote of a
majority of the votes of the shares entitled to vote on the issue and a majority
of the shares of each class or series of shares entitled to vote as a class or
series.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AND PLAN OF REORGANIZATION
BY AND AMONG
HA-LO INDUSTRIES, INC.,
HA-LO ACQUISITION CORPORATION OF MICHIGAN, INC.,
CREATIVE CONCEPTS IN ADVERTISING, INC.,
CREADIS GROUP INC.,
1132832 ONTARIO INC.,
1132831 ONTARIO CORP.,
and
THE SHAREHOLDERS OF
CREATIVE CONCEPTS IN ADVERTISING, INC.,
1132832 ONTARIO INC.,
and
1132831 ONTARIO CORP.
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER AND PLAN OF REORGANIZATION, dated as of
October 29, 1996 (this "Agreement"), is by and among HA-LO Industries, Inc., an
Illinois corporation ("Acquiror"), HA-LO Acquisition Corporation of Michigan,
Inc., a Michigan corporation ("Acquiror Sub"), Creative Concepts In Advertising,
Inc., a Michigan corporation (the "U.S. Company"), Creadis Group Inc., a British
Columbia corporation (the "Canada Company"), 1132832 Ontario Inc., an Ontario
corporation ("Canada Holding Company-2"), 1132831 Ontario Corp., an Ontario
corporation ("Canada Holding Company-1"), Linden D. Nelson, majority shareholder
of the U.S. Company and sole shareholder of Canada Holding Company-1 ("Nelson"),
and the other shareholders of the U.S. Company, who are identified on Exhibit A
to this Agreement (Nelson, such shareholders, and every other person who, with
Acquiror's consent, acquires shares of the authorized capital stock of the U.S.
Company after the date hereof, are hereafter collectively referred to as the
"U.S. Shareholders", and individually as a "U.S. Shareholder").
WITNESSETH:
WHEREAS, the U.S. Company is engaged in the business of creating,
developing, marketing and distributing specialty advertising, promotion and
premium products in the United States and the United Kingdom;
WHEREAS, the Canada Company is engaged in the business of creating,
developing, marketing and distributing specialty advertising, promotion and
premium products in Canada;
WHEREAS, the Canada Company is a wholly-owned subsidiary of Canada Holding
Company-2, which is a wholly-owned subsidiary of Canada Holding Company-1 (the
Canada Company, Canada Holding Company-1 and Canada Holding Company-2 are
hereafter sometimes collectively referred to as the "Canadian Target
Companies");
WHEREAS, the U.S. Shareholders are the sole shareholders of the U.S.
Company, and Nelson is the sole shareholder of Canada Holding Company-1;
WHEREAS, the U.S. Company and the Canadian Target Companies are
"affiliates" through common ownership within the meaning of (i) paragraphs (c)
and (d) of Rule 145 of the rules and regulations of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act"), and
(ii) Accounting Series, Releases 130 and 135, as amended, of the Commission (the
U.S. Company and the Canadian Target Companies are hereafter sometimes
collectively referred to as "Target Companies");
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Business Corporation Act of the State of Michigan, as
amended ("Michigan Law"), Acquiror Sub,
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a wholly-owned subsidiary of Acquiror, will merge with and into the U.S. Company
(the "U.S. Merger");
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Nelson will exchange all of the outstanding shares of Canada Holding Company-1
solely for voting stock of Acquiror (such transaction is hereafter the "Canada
Reorganization", and together, the U.S. Merger and the Canada Reorganization are
hereafter sometimes collectively referred to as the "Unitary Transaction");
WHEREAS, the U.S. Shareholders and the Board of Directors of the U.S.
Company have determined that the U.S. Merger and the Unitary Transaction are in
the best interest of the U.S. Company and its shareholders, and have unanimously
approved and adopted this Agreement and consented to the transactions
contemplated hereby;
WHEREAS, the Boards of Directors of each Canadian Target Company have
determined that the Canada Reorganization and the Unitary Transaction are in the
best interests of that Canadian Target Company and its shareholders, and have
unanimously approved and adopted this Agreement and consented to the
transactions contemplated hereby;
WHEREAS, the Board of Directors of Acquiror has determined that the U.S.
Merger, the Canada Reorganization and the Unitary Transaction are in the best
interests of Acquiror and its shareholders, and has approved and adopted this
Agreement and consented to the transactions contemplated hereby;
WHEREAS, the shareholder and Board of Directors of Acquiror Sub have
determined that the U.S. Merger and the Unitary Transaction are in the best
interests of Acquiror Sub and its shareholder, and has approved and adopted this
Agreement and consented to the transactions contemplated hereby; and
WHEREAS, it is the intent of the parties to account for the Unitary
Transaction as (i) a tax-free reorganization under applicable U.S. and Canadian
rules and regulations, including the Internal Revenue Code of 1986, as amended
(the "Code"), and the Canada-U.S. Income Tax Convention, as amended (the
"Treaty"), and (ii) a "pooling of interests" under applicable rules and
regulations, including U.S. generally accepted accounting principles and
standards ("GAAP"), the Securities Act and releases of the Financial Accounting
Standards Board and the Commission;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
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ARTICLE I
THE UNITARY TRANSACTION
SECTION 1.01. THE U.S. MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Michigan Law, at
the "Effective Time" (as hereafter defined), Acquiror Sub shall be merged with
and into the U.S. Company. As a result of the U.S. Merger, the separate
corporate existence of Acquiror Sub shall cease and the U.S. Company shall
continue as the surviving corporation of the Merger (hereafter, the "U.S.
Surviving Corporation").
SECTION 1.02. THE CANADA REORGANIZATION. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time, Nelson shall
convey, transfer and assign to Acquiror all of his right, title and interest in
and to his shares of Canada Holding Company-1 common stock, representing one
hundred percent (100%) of the outstanding stock of Canada Holding Company-1
(hereafter, the "Canada Holding Company Stock"), solely in exchange for shares
of the common voting stock, no par value, of Acquiror ("Acquiror Common Stock").
SECTION 1.03. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or, if permissible, waiver, of the conditions set forth in Article
VII, the parties shall cause the Unitary Transaction to be consummated by filing
a certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Michigan in such form as required by, and executed in
accordance with, the relevant provisions of Michigan Law (the date and time of
such filing is the "Effective Time").
SECTION 1.04. EFFECT OF THE U.S. MERGER. At the Effective Time, the
effect of the U.S. Merger shall be as provided in the applicable provisions of
Michigan Law. Without limiting the generality of those laws, and subject to
their provisions, at the Effective Time, except as otherwise provided in this
Agreement, all the properties, rights, privileges, powers and franchises of
Acquiror Sub and the U.S. Company shall vest in the U.S. Surviving Corporation,
and all debts, liabilities and duties of Acquiror Sub and the U.S. Company shall
become the debts, liabilities and duties of the U.S. Surviving Corporation.
SECTION 1.05. ARTICLES OF INCORPORATION; BY-LAWS. At the Effective Time,
the Articles of Incorporation of the U.S. Company shall be the Articles of
Incorporation of the U.S. Surviving Corporation, and the By-Laws of Acquiror Sub
shall be the By-Laws of the U.S. Surviving Corporation. Acquiror reserves the
right, exercisable in its sole discretion on and after the Effective Time, to
amend, or cause to be amended, the Articles of Incorporation and By-Laws of any
or all of the Canadian Target Companies.
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SECTION 1.06. DIRECTORS AND OFFICERS. The initial Board of Directors of
the U.S. Surviving Corporation shall be comprised of thirteen (13) individuals,
seven (7) of whom shall be selected by Acquiror, in its sole discretion, and the
remainder of whom shall be those individuals named on Schedule 1.06 to this
Agreement; provided, however, in matters of routine governance, such Board shall
delegate its authority to an Executive Committee comprised of Nelson, Lemberg
and each of Acquiror's Chief Executive, Operating and Financial Officers.
Except as may be provided in the "Company Contracts" (as hereafter defined), or
in the Employment Agreements attached as Exhibits to this Agreement, at the
Effective Time the officers of Acquiror Sub immediately preceding the Effective
Time shall be the initial officers of the U.S. Surviving Corporation, each to
hold office in accordance with the Articles of Incorporation or By-Laws of the
U.S. Surviving Corporation, and until their respective successors are duly
elected or appointed and qualified.
SECTION 1.07. TAKING NECESSARY ACTION; FURTHER ACTION. The parties shall
each use reasonable efforts to take all actions as may be necessary or
appropriate to effectuate the Unitary Transaction. If, at any time following
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement or to vest the U.S. Surviving Corporation with
full right, title and possession to all properties, rights, privileges,
immunities, powers and franchises of its constituent corporations, the officers
of the U.S. Surviving Corporation are fully authorized, in the name of each
constituent corporation or otherwise, to take, and shall take, all such lawful
and necessary action, to carry out the purposes of this Agreement.
SECTION 1.08. THE CLOSING. The closing of the transactions contemplated
by this Agreement will take place at the offices of Neal Gerber & Eisenberg,
Chicago, Illinois, and will be effective at the Effective Time.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. SHARE CONSIDERATION. At the Effective Time, by virtue of
the Unitary Transaction, Acquiror shall issue a total of two million two hundred
fifty thousand (2,250,000) shares of Acquiror Common Stock to the U.S.
Shareholders and Nelson (in his capacity as sole shareholder of Canada Holding
Company-1), as more fully set forth in Sections 2.01(a) and (b), below:
(a) CONVERSION APPLICABLE TO OUTSTANDING SHARES OF THE U.S. COMPANY.
At the Effective Time, by virtue of the U.S. Merger, and without any
further action on the part of Acquiror, Acquiror Sub, the U.S. Company, the
U.S. Share-holders or the holders of any other shares of capital stock of
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the U.S. Company, each share of common stock, no par value per share, of
the U.S. Company ("U.S. Company Stock") issued and outstanding immediately
preceding the Effective Time shall be converted into and become that share
quantity of Acquiror Common Stock (such number is the "U.S. Merger Exchange
Ratio") equal to the quotient of (i) two million two hundred thousand
(2,200,000), over (ii) the number of whole shares of U.S. Company Stock
issued and outstanding immediately prior to the Effective Time. Each such
share of U.S. Company Stock so converted shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the shares of Acquiror Common Stock into which such U.S. Company
Stock was converted in the U.S. Merger. Certificates previously
representing shares of U.S. Company Stock shall, together with such duly
executed documents and other instruments of transfer as may reasonably be
required by Acquiror, be exchanged for certificates representing whole
shares of Acquiror Common Stock issued in consideration therefor, without
interest. All shares of Acquiror Common Stock issued upon conversion of
U.S. Company Stock in accordance with the terms of this Agreement shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of U.S. Company Stock.
(b) CONSIDERATION ISSUABLE TO NELSON IN THE CANADA REORGANIZATION.
At the Effective Time, by virtue of the Canada Reorganization, Acquiror
shall issue fifty thousand (50,000) shares of Acquiror Common Stock to
Nelson against delivery by Nelson of the Canada Holding Company Stock,
together with such duly executed documents and other instruments of
transfer as may reasonably be required by Acquiror.
(c) RESTRICTIONS APPLICABLE TO ACQUIROR COMMON STOCK. The Target
Companies, the U.S. Shareholders and Nelson (in his capacity as sole
shareholder of Canada Holding Company-1) acknowledge that the shares of
Acquiror Common Stock issued and delivered by Acquiror at the Effective
Time pursuant to this Agreement have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and even if so
registered, may be subject to restrictions on resale under federal and
state securities laws or under this Agreement generally. As used in this
Agreement, the term "Unregistered Shares" shall mean the shares of Acquiror
Common Stock issued hereunder which have not been registered for resale
under the Securities Act. In addition, the Target Companies, the U.S.
Shareholders and Nelson acknowledge that, until the Unregistered Shares
have been registered in accordance with the provisions of Section 6.03, and
subject to the provisions of Article IX, including but not limited to
Section 9.06 thereof, Acquiror shall be entitled to set-off against or
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withhold from the Unregistered Shares all or a portion of the damages
sustained directly or indirectly by Acquiror under this Agreement or in
connection with the Unitary Transaction. The Target Companies, the U.S.
Shareholders and Nelson hereby consent to the issuance by Acquiror of
Unregistered Shares in the Unitary Transaction, and agree they shall
possess no independent right to compel, and shall forbear from taking any
action whatsoever to cause, the registration of Unregistered Shares, except
to the extent provided under Article VI hereof.
(d) EFFECT OF RECAPITALIZATION, ETC. If between the date of this
Agreement and the Effective Time the outstanding shares of Acquiror Common
Stock, U.S. Company Stock or Canada Holding Company Stock shall have been
changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, the U.S. Exchange Ratio and/or
aggregate shares of Acquiror Common Stock to be issued to the U.S.
Shareholders and Nelson under subsections (a) and (b), above, shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares.
(e) NO FRACTIONAL SHARES. Anything in this Agreement to the contrary
notwithstanding, any fractional shares of Acquiror Common Stock otherwise
issuable in the Unitary Transaction shall be rounded upward or downward to
the nearest whole number of shares of Acquiror Common Stock.
(f) TREASURY AND OTHER SHARES. Each share of U.S. Company Stock held
in the treasury of the U.S. Company immediately preceding the Effective
Time shall be cancelled and extinguished without any conversion or exchange
of such shares and no payment shall be made with respect to such shares.
(g) CONVERSION OF ACQUIROR SUB SHARES. Each share of common stock,
no par value, of Acquiror Sub issued and outstanding immediately preceding
the Effective Time shall be converted into and exchanged for one (1) newly
and validly issued, fully paid and nonassessable share of common stock of
the U.S. Surviving Corporation.
SECTION 2.02. STOCK TRANSFER BOOKS. On and as of the date of this
Agreement, the stock transfer books of the Target Companies shall be closed and
thereafter, solely with respect to the Unitary Transaction, and except as
provided in Section 2.03, there shall be no further registration of transfers of
shares of stock of the Target Companies on the records of the Target Companies.
From and after the Effective Time, the holders of certificates representing
shares of U.S. Company Stock outstanding immediately preceding the Effective
Time shall cease to have any rights with respect to such
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shares of U.S. Company Stock following the U.S. Merger except as otherwise
provided in this Agreement or by "Law" (as hereafter defined). For the purposes
of this Agreement, the term "Law" shall mean any foreign, U.S. federal, state,
provincial, local or municipal law, statute, ordinance, rule, regulation, order,
judgment or decree.
SECTION 2.03. OTHER U.S. COMPANY SECURITIES AND OPTIONS. As of the
Effective Time, each outstanding share of common and preferred capital stock of
the U.S. Company other than U.S. Company Stock ("Other U.S. Company
Securities"), together with all options, warrants or other rights, agreements,
arrangements or commitments (collectively, the "U.S. Company Options") to sell
or purchase shares of U.S. Company Stock or Other U.S. Company Securities,
whether written, oral, authorized, outstanding, issued, unissued, vested or
unvested, shall be cancelled and terminated, and of no further force or effect.
Prior to the Effective Time, except as provided below, the U.S. Company and the
U.S. Shareholders shall take all corporate action necessary to effectuate the
cancellation and termination of all Other U.S. Company Securities and U.S.
Company Options.
(a) The Target Companies and U.S. Shareholders hereby acknowledge
that, by virtue of the U.S. Merger, the last-named U.S. Shareholder on
Exhibit A hereto (hereafter, "Lemberg") is entitled to a distribution of
U.S. Company Stock in accordance with the provisions of the Company
Contract described at Item No. 3 of Section 3.10(a)(ii) to the Target
Company Disclosure Schedules (such shares are hereafter, the
"Contract-Based Shares"). At least three (3) days prior to the Effective
Time, (i) the U.S. Company or Nelson shall physically transfer the
Contract-Based Shares to Lemberg, or at Nelson's direction, each U.S.
Shareholder shall assign such quantity of U.S. Company Stock to Lemberg as
shall be necessary to create equivalent proportionality of interest among
all U.S. Shareholders (assuming the Contract-Based Shares had been issued
directly by the U.S. Company), and (ii) the U.S. Company and U.S.
Shareholders shall provide Acquiror with reasonably satisfactory
verification of their compliance with the foregoing requirements.
(b) Acquiror acknowledges the Contract-Based Shares have been issued
to Lemberg by virtue of the Unitary Transaction, and agrees that if this
Agreement is terminated prior to the Effective Time, Lemberg's liability to
Acquiror shall be (i) several (opposed to joint and several), and (ii)
limited to equitable relief awarded in connection with, and "Damages" (as
hereafter defined) proximately resulting from or occasioned by, a breach of
or violation in any covenant or agreement on Lemberg's part to be performed
prior to the Effective Time, but only to the extent Acquiror may properly
claim such relief
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or Damages under the other terms and conditions of this Agreement (opposed
to this Section 2.03(c)).
(c) Lemberg represents to Acquiror that, as of the date hereof, no
Target Company is in default under or has breached any material term or
condition of any agreement, contract or understanding to which Lemberg is a
party, and except for the Contract-Based Shares, wages and other
remuneration not yet overdue, and benefits to be paid under the "Employee
Benefit Plans" listed in Section 3.11 of the Target Company Disclosure
Schedules, no basis whatsoever exists for Lemberg's assertion of a claim
against the Target Companies for the payment of money, securities or other
property.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE TARGET COMPANIES AND U.S. SHAREHOLDERS
The term "Target Company Adverse Effect", as used in this Agreement, shall
mean any change or event that, individually or when taken together with all
other such changes or events, would reasonably be considered to be adverse to
the financial condition, business or results of operations of a Target Company
or any of its subsidiaries; provided, however, except to the extent set forth in
Section 9.03 hereof, the occurrence of any change or event described in any
Section of the Target Company Disclosure Schedules attached to this Agreement as
Schedule 3.00 (the "Target Company Disclosure Schedules") shall not,
individually or in the aggregate, constitute a Target Company Adverse Effect.
The term "subsidiary" (or its plural) as used in this Agreement with
respect to a Target Company, the U.S. Surviving Corporation, Acquiror, Acquiror
Sub or any other entity, shall mean any corporation, partnership, joint venture
or other entity of which a Target Company, the U.S. Surviving Corporation,
Acquiror, Acquiror Sub or other entity, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
five percent (5%) or more of the stock or other equity interests generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other entity.
For purposes of this Article III, and as generally applied to a Target
Company or U.S. Shareholder, the term "knowledge" means the actual knowledge of
Nelson, Lemberg and Eric Rosenbloom obtained in the normal conduct of business
and following an investigation which is reasonable under the circumstances;
provided, however, no investigation shall be required with respect to the Target
Company locations listed below, and with respect to such locations, the term
"knowledge" shall include the actual
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knowledge of the employee(s) whose names are set forth opposite such locations:
United Kingdom (U.S. Company) Christopher Halstead
Alabama (U.S. Company) Richard Hassal
British Columbia (Canada Company) Alan Baldwin/Mark Freed
Ontario (Canada Company) Alan Baldwin/Mark Freed
The Target Companies and the U.S. Shareholders jointly and severally
represent and warrant to Acquiror and Acquiror Sub that, except as specifically
described in the Target Company Disclosure Schedules, the statements contained
in this Article III are true and correct as of the date of this Agreement and
will be true and correct as of the Effective Time (as though made then) with
respect to the Target Companies, their respective businesses, the U.S.
Shareholders and Nelson (in his capacity as sole shareholder of the Canada
Company):
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each Target
Company and its subsidiaries (if any) is a corporation validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or
organization. Except to the extent described in Section 3.01 of the Target
Company Disclosure Schedules, each Target Company possesses all requisite
corporate power and authority to own, lease and operate its properties and/or to
carry on their business as it is now being conducted, and is duly qualified and
in good standing to do business in each jurisdiction in which the nature of the
business conducted by such Target Company or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
do so would not have a Target Company Adverse Effect. A true and complete
listing of each Target Company's direct and indirect subsidiaries, together with
the jurisdiction of incorporation or organization of each such subsidiary and
the percentage of each subsidiary's outstanding stock or other equity interests
owned by such Target Company or subsidiary thereof, is set forth in Section 3.01
of the Target Company Disclosure Schedules.
SECTION 3.02. ARTICLES OF INCORPORATION; BY-LAWS. The U.S. Company has
furnished to Acquiror complete and correct copies of its Articles of
Incorporation and By-Laws, as amended or restated, together with those of each
of its subsidiaries. The Canadian Target Companies have each furnished to
Acquiror complete and correct copies of their respective Articles of
Incorporation and By-Laws, as amended or restated, together with those of each
of their respective subsidiaries. Except as set forth in Section 3.02 of the
Target Company Disclosure Schedules, no Target Company and no subsidiary thereof
is in violation of any provision of its Articles of Incorporation or By-Laws.
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SECTION 3.03. CAPITALIZATION OF THE TARGET COMPANIES.
(a) As of the date of this Agreement, the authorized capital stock of
the U.S. Company consists solely of fifty thousand (50,000) shares of U.S.
Company Stock, $1.00 par value, of which five thousand (5,000) shares are
issued and outstanding. As of the Effective Time, except for the
Contract-Based Shares, there shall not be any Other U.S. Company Securities
authorized by the U.S. Company.
(b) As of the date of this Agreement, the authorized capital stock of
Canadian Holding Company-1 consists solely of an unlimited number of common
voting shares without par value, of which one hundred (100) shares are
issued and outstanding. As of the date hereof there are not, and at the
Effective Time there shall not be, any Canada Holding Company-1 securities
authorized by Canada Holding Company-1 and not described in the preceding
sentence.
(c) As of the date of this Agreement, the authorized capital stock of
Canadian Holding Company-2 consists solely of an unlimited number of common
voting shares without par value, of which one hundred (100) shares are
issued and outstanding. As of the date hereof there are not, and at the
Effective Time there shall not be, any Canada Holding Company-2 securities
authorized by Canada Holding Company-2 and not described in the preceding
sentence.
(d) As of the date of this Agreement, the authorized capital stock of
the Canada Company consists solely of (i) ten thousand (10,000) shares of
Class A common voting shares without par value, of which one thousand
(1,000) shares are issued and outstanding, (ii) ten thousand (10,000)
shares of Class B common voting shares, none of which are issued or
outstanding, and (iii) ten thousand (10,000) shares of Class C common
voting shares, one thousand (1,000) of which are issued and outstanding.
As of the date hereof there are not, and at the Effective Time there will
not be, any Canada Company securities authorized by the Canada Company and
not described in the preceding sentence.
(e) Except as described in Section 3.03(e) of the Target Company
Disclosure Schedules, no authorized shares of Target Company stock are held
in treasury or are reserved for any other purpose.
(f) All outstanding shares of Target Company stock are, and as of the
Effective Time will be, duly authorized, validly issued, fully paid and
non-assessable, and not subject to preemptive rights created by Law, a
Target Company's Articles of Incorporation or By-Laws, or any agreement as
to which a Target Company is party or by which it is bound. Section
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3.03(f) of the Target Company Disclosure Schedules sets forth (i) the
number of authorized shares of each class of stock of, or other equity
interests in, each subsidiary of a Target Company, (ii) the number of
outstanding shares (if any) of each such class, and (iii) the legal and
beneficial holder of each such outstanding share. All outstanding shares
of stock of, or other equity interests in, the subsidiaries of the Target
Companies are, and as of the Effective Time will be, duly authorized,
validly issued, fully paid and non-assessable, and such shares or other
equity interests are owned by their respective holders free and clear of
all security interests, liens, claims, pledges, agreements, limitations on
voting rights, charges or other encumbrances of any nature whatsoever
except as disclosed in Section 3.03(f) of the Target Company Disclosure
Schedules.
(g) Except as disclosed in Section 3.03(g) of the Target Company
Disclosure Schedules, there are no U.S. Company Options to which the U.S.
Company or any of its subsidiaries is a party of any character relating to
the issued or unissued capital stock of, or other equity interests in, the
U.S. Company or any of its subsidiaries, or obligating the U.S. Company or
any of its subsidiaries to grant, issue, sell or register for sale any
shares of the capital stock of, or other equity interests in, the U.S.
Company or any subsidiaries thereof, whether by sale, lease, license or
otherwise. As of the date of this Agreement there are no, and as of the
Effective Time there will be no, obligations, contingent or otherwise, of
the U.S. Company or any of its subsidiaries to (x) repurchase, redeem or
otherwise acquire any shares of U.S. Company Stock or the capital stock of,
or other equity interests in, any subsidiary of the U.S. Company, or (y)
provide funds to, or make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any subsidiary or other person except for (i) guarantees of
obligations of subsidiaries in the ordinary course of business, and (ii)
advances and loans described in Section 3.03(g) of the Target Company
Disclosure Schedules to a supplier or employee of the U.S. Company.
(h) Except as disclosed in Section 3.03(h) of the Target Company
Disclosure Schedules, there are no options to which any Canadian Target
Company or any of its subsidiaries is a party of any character relating to
the issued or unissued capital stock of, or other equity interests in, a
Canadian Target Company or any of its subsidiaries or obligating a Canadian
Target Company or any of its subsidiaries to grant, issue, sell or register
for sale any shares of the capital stock of, or other equity interests in,
a Canadian Target Company or any subsidiaries thereof, whether by sale,
lease, license or otherwise. As of the date of this Agreement there
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are no, and as of the Effective Time there will be no, obligations,
contingent or otherwise, of a Canadian Target Company or any of its
subsidiaries to (x) repurchase, redeem or otherwise acquire any shares of
such Canadian Target Company's stock, or the stock of, or other equity
interests in, any subsidiary of such Canadian Target Company, or (y)
provide funds to, or make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any subsidiary or other person except for (i) guarantees of
obligations of subsidiaries in the ordinary course of business, and (ii)
advances and loans described in Section 3.03(h) of the Target Company
Disclosure Schedules to a supplier or employee of such Canadian Target
Company.
(i) The U.S. Shareholders hold of record and own the entire
beneficial interest in all of the outstanding shares of U.S. Company Stock,
and Nelson holds of record and owns the entire beneficial interest in all
of the outstanding Canada Holding Company Stock. Such U.S. Company Stock
and Canada Holding Company Stock is, and as of the Effective Time will be,
free and clear of all liabilities, liens, charges, security interests,
adverse claims, pledges, restrictions, encumbrances and demands whatsoever.
Except for Lemberg's right to Contract-Based Shares, no other person has,
and as of the Effective Time no other person will have, any right, title or
interest in or to any shares of U.S. Company Stock or Canada Holding
Company Stock, whether by reason of any purchase agreement, Law, statute,
rule, option, assignment, contract (written or oral) or otherwise. Neither
Nelson nor any U.S. Shareholder is a party to any voting trust, proxy or
other agreement or understanding with respect to the voting of such shares
of U.S. Company Stock or Canada Holding Company Stock. Neither Nelson nor
any U.S. Shareholder has entered into, issued or given, or agreed to enter
into, issue or give, any person other than Acquiror or its subsidiaries an
option, warrant, right, put, call, commitment or agreement relating to, or
any security convertible into, any shares of stock of the Target Companies
or any such convertible security and, except as set forth in Section
3.03(i) to the Target Company Disclosure Schedules, no Target Company is a
party to any agreement (written or oral) respecting the issue, purchase,
sale or transfer of any of the same.
(j) Canada Holding Company-1 holds of record and owns the entire
beneficial interest in all of the outstanding stock of Canada Holding
Company-2, and Canada Holding Company-2 holds of record and owns the entire
beneficial interest in all of the outstanding stock of the Canada Company.
Such Canada Holding Company-2 stock and Canada Company stock is, and at the
Effective Time will be, free and clear of all liabilities, liens, charges,
security interests, adverse claims, pledges,
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restrictions, encumbrances and demands whatsoever, except for an unreleased
security interest with respect to a purchase money note which has
previously been paid in full. Except as disclosed in Section 3.03(j) of
the Target Company Disclosure Schedules, no other person has, or at the
Effective Time will have, any right, title or interest in or to such shares
of Canada Holding Company-2 stock or Canada Company stock, whether by
reason of any purchase agreement, Law, statute, rule, option, assignment,
contract (written or oral) or otherwise. Neither Canada Holding Company-2
nor the Canada Company is a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of such shares, and
neither has entered into, issued or given, or agreed to enter into, issue
or give, any person other than Acquiror or its subsidiaries an option,
warrant, right, put, call, commitment or agreement relating to, or any
security convertible into, any shares of stock of the Target Companies or
any such convertible security.
SECTION 3.04. AUTHORITY.
(a) Each Target Company possesses the requisite corporate power and
authority to execute and deliver this Agreement, including the Exhibits
attached hereto, to perform its obligations under this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by each Target Company and the consummation
by such Target Company of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of any Target Company are necessary to
authorize this Agreement or to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by the
Target Companies, and assuming the due authorization, execution and
delivery by Acquiror and Acquiror Sub, constitutes the legal, valid and
binding obligation of each Target Company, enforceable in accordance with
its terms and conditions.
(b) Each U.S. Shareholder has full power and authority to execute and
deliver this Agreement, including the Exhibits attached hereto, and to
perform his obligations hereunder and thereunder. This Agreement has been
duly executed and delivered by each U.S. Shareholder, and assuming the due
authorization, execution and delivery by Acquiror and Acquiror Sub,
constitutes the legal, valid and binding obligation of such U.S.
Shareholder.
SECTION 3.05. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the U.S. Company
does not, and the performance of this Agreement
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by the U.S. Company shall not (i) conflict with or violate its Articles of
Incorporation or By-Laws or equivalent organizational documents, or those
of any of its subsidiaries, (ii) subject to (x) obtaining the consents,
authorizations, approvals and permits of, and making filings with or
notifications to, any governmental or regulatory authority, domestic or
foreign (collectively, "Governmental Entities"), pursuant to the applicable
requirements of U.S. federal, state and local rules, Laws and regulations,
including but not limited to the Securities Act and the rules and
regulations thereunder, the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act"), state
securities or blue sky laws and the rules and regulations thereunder ("Blue
Sky Laws"), the Code, the Treaty, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), and the filing and recordation of appropriate
merger documents as required by Michigan Law, and (y) obtaining the
consents, approvals, authorizations or permits described in Section 3.05(d)
of the Target Company Disclosure Schedules, conflict with or violate any
Laws applicable to the U.S. Company or any of its subsidiaries or by which
any of their respective properties is bound or affected, or (iii) result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of the U.S. Company or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the U.S.
Company or any of its subsidiaries is a party or by which the U.S. Company
or any of its subsidiaries or any of their respective properties is bound
or affected, except for any such conflicts or violations described in
clause (ii), or breaches or defaults described in clause (iii) that would
not have a Target Company Adverse Effect.
(b) The execution and delivery of this Agreement by the Canadian
Target Companies does not, and the performance of this Agreement by the
Canadian Target Companies shall not (i) conflict with or violate their
respective Articles or By-Laws or equivalent organizational documents, or
those of any of their subsidiaries, (ii) subject to (x) obtaining the
consents, authorizations, approvals and permits of, and making filings with
or notifications to, any Governmental Entities pursuant to the applicable
requirements of U.S. and Canadian federal, state, provincial and local
rules, Laws and regulations, including but not limited to the HSR Act, the
Competition Act (Canada), and the rules and regulations thereunder (the
"Competition Act"), the Investment Canada Act,
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and the rules and regulations thereunder (the "Investment Act"), the Code,
and the rules and regulations thereunder, and the Income Tax Act (Canada),
RSC 1985 (5th Supplement) c. 1, as amended, including draft legislation
introduced on April 23, 1996 and June 20, 1996, and budget proposals
introduced on March 6, 1996, and the rules and regulations thereunder (the
"ITA"), and (y) obtaining the consents, approvals, authorizations or
permits described in Section 3.05(d) of the Target Company Disclosure
Schedules, conflict with or violate any Laws applicable to the Canadian
Target Companies or any of their subsidiaries or by which any of their
respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Canadian Target Companies or any of their subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Canadian
Target Companies, or any of their subsidiaries, is a party or by which the
Canadian Target Companies or any of their subsidiaries or any of their
respective properties is bound or affected, except for any such conflicts
or violations described in clause (ii), or breaches or defaults described
in clause (iii) that would not have a Target Company Adverse Effect.
(c) Neither the execution, delivery nor performance of this
Agreement, nor the observance or compliance with the terms and conditions
hereof, will violate any judgment, order, writ, injunction or decree of any
court or agency, any Law, statute, regulation or rule, or any material
indenture, agreement or other instrument, to which a U.S. Shareholder is a
party or by which such U.S. Shareholder or any of his assets or properties
is bound, which could cause a Target Company Adverse Effect.
(d) The execution and delivery of this Agreement by the Target
Companies and the U.S. Shareholders does not, and the performance of this
Agreement by the Target Companies and the U.S. Shareholders shall not,
individually or collectively, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Entities
or other persons, except for applicable requirements, if any, of the
Securities Act, Exchange Act, Blue Sky Laws, the HSR Act, the Competition
Act, the Investment Act, the Code, the Treaty, the ITA, the consents,
approvals, authorizations or permits described in Section 3.05(d) of the
Target Company Disclosure Schedules, and the filing and recordation of
appropriate merger documents as required by Michigan Law, as applicable.
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SECTION 3.06. PERMITS; COMPLIANCE. Each Target Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary for such Target Company and its subsidiaries to
own, lease and operate their respective properties or to carry on their
respective businesses as they are now being conducted (each, a "Company
Permit"), other than where the failure to so possess a Company Permit would not
have a Target Company Adverse Effect, and no suspension, revocation or
cancellation of any such Company Permit is pending or, to the knowledge of any
Target Company, threatened. No Target Company or subsidiary thereof is
operating in conflict with, or is in default or violation of (i) any foreign,
federal, state, provincial or local rule, Law or regulation applicable to such
person or by which its properties are bound or affected, or (ii) any Company
Permit, except for any such conflicts, defaults or violations which would not
have a Target Company Adverse Effect. Each Company Permit material to the
operations of a Target Company is listed in Section 3.06 to the Target Company
Disclosure Schedules.
SECTION 3.07. GOVERNMENTAL REPORTS; FINANCIAL STATEMENTS.
(a) Since December 31, 1992, the Target Companies and their
respective subsidiaries have filed all forms, reports, statements and other
documents required to be filed with any applicable Governmental Entities,
except where failure to file any such forms, reports, statements and other
documents would not have a Target Company Adverse Effect (all such forms,
reports, statements and other documents referred to in this Subsection (a)
are, collectively, "Company Reports"). The Company Reports, including all
Company Reports filed after the date of this Agreement and prior to the
Effective Time (i) were or will be prepared in all material respects in
accordance with the requirements of applicable Laws, and (ii) did not, at
the times they were filed, or will not at the time they are filed, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading.
(b) Except as disclosed in Section 3.07(b) of the Target Company
Disclosure Schedules, (X) the audited Balance Sheets, Income Statements,
Statements of Cash Flow and Statements of Equity of the U.S. Company as at
and for the periods ended December 31, 1993, 1994 and 1995 (separate
company audited and combined unaudited for the period ended December 31,
1995, and restated to include all of the Target Companies), and (Y) the
audited Balance Sheets, Income Statements and Statements of Changes in
Financial Position of the Canada Company as at and for the nine-month
period ended May 31, 1995, and the twelve-
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month period ended 1996 (including, in each case, related notes)
(collectively, the "Target Company Financial Statements") delivered to
Acquiror prior to the date of this Agreement (i) have been prepared from,
and are in agreement in all material respects with, the books, records and
accounts (including consolidating workpapers and supporting entries), of
the Target Companies and their subsidiaries, (ii) have been prepared in all
material respects in substantial accordance with the published rules and
regulations of the Financial Accounting Standards Board and GAAP (Canadian
GAAP, in the case of the Canada Company) applied on a consistent basis
throughout the periods involved, (iii) taken as a whole, fairly present in
all material respects the financial position of the Target Companies and
their subsidiaries on a combined or uncombined basis, as the case may be,
as of the dates thereof, and (iv) taken as a whole, fairly present, in all
material respects, the results of operations of the Target Companies for
the periods indicated.
(c) Prior to the date hereof, the Target Companies have internally
prepared and delivered to Acquiror unaudited combined and combining (X)
Balance Sheets, Income Statements, Statements of Cash Flow and Statements
of Equity of the U.S. Company as at and for the calendar quarterly periods
ended March 31, and June 30, 1996, and (Y) Balance Sheets, Income
Statements and Statements of Changes in Financial Position of the Canada
Company as at and for the quarterly period ended September 30, 1996 (the
"Interim Target Company Financial Statements", which term shall include all
quarterly Target Company financial statements hereafter delivered to
Acquiror in accordance with the provisions of Section 5.01(e) hereof). The
Interim Target Company Financial Statements (i) have been prepared from,
and are in agreement in all material respects with, the books, records and
accounts (including consolidating workpapers and supporting entries), of
the Target Companies and their subsidiaries, (ii) fairly present in all
material respects the financial position of the Target Companies and their
subsidiaries as of the dates thereof, and (iii) fairly present, in all
material respects, the results of operations of the Target Companies for
the periods indicated; provided, however, Acquiror acknowledges that the
Interim Target Company Financial Statements are subject to normal year-end
adjustments and may lack footnotes and other presentation items; provided,
however, no such year-end adjustment shall be deemed to have cured a prior
breach of or misstatement in any representation or warranty set forth in
this Agreement.
(d) At the Effective Time, the Target Companies and their respective
subsidiaries shall have no liabilities, obligations or indebtedness of any
nature whatsoever (and there shall be no basis for any present or future
action, suit, proceeding, hearing, charge, claim, complaint,
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investigation or demand against any such Target Company or subsidiary
giving rise to such liability, obligation or indebtedness), except for (i)
liabilities, obligations and indebtedness set forth in the Balance Sheets
included in the Interim Target Company Financial Statements dated nearest
to the Effective Time (the "Most Recent Statements"), and (ii) liabilities,
obligations and indebtedness which have arisen after the date of the Most
Recent Statements in the ordinary course of business of the Target
Companies; provided, however, such liabilities, obligations and
indebtedness shall be subject to the other representations and warranties
set forth in this Article III.
(e) Except as and to the extent set forth on the Target Company
Financial Statements, including all notes thereto, the Target Companies and
their respective subsidiaries have no liability, obligation or indebtedness
of any nature whatsoever (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on, or reserved against
in, a combined balance sheet of the Target Companies (or in the notes
thereto), prepared in accordance with GAAP applied on a consistent basis,
except for liabilities, obligations or indebtedness described in Section
3.07(e) of the Target Company Disclosure Schedules, or incurred in the
ordinary course of business since December 31, 1995, in the case of the
U.S. Company, or May 31, 1996, in the case of the Canada Company, that
would not have a Target Company Adverse Effect.
(f) Section 3.07(f) of the Target Company Disclosure Schedules
describes by category and amount the aggregate reserves, obligations and
other allowances established by the Target Companies in the audited
combined Balance Sheet at December 31, 1995 (collectively, the "Closing
Reserves"). Except as set forth in Section 3.07(f) of the Target Company
Disclosure Schedules, each item included in the Closing Reserves has been
established in accordance with GAAP in a manner consistent with that of
prior periods, using such accounting methods, policies, practices and
procedures, and classification, judgments and estimation methodology, as
are deemed reasonably advisable by the Target Companies, after consultation
with their independent auditors.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in Section 3.08 of the Target Company Disclosure Schedules, (i) since December
31, 1995, there has not been, and the Target Companies have no knowledge of any
facts that are reasonably likely to result in, any event or events causing a
Target Company Adverse Effect, and (ii) from December 31, 1995, to the date of
this Agreement there has not been any change by a Target Company or any
subsidiary in its accounting methods, principles or practices, except any such
change after the date of this Agreement mandated by a change in GAAP.
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SECTION 3.09. ABSENCE OF LITIGATION.
(a) Section 3.09(a) of the Target Company Disclosure Schedules lists
and briefly describes all claims, actions, suits, litigations, proceedings,
arbitrations or investigations of any kind affecting each Target Company
and its subsidiaries, at law or in equity (including actions or proceedings
seeking injunctive relief), which are pending or, to the knowledge of the
Target Companies, threatened. Except as noted in Section 3.09(a) of the
Target Company Disclosure Schedules, none of the matters listed therein may
reasonably be expected to have a Target Company Adverse Effect. There is
no action pending or to the knowledge of the Target Companies threatened
seeking to enjoin or restrain the Unitary Transaction or any of the
transactions contemplated by this Agreement.
(b) Except as set forth in Section 3.09(b) of the Target Company
Disclosure Schedules, no Target Company or subsidiary is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of such Target Company,
continuing investigation by, any Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders
which could have a Target Company Adverse Effect.
SECTION 3.10. CONTRACTS; NO DEFAULT.
(a) Section 3.10(a) of the Target Company Disclosure Schedules sets
forth as of the date of this Agreement a listing of all Target Company (and
subsidiary) contracts, agreements and other arrangements in effect as of
the date of this Agreement, or providing for full or partial performance by
any party thereto after the date of this Agreement, which:
(i) concern a partnership, joint venture or other business venture
providing for the sharing of profits with another person;
(ii) relate to the employment or compensation of any employee,
officer, director, representative, consultant or agent, with respect to
which there is or may be an obligation by a Target Company or subsidiary to
provide current or deferred payments in excess of fifty thousand dollars
($50,000) annually, or which are not terminable by such Target Company or
subsidiary without premium or penalty on fewer than thirty (30) days prior
notice or, with respect to Canada contracts, the greater of thirty (30)
days or the legal minimum provided for in applicable Canadian employment
standards legislation;
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(iii) relate to the obligation of a Target Company or its subsidiary
to develop, purchase or distribute tangible or intangible property for the
benefit of, or ownership by, a customer or other third party, or which
incorporates, whether or not pursuant to written license, the proprietary
rights, name or logo of such customer or third party, and under which such
Target Company or subsidiary is subject to liability or penalty in excess
of ten thousand dollars ($10,000) on account of nonperformance or
nonconformity;
(iv) relate to any customer of a Target Company listed on Section
3.26 to the Target Company Disclosure Schedules;
(v) relate to or inventory purchases or capital expenditures
involving an expenditure (or series thereof) in excess of fifty thousand
dollars ($50,000);
(vi) relate to bonus and incentive plans or similar plans and
arrangements providing for the payment of bonuses, commissions, incentive
compensation or similar result-based salary or other remuneration to
employees and other service providers to the Target Companies;
(vii) relate to borrowed money, guarantees or undertakings to answer
for the debts of another, or otherwise encumbering title to any asset,
excepting purchase money obligations relating to personal property which do
not exceed fifty thousand dollars ($50,000) in any one case;
(viii) concern a lease or agreement relating in any manner to real
estate;
(ix) relate to royalty or licensing contracts, or contracts
requiring similar payments (including software license agreements)
involving, or which may reasonably in the future involve, an amount in
excess of ten thousand dollars ($10,000) annually; or
(x) otherwise create unfulfilled obligations in excess of fifty
thousand dollars ($50,000) on the part of such Target Company or
subsidiary.
(b) Section 3.10(b) of the Target Company Disclosure Schedules lists
each contract or agreement to which any Target Company or any of their
respective subsidiaries, directors, affiliates, shareholders, or officers
is a party limiting the right of such Target Company or any such person to
engage in, or to compete with any person in, any business, including each
contract or agreement containing exclusivity provisions restricting the
geographical area in which, or the method by which, any business may be
conducted by such Target Company or
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any such person prior to or after the Effective Time, or by the Acquiror or
any of its subsidiaries or affiliates after the Effective Time. To the
knowledge of the Target Companies, after conducting interviews with Marvin
Baida ("Baida") and the other sales representatives of the U.S. Company who
were previously in the employ of Idea Man, Inc. ("Idea Man"), neither Baida
nor such other sales representatives are party to any contract or agreement
with Idea Man or any other entity whereunder they are restricted or limited
in the right to compete with Idea Man or such other entity, or otherwise to
engage in business within a specific geographic area or with a specific
customer or class of customers, and, to the knowledge of the Target
Companies, neither Baida nor such other sales representatives have, while
conducting sales for the U.S. Company, violated any such contract or
agreement with, engaged in unfair competition against, or tortiously
interfered with, Idea Man or such another entity. For the purpose of this
Agreement, the term (i) "affiliate", in addition to the meaning given by
the Commission, means (x) any person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person, and (y) with respect to a U.S.
Shareholder, such U.S. Shareholder's spouse, children and descendants, and
the respective spouses of each, (ii) "control" (including the terms
"controlled by" and "under common control with") means the possession,
directly or indirectly or as trustee or executor, of the power to direct or
cause the direction of the management or policies of a person, whether
through the ownership of stock or as trustee or executor, by contract or
credit arrangement or otherwise, and (iii) "Company Contracts" means the
contracts and agreements listed in Sections 3.10(a) and 3.10(b) of the
Target Company Disclosure Schedules.
(c) Each Company Contract, each other material contract or agreement
which would have been required to be disclosed in Section 3.10(a) of the
Target Company Disclosure Schedules had such contract or agreement been
entered into prior to the date of this Agreement, and each contract or
agreement listed in Section 3.10(b) of the Target Company Disclosure
Schedules is, on the date hereof, and shall be at the Effective Time, in
full force and effect and valid and binding as to the contracting Target
Company and, to the knowledge of the Target Companies, the other party or
parties signatory thereto. With respect to each such Company Contract,
there is no event of default by a Target Company or, to the knowledge of
the Target Companies, any other party or parties thereto, in the timely
performance of any obligation to be performed or amount to be paid
thereunder, which default would have a Target Company Adverse Effect.
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SECTION 3.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Section 3.11(a) of the Target Company Disclosure Schedules sets
forth all pension, retirement, savings, disability, medical, dental,
health, life (including any individual life insurance policy as to which a
Target Company is owner, beneficiary or both of such policy), death
benefit, group insurance, profit sharing, deferred compensation, stock
option, bonus, incentive, vacation pay, severance pay, "cafeteria" or
"flexible benefit" plans, or other employee benefit plans, trusts,
arrangements, contracts, agreements, policies or commitments (including
without limitation, any employee pension benefit plan as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), any pension plan as defined in Section 1 of the Pension Benefits
Act (or similar law of the province of British Columbia), as amended
("PBA"), and any employee welfare benefit plan as defined in Section 3(1)
of ERISA), under which current or former employees of a Target Company or
its subsidiaries or "Plan Affiliates" (as defined in Section 3.11(b) below)
are entitled to participate by reason of their employment with such Target
Company, subsidiary or its Plan Affiliates, whether or not any of the
foregoing is funded, and whether insured or self-funded, (i) to which a
Target Company, subsidiary or Plan Affiliate is a party or a sponsor or a
fiduciary thereof or by which such Target Company, subsidiary or Plan
Affiliate (or any of their rights, properties or assets) is bound, or (ii)
with respect to which such Target Company, subsidiary or Plan Affiliate has
made any payments, contributions or commitments, or may otherwise have any
liability (whether or not such plan, trust, arrangement, contract,
agreement, policy or commitment is still in effect or frozen as to benefits
or assets) (collectively, the "Employee Benefit Plans").
(b) For purposes of this Agreement, the term "Plan Affiliate" shall
mean any trade or business (whether or not incorporated) that is part of
the same controlled group, or under common control with, or part of an
affiliated service group that includes, a Target Company within the meaning
of Section 414(b), (c), (m) or (o) of the Code, or within the intendment of
the PBA.
(c) As used in this Agreement, "Pension Plan" means any Employee
Benefit Plan which is an employee pension benefit plan as defined in ERISA
or the PBA, or is otherwise a pension, savings or retirement plan or a plan
of deferred compensation, and the term "Welfare Plan" means any Employee
Benefit Plan which is not a Pension Plan.
(d) With respect to the Employee Benefit Plans:
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(i) There are no Employee Benefit Plans which are multiemployer plans
as defined in Section 3(37) of ERISA or Section 1 of the PBA, and neither
the Target Companies nor any of their respective subsidiaries or ERISA
Affiliates has incurred or may reasonably be expected to incur, any direct
or indirect liability under or by operation of Title IV of ERISA or the
PBA.
(ii) There are no Employee Benefit Plans which promise or provide
health or life benefits to retirees or former employees of a Target
Company, subsidiary or Plan Affiliate other than as required by Title I of
ERISA or Section 4980 of the Code, or otherwise as identified in Section
3.11(d) of the Target Company Disclosure Schedules.
(iii) Except as disclosed in Section 3.11(d) of the Target Company
Disclosure Schedules, each Employee Benefit Plan has at all times been
operated and administered in material compliance with the applicable
requirements of ERISA, the Code, the PBA, the ITA and any other applicable
law (including regulations and rulings thereunder), and its terms.
(iv) Each Pension Plan identified in Section 3.11(a) of the Target
Company Disclosure Schedules has (i) received a favorable determination
letter from the Internal Revenue Service ("IRS") stating that such Plan
meets all the requirements of the Code and that any trust or trusts
associated with the plan are tax exempt under Section 501(a) of the Code,
or (ii) been accepted for registration under the ITA. Any trust or trusts
associated with such Pension Plans are tax exempt under Section 501(a) of
the Code or the relevant provisions of the ITA. To the knowledge of the
Target Companies, there is no reason why the tax-qualified or registered
status of any such Pension Plan should be revoked, whether retroactively or
prospectively, by any Governmental Entity pursuant to applicable rules,
Laws or regulations. All amendments to the Pension Plans which were
required to be made through the date hereof and the Effective Time under
Section 401(a) of the Code or the applicable provisions of the ITA
subsequent to the issuance of each such Plan's determination letter or
registration have been made, including all amendments required to be made
by each respective date by the Tax Reform Act of 1986, the ITA and any
other rules, Laws or regulations legislation affecting such Employee
Benefit Plans. Except as set forth in Section 3.11(d) of the Target
Company Disclosure Schedules, there are no amendments which are required to
be made to such Pension Plans which adversely affect, or may result in the
discontinuance of, the continuing tax-qualification or registered status of
such Pension Plans under the Code or the ITA.
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(v) To the knowledge of the Target Companies, no actual or threatened
disputes, lawsuits, claims (other than routine claims for benefits),
investigations, audits or complaints to, or by, any person or Governmental
Entity have been filed or are pending with respect to any Employee Benefit
Plan or its sponsor, or such sponsor's subsidiaries or Plan Affiliates, in
connection with any Employee Benefit Plan, or the fiduciaries responsible
for such Employee Benefit Plan, and to the knowledge of the Target
Companies, no state of facts or conditions exist which reasonably could be
expected to subject such Target Company, subsidiary or Plan Affiliate to
any material liability (other than routine claims for benefits) in
accordance with the terms of such Employee Pension Plan or pursuant to
applicable rules, Laws or regulations.
(vi) Except as disclosed in Section 3.11(d) of the Target Company
Disclosure Schedules, the following clauses are true with respect to each
Employee Benefit Plan:
(A) All material filings required by ERISA, the Code or the ITA,
or any other applicable rules, Laws or regulations, have been timely
filed and all material notices and disclosures to Plan participants
required by same have been timely provided.
(B) The Target Companies and their respective subsidiaries and
Plan Affiliates have not made, nor have they committed to make,
whether in writing or orally, any representation, payment,
contribution or award to or under any Employee Benefit Plan (other
than as required by its terms, the Code, ERISA, the ITA or the PBA).
(C) All contributions and payments made or accrued with respect
to each Employee Benefit Plan required to be disclosed in Section
3.11(a) of the Target Company Disclosure Schedules are deductible in
full under the Code or the ITA, as applicable. All contributions,
premiums or payments required to be made with respect to each such
Employee Benefit Plan have been or will hereafter be made on or before
their due date(s).
(D) Except as disclosed in Section 3.11(e) of the Target Company
Disclosure Schedules, with respect to each Employee Benefit Plan, the
Target Companies have delivered to Acquiror true and complete copies
of the following documents to the extent in each case that such
documents exist or are required to be preserved under applicable
domestic or foreign Laws:
(1) plan documents, subsequent plan amendments, and any and
all other documents that
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establish or describe the existence of the plan, trust,
arrangement, contract, policy or commitment;
(2) summary plan descriptions and summaries of material
amendments and modifications;
(3) the most recent tax-qualified determination letters
received from, or applications pending with, the IRS with respect
to Pension Plans;
(4) the most recent letters received from the Department of
National Revenue and the Pension Commissions of Ontario (and
equivalent authority under British Columbia law) relating to the
status of the Pension Plans adopted by the Canada Company, and a
copy of the most recent letter of confirmation of registration
for such Plans pursuant to the ITA and the PBA;
(5) the three most recent annual information returns,
including related schedules and audited financial statements and
opinions of independent certified public accountants, for each
Employee Benefit Plan filed (i) on IRS Form 5500 for Employee
Benefit Plans adopted by the U.S. Company, and (ii) on such forms
prescribed under the PBA for Employee Benefit Plans adopted by
the Canada Company; and
(6) all related trust agreements, insurance contracts or
other funding agreements that implement each such Employee
Benefit Plan.
(vii) At no time have the Target Companies adopted any Pension Plan
which is or could become subject to Title IV of ERISA, the funding
standards of Section 402 of the Code, or which contain defined benefit
provisions within the meaning of Section 147.1(1) of the ITA. The Target
Companies have not, and no subsidiaries or Plan Affiliates thereof have,
incurred any liability to, or adopted any Employee Benefit Plan or other
arrangement which may expose it to liability of any nature whatsoever, to
(i) the Pension Benefit Guarantee Corporation under Title IV or Section 502
of ERISA, (ii) the IRS under Chapter 43 of the Code, or (iii) the
Department of National Revenue or the Pension Commissions of Ontario and
British Columbia under the ITA or other Canadian Laws;
(viii) With respect to each Employee Benefit Plan, there has not
occurred, and no person or entity is contractually bound to enter into, any
nonexempt "prohibited transaction" within the meaning of Section 4975 of
the Code or Section 406
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of ERISA, or any other transaction contrary to the provisions of the ITA,
the PBA or the terms of such Employee Benefit Plan.
(e) The Target Companies have complied in all material respects
with the provisions of ERISA, the Code and the ITA, as applicable, with
respect to each Pension Plan and Welfare Plan heretofore adopted or
currently in effect for the benefit of its employees, together with
employees of their respective subsidiaries and Plan Affiliates. Each
Employee Benefit Plan described in Section 3.11(a) of the Target Company
Disclosure Schedules may, by its express terms, be amended or terminated,
in whole or in part.
(f) Except as disclosed in Section 3.11(f) of the Target Company
Disclosure Schedules, no payment that is owed or may become due to any
director, officer, employee or agent of a Target Company is subject to, and
none shall result in the imposition of, tax under Section 280(G) or 4999 of
the Code, nor is any Target Company obligated, orally or in writing, to
"gross up" or otherwise compensate any such person due to the imposition of
an excise or similar tax on payments made to such person by the Target
Company.
(g) Except as disclosed in Section 3.11(g) of the Target Company
Disclosure Schedules, the consummation of the transactions contemplated by
this Agreement will not accelerate or terminate, nor does there exist any
basis for the acceleration or termination of, (i) benefits payable to
employees of or other compensated personnel at the Target Companies under
any Employee Benefit Plan, Welfare Plan, or other plan, arrangement,
contract or agreement, written or oral, (ii) a participant's vesting
credits or years of service under any Pension Plan or Welfare Plan, or
(iii) accruals with respect to any other benefits or amounts reserved under
any such plan or arrangement.
(h) Section 3.11(h) of the Target Company Disclosure Schedules lists,
as of the date of this Agreement, all collective bargaining or other labor
union contracts to which a Target Company or any of its subsidiaries is a
party and which is applicable to persons employed by such Target Company or
subsidiary. There is no pending or, to the knowledge of the Target
Companies, threatened, labor dispute, strike or work stoppage against a
Target Company or any of its subsidiaries which may materially interfere
with the business activities of such Target Company, its revenues, profits,
cash flows, or other results of operations, or those of its subsidiaries.
The Target Companies have no knowledge of the commission of any unfair
labor practices in connection with the operation of their respective
businesses or the businesses of their respective subsidiaries, and there is
not now pending
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or, to the knowledge of the Target Companies, threatened, any charge,
complaint or other proceeding against any Target Company or its
subsidiaries by the National Labor Relations Board, or comparable
Governmental Entities, both Canadian and U.S., state and provincial, and
local.
(i) Section 3.11(a) of the Target Company Disclosure Schedules sets
forth all written employment agreements, employment contracts or
understandings relating to employment to which each Target Company or any
of its subsidiaries is a party, other than (i) the general employment of
employees pursuant to an at-will understanding, and (ii) agreements,
contracts or understandings which may be terminated without penalty or
premium on no more than thirty (30) days' prior notice to the employed
person (or the legal minimum provided for in applicable Canadian employment
standards legislation).
SECTION 3.12. TAXES.
(a) (i) Except as disclosed in Section 3.12(a) of the Target Company
Disclosure Schedules, all material Returns (as defined below) in respect of
"Taxes" (as defined below) required to be filed with respect to a Target
Company or a subsidiary have been or will be timely filed (including
pursuant to those extensions described in such Disclosure Schedules).
(ii) Except as disclosed in Section 3.12(a) of the Target Company
Disclosure Schedules, all Taxes shown on the Returns or otherwise known by
a Target Company or subsidiary to be due or payable (whether by such Target
Company or subsidiary or, in the case of the election by U.S. Shareholders
and the U.S. Company under Section 1361 ET. SEQ. of the Code [the "S
Corporation Election"], by such Shareholders) have been or will be timely
paid by the party to whom chargeable and all payments of estimated Taxes
required to be made with respect to a Target Company or any of its
subsidiaries, affiliates or shareholders under the Code, the ITA, Part IX
of the Excise Tax Act (Canada) (the "GST") or any comparable provision of
foreign, federal, state, provincial, local or municipal Law have been made
on the basis of the applicable party's good faith estimate of the required
installments or have been expensed on the Target Company Financial
Statements or have been reserved against.
(iii) Except as disclosed in Section 3.12(a) of the Target Company
Disclosure Schedules, all such Returns (or, in cases where amended Returns
have been filed, such Returns as amended) are believed by the Target
Companies to be true, correct and complete in all material respects.
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(iv) Each Target Company and its subsidiaries has withheld and paid
to the applicable taxing authority all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(v) No material adjustment relating to any Return has been proposed
in writing by any Tax authority, except proposed adjustments that have been
resolved prior to the date hereof.
(vi) There are no outstanding subpoenas or requests for information
with respect to any Return or the Taxes reflected on such Returns.
(vii) No Target Company has, in any taxable period for which the
statute of limitations on assessment remains open, acquired, either
directly or through any subsidiary, any corporation that filed a
consolidated federal income tax return with any other corporation that was
not also acquired, either directly or through any subsidiary, by such
Target Company, and no subsidiary or corporation that was included in the
filing of a Return with a Target Company on a combined, consolidated or
unitary basis has left such corporation's combined, consolidated or unitary
group in a taxable year for which the statute of limitations on assessment
remains open.
(viii) No consent under Section 341(f) of the Code has been filed with
respect to the Target Companies or their subsidiaries.
(ix) There are no Tax liens on any assets of a Target Company or
its subsidiaries other than liens for Taxes not yet due or payable or being
contested in good faith.
(x) Except as disclosed on Section 3.12(a) to the Target Company
Disclosure Schedules, neither the Target Companies nor their subsidiaries
have been at any time a member of any partnership or joint venture or the
holder of a beneficial interest in any trust for any period for which the
statute of limitations for any Tax potentially applicable as a result of
such membership or holding has not expired.
(xi) Neither the Target Companies nor their subsidiaries owe any
material amount pursuant to any Tax sharing agreement or arrangement, and
no such corporation will have any liability after the date hereof in
respect of any Tax sharing agreement or arrangement executed or agreed to
prior to the date hereof with respect to any company that has been sold or
disposed prior to the date of this Agreement or the Effective Time, whether
any such agreement or arrangement is written or unwritten.
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(xii) All material Taxes required to be withheld, collected or
deposited by each Target Company and its subsidiaries during any taxable
period for which the statue of limitations on an assessment remains open
have been timely withheld, collected or deposited and, to the extent
required, have been paid to the relevant Tax authority; without limiting
the generality of the foregoing, the Canada Company has withheld at source
and remitted to the relevant Government Entity all material amounts
required to be withheld under the ITA, and has accounted for and remitted
all Tax that has been collected and is remittable under the GST.
(xiii) Neither the Target Companies nor any of their subsidiaries were
acquired in a qualified stock purchase under Section 338(d)(3) of the Code
and no elections under Section 338(g) of the Code, protective carryover
basis elections, offset prohibition elections or other deemed or actual
elections are applicable to such Target Company or any of its subsidiaries.
No Target Company received any assets in accordance with, and no Target
Company is the subject of an election under, the terms and conditions of
Section 367 of the Code.
(xiv) Neither the Target Companies nor any of their subsidiaries were
or have been subject to the provisions of Section 1503(d) of the Code
related to "dual consolidated loss" rules.
(xv) Except as disclosed on Section 3.12(a) to the Target Company
Disclosure Schedules, neither the Target Companies nor any of their
subsidiaries were a party to any agreement, contract, or arrangement that
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code by
reason of the Unitary Transaction.
(xvi) To the knowledge of Target Companies, no property of any Target
Company or any of its subsidiaries is property that is or will be required
to be treated as being owned by another person under the provisions of
section 168(f)(8) of the Code (as in effect prior to amendment by the Tax
Reform Act of 1986); or is "tax-exempt use property" within the meaning of
Section 168 of the Code.
(b) (i) There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax, other than
real or personal property Taxes to which a Target Company or its
subsidiaries may be subject;
(ii) Neither the Target Companies nor any of their subsidiaries are,
as of the date of this Agreement, under audit with respect to any taxable
period for any foreign,
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federal, state, provincial, local or municipal Tax (including income and
franchise Taxes but not including real or personal property Taxes) by the
IRS, Revenue Canada or the applicable Tax authority in each such other
foreign, federal, state, provincial, local or municipal jurisdiction.
(c) (i) Except as expressly provided in this subdivision (i),
neither the Target Companies nor any of their subsidiaries have any --
(A) Material income reportable for a period ending after the
Effective Time but attributable to an installment sale occurring in or
a change in accounting method made for a period ending at or prior to
the Effective Time which resulted in a deferred reporting of income
from such transaction or from such change in accounting method (other
than a deferred intercompany transaction), or
(B) Material deferred gain or loss arising out of any deferred
intercompany transaction.
(ii) No written Tax sharing or allocation agreement exists involving
a Target Company.
(iii) Except as disclosed on Section 3.12(c) of the Target Company
Disclosure Schedules, neither the Target Companies nor any of their
subsidiaries have any unused net operating loss, unused net capital loss,
unused credit, unused foreign tax credit, or excess charitable contribution
for federal or Canada income tax purposes as of the Effective Time.
(d) For purposes of this Agreement, "Tax" or "Taxes" shall mean any
and all taxes, payable to any foreign, federal, state, provincial, local or
municipal governmental entity or taxing authority or agency, including,
without limitation,
(i) Income, franchise, net worth, profits, gross receipts, minimum,
alternative minimum, estimated, ad valorem, value added, sales, use, goods
and services, real or personal property, capital stock, license, payroll,
withholding, disability, employment, social security, Medicare, workers
compensation, unemployment compensation, utility, severance, production,
excise, stamp, occupation, premiums, withholding taxes pursuant to the Tax
Convention, windfall profits, transfer and gains taxes;
(ii) Customs duties, imposts, charges, levies or other similar
assessments of any kind; and
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(iii) Interest, penalties and additions to tax imposed with respect
thereto.
As used herein, the term "Returns" shall mean any and all returns, reports,
information returns and information statements with respect to Taxes required to
be filed with the IRS, Revenue Canada, or any other foreign, federal, state,
provincial, local or municipal governmental entity or tax authority or agency,
including, without limitation, consolidated, combined, unitary and Subchapter S
Returns. For the purposes of this Section 3.12, references to a Target Company
and each of its subsidiaries shall include former subsidiaries of such Target
Company for periods during which any such corporations were owned, directly or
indirectly, by such corporation.
SECTION 3.13. INTELLECTUAL PROPERTY RIGHTS. Except as set forth in
Section 3.13 to the Target Company Disclosure Schedules, to such Target
Company's knowledge, each Target Company and its subsidiaries owns or possesses
the right or license to use all material patents, trademarks, servicemarks,
trade names, slogans, registered copyrights, industrial designs, and all trade
secrets (including scientific and technical information, design processes,
procedures, formulae, data processing techniques, computer programs and
improvements, the specialized information and technology embodied in
communications program materials, software documentation and other program and
system designs), it currently uses, without any known conflict or alleged
conflict with, or infringement of, the rights of others. Section 3.13 of the
Target Company Disclosure Schedules identifies in all material respects (i) the
intellectual property (including, without limitation, issued domestic and
foreign patents, patent applications pending, patent applications in process,
industrial designs, industrial design applications and registrations,
trademarks, trademark registrations, trademark registration applications,
copyright registrations, copyright registration applications, service marks,
service mark registrations, service mark registration applications, know-how
agreements, licenses (other than of computer software which is generally
commercially available), rights acquired through litigation, logos, trade names
and trade secrets) material to the conduct of the business of the Target
Companies (collectively, the "Owned Intellectual Property"), and (ii)
intellectual property currently licensed to such Target Company ("Licensed
Intellectual Property") (together with the "Owned Intellectual Property", the
"Intellectual Property"). To the knowledge of the Target Companies, (i) the
agreements and/or arrangements for Licensed Intellectual Property (including
computer software) are in full force and effect; (ii) the rights of each Target
Company and subsidiary thereunder are free and clear of all adverse claims,
options, liens, charges, security interests and encumbrances; and (iii) no
material defaults exist thereunder. There are no interference, opposition or
cancellation proceedings or infringement suits pending nor, to the actual
knowledge of the
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Target Companies, without necessity of investigation, threatened, with respect
to any Owned Intellectual Property. Within the last six (6) years, no Target
Company or subsidiary has been charged with infringing any patent or trademark
right of any person. The Intellectual Property comprises all of the
intellectual property rights and licenses pertaining thereto necessary for the
Target Companies to conduct their respective businesses as now operated. No
Target Company has knowingly taken or knowingly allowed there to be taken any
action to cause any of the material Owned Intellectual Property relating to its
business or operations to enter the public domain, or knowingly failed to take
such action necessary to prevent such Owned Intellectual Property from so
entering the public domain.
SECTION 3.14. CERTAIN BUSINESS PRACTICES AND REGULATIONS. Neither the
Target Companies, their subsidiaries, nor any of their respective executive
officers, directors, or managerial employees have, to the knowledge of the
Target Companies, (i) made or agreed to make any contribution, payment or gift
to any customer, supplier, governmental official, employee or agent where either
the contribution, payment or gift or the purpose thereof was illegal under any
Law, (ii) established or maintained any unrecorded fund or asset for any purpose
or made any false entries on its books and records for any reason, or (iii) made
or agreed to make any contribution, or reimbursed any political gift or
contribution made by any other person, to any candidate for foreign, federal,
state, provincial or local public office in violation under any Law.
SECTION 3.15. INSURANCE. All policies and binders of insurance for
professional liability, directors and officers, fire, liability, worker's
compensation and other customary matters held by or on behalf of each Target
Company or its subsidiaries ("Insurance Policies") have been made available to
Acquiror. The Insurance Policies (which term shall include any insurance policy
entered into after the date of this Agreement in replacement of an Insurance
Policy; provided, that such replacement policy shall insure against risks and
liabilities, and in amounts and under terms and conditions, substantially the
same as those provided in such replaced policy or binder) are in full force and
effect and neither a Target Company nor any of its subsidiaries is in default
with respect to any material provision contained in any Insurance Policy nor, to
the knowledge of such Target Company, has such Target Company or its
subsidiaries failed to give any notice of any claim under any Insurance Policy
in due and timely fashion, nor, to the knowledge of such Target Company, has any
coverage for current claims been denied, except where such default or failure
individually or in the aggregate would not reasonably be expected to have a
Target Company Adverse Effect.
SECTION 3.16. ACCOUNTING AND TAX MATTERS. None of the Target Companies
nor, to the knowledge of the Target Companies, any subsidiaries or affiliates
thereof, has taken or agreed to take any
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action that would prevent either the U.S. Merger or the Canada Reorganization
from being effected as a pooling of interests under GAAP or the rules and
regulations promulgated by the Commission, or would prevent the U.S. Merger or
the Canada Reorganization from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code.
SECTION 3.17. REAL PROPERTY. Section 3.17(1) to the Target Company
Disclosure Schedules sets forth a complete description of (i) all real property
owned by the Target Companies and their subsidiaries as of the date of this
Agreement ("Owned Real Property"), and (ii) all real property leased by the
Target Companies and their subsidiaries as of the date of this Agreement
("Leased Real Property"). No later than thirty (30) days after the date of this
Agreement, the Target Companies shall furnish Acquiror or its counsel true and
complete copies of (i) the most recent lease with respect to each parcel of
Leased Real Property, and (ii) each written, and a written description of each
oral, contract, arrangement or understanding relating to Owned Real Property or
Leased Real Property. Except as set forth in Section 3.17(2) to the Target
Company Disclosure Schedules:
(a) There is no condemnation proceeding or eminent domain proceeding
pending or, to the knowledge of the Target Companies, threatened, against
any Owned Real Property or Leased Real Property.
(b) Neither the Target Companies nor their subsidiaries have any
interest in, or any right or obligation to acquire any material interest
in, any real property other than Owned Real Property and Leased Real
Property.
(c) There are no pending or, to the knowledge of the Target
Companies, threatened, requests, applications or proceedings to alter or
materially restrict the zoning or other use restrictions applicable to the
Owned Real Property and Leased Real Property.
(d) The rental set forth in each lease for Leased Real Property is
the actual rental being paid, and there are no separate agreements or
understandings with respect to the same not set forth in Section 3.17(2) to
the Target Company Disclosure Schedules.
(e) Each Target Company or subsidiary which is lessee under a lease
for Leased Real Property has, as of the date hereof, and shall have at the
Effective Time, the full right to exercise any and all renewal options
contained therein.
(f) There are no written or oral contracts between a Target Company
or subsidiary and any third party relating to any claim by such third party
of any right to all or any part
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of the interest of such Target Company or subsidiary in any Owned Real
Property or Leased Real Property.
(g) All security deposits required under leases for Leased Real
Property have been made and no forfeiture with respect thereto has been
claimed by any of the lessors.
SECTION 3.18. ENVIRONMENTAL REPRESENTATIONS. Except as specifically
described in Section 3.18 to the Target Company Disclosure Schedules:
(a) No Target Company or any subsidiary or affiliate thereof has
generated, used, transported, treated, stored, handled, released or
disposed of, whether temporarily or permanently, any "Hazardous Substances"
(as herein defined) at any location described in Section 3.17(1) to the
Target Company Disclosure Schedules in violation of any applicable statute,
Law, rule or regulation or so as to require reporting to or notification of
any governmental official, agency, bureau, board, commission, court,
department or other instrumentality.
(b) To the knowledge of the Target Companies, there has never been
any generation, use, transportation, treatment, storage, release, presence,
handling or disposal of any Hazardous Substances by any other person at the
Owned Property in violation of any applicable statute, Law, rule or
regulation or so as to require reporting to or notification of any
governmental official, agency, bureau, board, commission, court, department
or other instrumentality.
(c) To the knowledge of the Target Companies, no asbestos or
polychlorinated biphenyl is contained in or located at the Owned Real
Property.
(d) All Hazardous Substances generated, disposed of, handled or dealt
with in any way in the conduct by the Target Companies, or their
subsidiaries and affiliates, of their respective businesses has been and is
being generated, disposed of, handled or dealt with in all material
respects in compliance with all applicable statutes, Laws, rules and
regulations.
(e) Each Target Company and each subsidiary thereof is in material
compliance with, and to the knowledge of the Target Companies, the Owned
Real Property has not been used by any other person in violation of, any
Environmental Laws.
(f) No Target Company is the subject of any remedial order entered
with respect to any real property described in Section 3.17(1) to the
Target Company Disclosure Schedules.
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(g) As used in this Agreement, the term "Hazardous Substances" shall
mean (i) substances which are defined or listed in, or otherwise classified
pursuant to, any applicable statutes, Laws, rules or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances," (ii) any oil, petroleum or petroleum derived substance, (iii)
any flammable substances or explosives, (iv) any radioactive materials,
(v) asbestos in any form, (vi) urea formaldehyde foam insulation, (vii)
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million,
(viii) pesticides, or (ix) any other pollutant, contaminant, hazardous,
dangerous or other material which is defined as a toxic chemical or waste
under any environmental laws.
(h) For purposes of this Agreement, the term "Environmental Laws"
shall mean all foreign, federal, state, provincial, local and municipal
statutes, Laws, ordinances, codes, rules, regulations, orders, decrees,
directives, permits, licenses and guidelines relating to protection of the
environment, or to protection of the public health from releases into the
environment of hazardous substances, pollutants or contaminants, including,
but not limited to, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, the Resource Conservation and
Recovery Act of 1976, as amended, the Environmental Quality Act, R.S.Q.C.,
Q-2, and Canadian and U.S. state and provincial tort laws and common Laws.
SECTION 3.19. BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of a U.S. Shareholder, any Target Company or their respective
subsidiaries or affiliates.
SECTION 3.20. TITLE TO ASSETS. With the exception of those items
disclosed in Sections 3.20, 3.03(f) and 3.03(j) of the Target Company Disclosure
Schedules, statutory liens for real estate tax, materialmen, warehousemen and
landlord liens incurred in the ordinary course of business and not yet due or
which are being contested in good faith and for which the Target Company has
established a specific Closing Reserve in the Target Company Financial
Statements, or minor imperfections in title which would not have a Target
Company Adverse Effect, each Target Company and its applicable subsidiary is the
owner of and has good and valid title to, or in the case of leased property has
a valid leasehold interest in, its material properties and assets, including
those assets and properties reflected in the Target Company Financial
Statements.
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SECTION 3.21. RELATED PARTY TRANSACTIONS. Except as disclosed in Section
3.21 of the Target Company Disclosure Schedules, and except with respect to the
ownership of not greater than two percent (2%) of the outstanding securities of
a company trading on an established public exchange, to the knowledge of the
Target Companies, neither the Target Companies, their subsidiaries, or their
respective directors, employees, shareholders, officers or agents, have any
direct or indirect interest in any competitor, supplier or customer of a Target
Company or in any person from whom or to whom a Target Company leases any
property, or in any other person, firm or entity with whom a Target Company
transacts business of any nature. Section 3.21 to the Target Company Disclosure
Schedules identifies and describes all material contracts and other arrangements
(oral or written), including, but not limited to, intercompany loans, advances,
transfers of goods or services, or other transactions (whether or not for
consideration), to which a Target Company is a party and to which another Target
Company, its subsidiaries or affiliates, or the officers, directors, employees,
shareholders, officers or agents of a Target Company, is directly or indirectly
also a party.
SECTION 3.22. BANK ACCOUNTS. Section 3.22 to the Target Company
Disclosure Schedules sets forth all banks and other institutions or agents in
which a Target Company or any of its subsidiaries has or maintains an account,
installment obligation, mortgage, deposit, escrow, lockbox or safe deposit box,
the names of all persons authorized to draw thereon or to have access thereto,
the number of signatures required to be given for any transaction, deposit or
withdrawal, and a description of the type of relationship maintained by such
entity with such bank, institution or agent.
SECTION 3.23. OFFICERS AND DIRECTORS. Section 3.23 to the Target Company
Disclosure Schedules sets forth a list of the names, addresses and years of
service of all officers and directors of the Target Companies and their
respective subsidiaries as of the date hereof.
SECTION 3.24. POWERS OF ATTORNEY. No Target Company has given a power of
attorney (irrevocable or otherwise) to any person or entity for any purpose
whatsoever.
SECTION 3.25. GUARANTEES. Except as disclosed in Section 3.25 to the
Target Company Disclosure Schedules, no Target Company is a guarantor of, or
indemnitor, co-maker or otherwise liable for, any indebtedness of any person,
except as an endorser of checks received by it and deposited in the ordinary
course of business.
SECTION 3.26. CUSTOMERS. Section 3.26 to the Target Company Disclosure
Schedules sets forth a true, complete and accurate listing of (i) the names,
addresses and telephone numbers of the ten (10) largest customers (measured by
revenue) to whom each
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Target Company has provided services or sold products during calendar year 1995
and the first nine months of 1996, (ii) the revenues attributable to each such
customer for the same periods, and (iii) the approximate gross profits
attributable to each such customer for such periods. The business of the Target
Companies will, as of the Effective Time, include the services provided on
behalf of those customers listed on Section 3.26 to the Target Company
Disclosure Schedules. Except as specifically noted on such Disclosure
Schedules, the Target Companies have no knowledge that the customers listed
therein will not continue as customers of the U.S. Surviving Corporation and
Canada Company on and after the Effective Time.
SECTION 3.27. CUSTOMER BILLINGS; OPEN PURCHASE ORDERS.
(a) Except for billings with respect to customer deposits, the Target
Companies have made no billings whatsoever to their customers for services
to be provided or products to be sold after the Effective Time which could
result in a Target Company Adverse Effect. All customer deposits held by a
Target Company arose from written agreements between such Target Company
and the remitting customer, are correct as to amount, and no such customer
has notified the Target Company of its intention to seek a refund of its
deposit. All such customer deposits were received by the Target Companies
in cash, in the ordinary course of their business. The Target Companies
have previously delivered to Acquiror true and complete copies of all
contracts and agreements (and written descriptions of any oral
arrangements) between all such customers and the applicable Target Company.
As of the date of this Agreement, no party to any such contract has
defaulted in any of its material obligations thereunder, and no customer is
in default of its payment obligations on invoices for services previously
rendered or products previously sold by such Target Company.
(b) The open purchase orders of the U.S. Company and Canada Company
reflected in the most current Interim Target Company Financial Statements
were entered into by such Target Companies in good faith, in the ordinary
course of business, and with the exception of routine cancellations in the
ordinary course of business, such open purchase orders were, and to the
extent any such order remains unfilled as of the date of this Agreement,
and are, in full force and effect. To the knowledge of the Target
Companies, the sales prices under such open purchase orders were calculated
to yield gross profit margins which are customary for the business
conducted by the Target Companies.
SECTION 3.28. PROPRIETARY SOFTWARE USED IN THE BUSINESS. Section 3.28 to
the Target Company Disclosure Schedules contains a description of all material
non-licensed computer software products
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and software programs (collectively, "Software Programs"), both generally
available in a Target Company's business and under development (in all stages of
development), that are used or intended for use in the business and operations
of each Target Company. To the extent any Software Program has been developed
by a third party for the benefit of, or in accordance with specifications
provided by, a Target Company, Section 3.28 to the Target Company Disclosure
Schedules sets forth the form and placement of the proprietary legends and/or
copyright notices displayed in or on the Software Programs. To the knowledge of
the Target Companies, in no instance has the eligibility of any such Software
Program for protection under applicable copyright law been forfeited to the
public domain by omission of any required notice or any other action or inaction
by a Target Company unless such forfeiture would not have a Target Company
Adverse Effect. Except as provided in Section 3.28 of the Target Company
Disclosure Schedules, to the knowledge of the Target Companies, the source code
for such Software Programs has at all times been maintained in strict confidence
and the only individuals or entities who have access to such source code are
parties to written nondisclosure agreements with the Target Company.
SECTION 3.29. RECEIVABLES AND ADVANCES. Except as described on Section
3.29(1) to the Target Company Disclosure Schedules, all accounts receivable and
advances of the Target Companies have arisen in the ordinary course of business,
for full and adequate consideration, and, to the knowledge of the Target
Companies, are subject to no claims, charges or defenses (either by a Target
Company or by any other person). Sections 3.29(2) and (3) to the Target Company
Disclosure Schedules sets forth by outstanding principal amount, accrued
interest and payor, all loans and advances by the Target Companies and their
subsidiaries as to which balances remain unpaid on the date of this Agreement,
together with a written description of all future commitments to make any such
loans or advances, other than loans and advances arising from the sale of
products or services to customers in the ordinary course of business. Without
limiting the generality of the foregoing sentence, such Schedules shall include
loans and advances to or on behalf of Target Company (or subsidiary)
shareholders, directors, officers, employees, sales representatives, independent
contractors, agents, vendors, and their respective affiliates. No person has
asserted a right of set-off (or similar right) against any receivable, loan or
advance made by a Target Company (or its subsidiary). Anything in this Section
3.29 to the contrary notwithstanding, Acquiror acknowledges and agrees that the
Target Companies shall not be required to institute any actions against obligors
under loans and advances described on Schedule 3.29 to the Target Company
Disclosure Schedule.
SECTION 3.30. COMMISSION POLICIES. Each Target Company's commission and
bonus policies with respect to sales personnel, employed and independent,
entitled to receive commissions and/or
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bonus in excess of ten thousand dollars ($10,000) per year are described on
Section 3.30 to the Target Company Disclosure Schedules.
SECTION 3.31. LABOR MATTERS. Each Target Company is in compliance in all
material respects with all applicable foreign, federal, state, provincial and
local Laws, rules or regulations relating to the employment of labor, including
those relating to salaries, wages, hours, collective bargaining, affirmative
action and the payment and withholding of Taxes. Each Target Company has
withheld all amounts required by Law or agreement to be withheld from the
salaries or wages of its employees and is not liable for any arrears of any Tax
or penalties for failure to comply with the foregoing. Each Target Company has
paid to the appropriate Governmental Entity, at the time or times required by
Law, or accrued as an expense on its books, all employment taxes and withholding
taxes with respect to its employees. No Target Company is party to any
collective bargaining agreement or other material labor agreement. To the
knowledge of the Target Companies, there are no impending labor difficulties
involving groups of employees (whether or not organized) which involve strikes,
slowdowns, work stoppages, job actions, lockouts, union certifications or
grievances before any foreign, federal, state, provincial or local labor
commission or bureau.
SECTION 3.32. SOLE SOURCE SUPPLIERS. Section 3.32 to the Target Company
Disclosure Schedules sets forth the names and addresses of, and volume of
purchases from, any suppliers of significant goods, equipment or services to
each Target Company (other than public utilities) with respect to which
practical alternative sources of supply are not available.
SECTION 3.33. INVENTORY AND WARRANTY MATTERS.
(a) The product inventories of the Target Companies and their
subsidiaries are in good and merchantable condition. The Program
inventories of the Target Companies reflected in the Interim Target Company
Financial Statements at and as of December 31, 1996 do not contain more
than "immaterial amounts" of "Obsolete Program Inventory Costs" (hereafter
defined).
(b) As used herein, the terms (i) "Program" shall mean the sale or
distribution by a Target Company, whether directly to a customer for
redistribution, or to the end-users of such customer, of customized
products incorporating or promoting a distinctive name, logo, idea,
likeness, affiliation, copyright, trademark or other exclusionary property
right, and which are therefore limited for use by the owner or licensee of
such distinctive property right, (ii) "immaterial amounts" shall mean those
products includible within, or sold as part of, a particular Program with
an aggregate extended cost not
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exceeding two thousand dollars ($2,000), and (iii) "Obsolete Program
Inventory Costs" shall mean, with respect to each of the Program-types (or
product-types) described in clauses (1) through (5), below, the extended
cost of products attributable to such Program reflected in the inventory of
a Target Company at January 1, 1997, LESS the amount of actual recoveries
thereon through December 31, 1997. The calculation of Obsolete Program
Inventory Costs shall be limited to the following Programs and products:
(i) Programs which have been discontinued prior to January 1,
1997;
(ii) Products bearing distinctive identifying marks, the use of
which have been discontinued prior to January 1, 1997, or
which have been determined to infringe the property rights
of a third-party on or prior to March 31, 1997;
(iii) Products as to which catalogue sales have been discontinued
prior to January 1, 1997;
(iv) Products which advertise an event, or series thereof, having
taking place prior to January 1, 1997; or
(v) Products as to which there exist general defects or flaws in
the distinctive identifying marks thereon which cannot be
corrected or which are saleable in the ordinary course of
business at an average price not exceeding seventy-five
percent (75%) of cost.
(c) Representatives of Acquiror, the U.S. Company and/or the Canada
Company shall, within a reasonable time following Acquiror's written
request given prior to June 30, 1997, conduct a full or partial count and
extension of such Target Company's Program product inventories. Product
units comprising Program inventories shall be identified by vendor code,
product code or such other reasonable tracking method as Acquiror shall
determine. For purposes of such count, all product units (i) containing
the same or a similar distinguishing mark, and (ii) customized in
accordance with the same specifications or constituting a component of a
single Program theme, shall be considered part of the individual Program.
At the conclusion of the count, Acquiror and the U.S. Company shall approve
a definitive listing, on a Program-by-Program basis, of (i) the aggregate
Program products counted in each Program, (ii) the base cost for each
product unit so counted, (iii) the extended value of all such
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product units, and (iv) the Obsolete Program Inventory Costs satisfying the
definitions herein.
SECTION 3.34. DISCLOSURE. No representations or warranties made by a
Target Company or U.S. Shareholder under this Agreement or in any certificate,
Schedule, Exhibit or other document furnished or to be furnished to Acquiror,
Acquiror Sub or their respective counsel pursuant hereto contains or will
contain any untrue statement of any material fact, or omits or will omit to
state a material fact necessary to make the statements of fact contained therein
not misleading.
SECTION 3.35. SCOPE OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
any other provision of this Agreement, to the extent any breach of or
misstatement in a representation or warranty under Article III also constitutes
a breach of or misstatement in a representation or warranty under any one of the
Agreements described in Section 3.35 of the Target Company Disclosure Schedules
(each, a "Predecessor Agreement") then, to the extent (i) such representation or
warranty under the Predecessor Agreement survives for at least sixty (60) days
following discovery of such breach or misstatement, (ii) the U.S. Surviving
Corporation is entitled, by virtue of its status as successor to the U.S.
Company, to indemnification under the Predecessor Agreement in respect of such
breach or misstatement, (iii) Nelson, in his capacity as Chief Executive Officer
of the U.S. Surviving Corporation, or his successor, authorizes the filing of a
claim for indemnification under the terms and conditions of such Predecessor
Agreement, and (iv) the U.S. Surviving Corporation actually receives payment for
its Damages resulting from such breach or misstatement, Acquiror shall be deemed
not to have incurred or suffered Damages of like amount in respect of the
applicable representation or warranty made under this Article III; provided,
however, (aa) Acquiror's claim for indemnification under this Agreement shall be
stayed during the pendency of any claim filed with respect to such Predecessor
Agreement, but only with respect to the maximum amount recoverable thereunder,
and the balance thereof shall be prosecutable by Acquiror (provided, the
provisions of clause (cc), below, shall not apply), (bb) any Unregistered Shares
securing such pendent claim shall not be sold until the final resolution
thereof, subject to limitations set forth in Section 9.02(iii), (cc) any factual
or legal determination made with respect to the U.S. Surviving Corporation's
claim under the Predecessor Agreement shall have the effect of RES JUDICATA for
purposes of Acquiror's claim under this Agreement, and (dd) Acquiror shall at
all times retain the right to appoint legal counsel to prosecute the U.S.
Surviving Corporation's claim under the Predecessor Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB
The term "Acquiror Adverse Effect" as used in this Agreement shall mean any
change or event that, individually or when taken together with all other such
changes or events, would reasonably be considered to be adverse to the financial
condition, business or results of operations of Acquiror and its subsidiaries;
provided, however, the occurrence of any change or event described in any
Section of the Acquiror Disclosure Schedules attached to this Agreement as
Schedule 4.00 (the "Acquiror Disclosure Schedules") shall not, individually or
in the aggregate, constitute a Acquiror Adverse Effect.
Acquiror and Acquiror Sub jointly and severally represent and warrant to
and with the Target Companies and U.S. Shareholders that, except as specifically
described in the Acquiror Disclosure Schedules, the statements contained in this
Article IV are true and correct as of the date of this Agreement and will be
true and correct as of the Effective Time (as though made then) with respect to
Acquiror and Acquiror Sub, and their respective businesses:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Acquiror and Acquiror's subsidiaries is a corporation, duly incorporated,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization, has all requisite corporate or other power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and each of Acquiror and its subsidiaries is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
do so would not have an Acquiror Adverse Effect. A true and complete list of
all of Acquiror's directly or indirectly owned subsidiaries, together with the
jurisdiction of incorporation or organization of each subsidiary and the
percentage of each subsidiary's outstanding capital stock or other equity
interests owned by the Acquiror or another subsidiary of Acquiror, is set forth
in Section 4.01 of the Acquiror Disclosure Schedules.
SECTION 4.02. ARTICLES OF INCORPORATION; BY-LAWS. Acquiror has furnished
to the Target Companies a complete and correct copy of the Articles of
Incorporation and the By-Laws, as amended or restated, of Acquiror and Acquiror
Sub. Neither Acquiror nor Acquiror Sub is in violation of any of the provisions
of its Articles of Incorporation or By-Laws.
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SECTION 4.03. CAPITALIZATION OF ACQUIROR.
(a) The authorized capital stock of Acquiror consists of (i)
25,000,000 shares of Acquiror Common Stock, and (ii) 10,000,000 shares of
preferred stock, no par value per share. As of the date of this Agreement,
(i) 12,479,219 shares of Acquiror Common Stock are issued and outstanding,
and are duly authorized, validly issued, fully-paid and non-assessable and
not subject to preemptive rights created by statute, Law, Acquiror's
Articles of Incorporation or By-Laws or any agreement to which Acquiror is
a party or is bound, (ii) approximately 3,111,905 shares of Acquiror Common
Stock were reserved for future issuance pursuant to stock options, warrants
and awards issued to certain officers, employees, consultants, directors
and affiliates of Acquiror, and (iii) approximately 3,060,426 shares of
Acquiror Common Stock were issued and outstanding pursuant to the terms and
conditions of those certain agreements described in Section 4.03(a) of the
Acquiror Disclosure Schedules, a significant portion of which are subject
to set-off or cancellation in accordance with the terms and provisions of
such agreements, and therefore may not be fully-paid and non-assessable.
As of the date of this Agreement, no shares of Acquiror preferred stock
were outstanding.
(b) As of the date of this Agreement, except as set forth in Section
4.03(b) to the Acquiror Disclosure Schedules, there are no obligations,
contingent or otherwise, of Acquiror or any of its subsidiaries to
repurchase, issue, redeem or otherwise acquire any shares of Acquiror
Common Stock or the capital stock of, or other equity interests in, any
subsidiary of Acquiror.
SECTION 4.04. CAPITALIZATION OF ACQUIROR SUB.
(a) The authorized capital stock of Acquiror Sub consists of 100,000
shares of Acquiror Sub Common Stock of which, as of the date of this
Agreement, 10,000 shares are issued and outstanding. On the date of this
Agreement, all issued and outstanding shares of Acquiror Sub Common Stock
are, and at the Effective Time all issued and outstanding shares of
Acquiror Sub Common Stock will be, duly authorized, validly issued, fully
paid and non-assessable. Acquiror is the record holder of all issued and
outstanding shares of Acquiror Sub Common Stock, and such shares are owned
by Acquiror free and clear of any and all security interests, liens,
claims, pledges, agreements, limitations on Acquiror's voting rights,
charges or other encumbrances of any nature whatsoever.
(b) Except as disclosed in Section 4.0(b) to the Acquiror Disclosure
Schedules, as of the date of this
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Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments to which Acquiror or Acquiror Sub is a party of
any character relating to the issued or unissued capital stock of, or other
equity interests in, Acquiror Sub, or obligating Acquiror or Acquiror Sub
to grant, issue, sell or register for sale any shares of the capital stock
of, or other equity interests in, Acquiror Sub by sale, lease, license or
otherwise.
SECTION 4.05. AUTHORITY. Each of Acquiror and Acquiror Sub has the
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder, and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Acquiror
and Acquiror Sub, and the consummation by Acquiror and Acquiror Sub of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of Acquiror or
Acquiror Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by Acquiror and Acquiror Sub and, assuming the due
authorization, execution and delivery by the Target Companies and U.S.
Shareholders, constitutes the legal, valid and binding obligation of Acquiror
and Acquiror Sub.
SECTION 4.06. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
such Acquiror Subs shall not (i) conflict with or violate the Articles,
By-Laws or equivalent organizational documents of Acquiror Sub or any of
Acquiror's subsidiaries, (ii) subject to (x) obtaining the consents,
approvals, authorizations and permits of, and making filings or
notifications to, any Governmental Entities pursuant to the applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky
Laws, the NASDAQ, the HSR Act, the Competition Act, the Investment Act, the
Code, the Treaty, the ITA and the filing and recordation of appropriate
merger and amalgamation documents as required by Michigan Law, and (y)
obtaining the consents, approvals, authorizations or permits described in
Section 4.06(b) of the Acquiror Disclosure Schedules, conflict with or
violate any Laws applicable to Acquiror, Acquiror Sub or any of Acquiror's
other subsidiaries or by which any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or encumbrance on
any of the properties or assets of Acquiror, Acquiror Sub or any of
Acquiror's other subsidiaries pursuant to, any note, bond,
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mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Acquiror, Acquiror Sub or any of
Acquiror's other subsidiaries is a party or by which Acquiror, Acquiror Sub
or other Acquiror subsidiaries or any of their respective properties is
bound or affected, except for any such conflicts or violations described in
clause (ii), or breaches or defaults described in clause (iii) that would
not have an Acquiror Adverse Effect.
(b) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
Acquiror Sub shall not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entities or
other persons, except for (i) applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the NASDAQ, the HSR Act,
the Competition Act, the Investment Act, the Code, the Treaty and the ITA,
(ii) the consents, approvals, authorizations or permits described in
Section 4.06(b) of the Acquiror Disclosure Schedules, and (iii) the filing
and recordation of appropriate merger and amalgamation documents as
required by Michigan Law.
SECTION 4.07. PERMITS; COMPLIANCE. Each of Acquiror and its subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary for Acquiror or any of its subsidiaries to own, lease and operate its
properties or to carry on its business as it is now being conducted (the
"Acquiror Permits") and no suspension, revocation or cancellation of any of the
Acquiror Permits is pending or, to the knowledge of Acquiror, threatened, except
where the failure to have, or the suspension, revocation or cancellation of, any
of the Acquiror Permits would not have an Acquiror Adverse Effect. Neither
Acquiror nor any of its subsidiaries is in conflict with, or in default or
violation of (i) any Law applicable to Acquiror or any of its subsidiaries or by
which any of their respective properties is bound or affected, or (ii) any of
the Acquiror Permits, except for any such conflicts, defaults or violations
which would not have an Acquiror Adverse Effect.
SECTION 4.08. SECURITIES REPORTS; FINANCIAL STATEMENTS.
(a) Since December 31, 1993, Acquiror and its subsidiaries have filed
(x) all forms, reports, statements and other documents required to be filed
(or filed by reference) with (i) the Commission, including without
limitation, (A) all Annual Reports on Form 10-K, (B) all Quarterly Reports
on Form 10-Q, (C) all Proxy Statements relating to meetings of
shareholders, (D) all required current reports on Form 8-K, (E) all other
reports and registration statements, and (F) all amendments and supplements
to all such reports and
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registration statements (collectively, the "Acquiror SEC Documents"), and
(ii) any applicable state securities authorities, and (y) all forms,
reports, statements and other documents required to be filed with
any other applicable federal or state regulatory authorities, except
where failure to file any such forms, reports, statements and other
documents under this clause (y) would not have an Acquiror Adverse Effect
(all such forms, reports, statements and other documents referred to in
this Subsection (a) are, collectively, "Acquiror Reports"). The Acquiror
Reports, including all Acquiror Reports filed after the date of this
Agreement and prior to the Effective Time (i) were or will be prepared in
all material respects in accordance with the requirements of applicable
Law, and (ii) did not, at the times they were filed, or will not at the
time they are filed, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) Except as disclosed in Section 4.08(b) of the Acquiror Disclosure
Schedules, and except for changes required under GAAP or by the Commission,
each of Acquiror's financial statements (including any notes to such
financial statements) included within the Acquiror Reports (i) has been or
will be prepared in all material respects in accordance with the published
rules and regulations of the Financial Accounting Standards Board and GAAP
and the Commission applied on a consistent basis throughout the periods
involved, and (ii) fairly present, or will fairly present, in all material
respects, the consolidated financial position of the Acquiror as of the
respective dates thereof and the consolidated results of operations and
cash flows for the periods indicated; provided, however, the interim
financial statements of Acquiror may (x) be subject to normal or recurring
adjustments at Acquiror's fiscal year-end, (y) not necessarily be
indicative of results for a full-fiscal year, and (z) contain pro-forma
financial information which is not necessarily indicative of Acquiror's
consolidated financial position.
(c) Except as and to the extent disclosed in Section 4.08(c) of the
Acquiror Disclosure Schedules, neither Acquiror nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected
on, or reserved against in, a balance sheet of Acquiror, prepared in
accordance with GAAP, except (i) as otherwise disclosed in Section 4.08(c)
of the Acquiror Disclosure Schedules, or (ii) for liabilities or
obligations incurred in the ordinary course of business since September 30,
1996, that would not have an Acquiror Adverse Effect.
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(d) Since the date of Acquiror's most-recent filings with the
Commission (whether on Form 10-Q or otherwise), there are no material facts
and circumstances known to Acquiror that have not been reported which would
cause a material reduction in the value of Acquiror's shares if known.
SECTION 4.09. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in Section 4.09 of the Acquiror Disclosure Schedules, or as contemplated in this
Agreement, (i) since June 30, 1996, there has not been, and Acquiror has no
knowledge of any facts that are reasonably likely to result in, an Acquiror
Adverse Effect, and (ii) from December 31, 1995, to the date of this Agreement,
there has not been any change by Acquiror or its subsidiaries in their
accounting methods, principles or practices, except any such change after the
date of this Agreement required by GAAP or the Commission.
SECTION 4.10. ABSENCE OF LITIGATION.
(a) There is no claim, action, suit, litigation, proceeding,
arbitration, or, to the knowledge of Acquiror, investigation of any kind
affecting Acquiror or any of its subsidiaries, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or,
to the knowledge of Acquiror, threatened, except for claims, actions,
suits, litigations, proceedings, arbitrations or investigations which
cannot reasonably be expected to have an Acquiror Adverse Effect.
(b) Neither Acquiror nor any of its subsidiaries is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of Acquiror, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders, except for
such matters which cannot reasonably be expected to have an Acquiror
Adverse Effect.
SECTION 4.11. TITLE TO ASSETS. Acquiror, or its applicable subsidiary, is
the owner of and has good and valid title to, or in the case of leased property
has a valid leasehold interest in, all of its material properties and assets
(except statutory liens for taxes, materialmen, warehousemen and landlords
incurred in the ordinary course of business and not yet due), including those
assets and properties reflected in the Acquiror's consolidated financial
statements.
SECTION 4.12. ACCOUNTING AND TAX MATTERS. Neither Acquiror nor, to the
knowledge of Acquiror, any of its subsidiaries or affiliates, has taken or
agreed to take any action that would prevent either the U.S. Merger or the
Canadian Reorganization from
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being effected as a pooling of interests under GAAP or the rules and regulations
promulgated by the Commission, or would prevent the U.S. Merger or the Canadian
Reorganization from constituting a transaction qualifying as a reorganization
under Section 368(a) of the Code.
SECTION 4.13. OWNERSHIP OF ACQUIROR SUB; PRIOR ACTIVITIES.
(a) Acquiror Sub was formed for the purpose of engaging in the
transactions contemplated by this Agreement and has no material debts or
liabilities.
(b) As of the Effective Time, all the outstanding capital stock of
Acquiror Sub will be owned directly by Acquiror. As of the Effective Time,
there will be no options, warrants or other rights (including registration
rights), agreements, arrangements or commitments to which Acquiror Sub is a
party of any character relating to the issued or unissued capital stock of,
or other equity interests in, Acquiror Sub or obligating Acquiror Sub to
grant, issue or sell any shares of the capital stock of, or other equity
interests in, Acquiror Sub, by sale, lease, license or otherwise. There
are no obligations, contingent or otherwise, of Acquiror Sub to repurchase,
redeem or otherwise acquire any shares of the capital stock of Acquiror
Sub.
SECTION 4.14. BROKERS. Except as disclosed in Section 4.14 of the
Acquiror Disclosure Schedules, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Acquiror.
SECTION 4.15. DISCLOSURE. No representations or warranties made by
Acquiror under this Agreement or in any certificate, Schedule, Exhibit or other
document furnished or to be furnished to the Target Companies, U.S. Shareholders
or their respective counsel pursuant hereto contains or will contain any untrue
statement of any material fact, or omits or will omit to state a material fact
necessary to make the statements of fact contained therein not misleading.
ARTICLE V
COVENANTS RELATING TO THE CONDUCT OF TARGET COMPANY BUSINESS
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE TARGET COMPANIES. The Target
Companies and U.S. Shareholders hereby covenant and agree with Acquiror and
Acquiror Sub that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by Acquiror, each
Target Company shall, and shall cause its subsidiaries to:
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(a) Operate its business in the usual and ordinary course, consistent
with reasonable past practices.
(b) Use reasonable efforts to preserve intact its business
organization and assets, maintain its material rights and franchises,
retain the services of its officers, key employees and managers, and
maintain existing good relationships with its material customers, clients,
vendors and suppliers.
(c) Use reasonable efforts to keep in full force and effect all
liability insurance and bonds comparable in amount and scope of coverage to
that currently maintained.
(d) Confer with Acquiror from time-to-time at Acquiror's reasonable
request to report on all manner of operational matters, and to provide,
orally or in writing, as Acquiror shall reasonably request, the general
status of the ongoing operations of the business of such Target Company.
(e) Internally prepare and deliver to Acquiror combined and combining
interim (i) quarterly financial statements (including a Balance Sheet,
Income Statement, Statement of Cash Flow [Statement of Changes in Financial
Position with respect to the Canada Company] and Statement of Equity) as at
and for the period ended September 30, 1996, and (ii) monthly financial
statements as at and for the monthly periods ending October 31, November 30
and, if more than thirty (30) days prior to the Effective Time, December
31, 1996. The Interim Target Company Financial Statements shall be
prepared in accordance with GAAP, applied on a consistent basis for the
periods involved, and shall present fairly, in all material respects, the
combined and combining financial positions of the Target Companies as of
the dates indicated therein, and the combined and combining results of
operations and cash flows of the Target Companies for the periods then
ended; provided, however, the Interim Target Company Financial Statements
are subject to normal year-end adjustments and may lack footnotes and other
presentation items.
(f) File their foreign and federal income tax Returns, and all
required provincial, state, local and municipal income and franchise tax
Returns, and Subchapter S Returns, that include a Target Company or any of
its subsidiaries, for the fiscal tax year coinciding with or ending in
1995, on or before the due date for filing such Returns (including
extensions), and if such Returns, or any of them, are filed prior to the
Effective Time, such corporation shall afford to Acquiror reasonable
opportunity for review of such returns prior to filing.
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(g) Unless otherwise instructed by Acquiror, the U.S. Company shall
(i) use its reasonable efforts to solicit bids and offers for those
non-operating assets described in Section 5.01(g) to the Target Company
Disclosure Schedules (the "Non-Operating Assets"), (ii) prior to the
Effective Time, use its reasonable efforts to enter into agreements to
sell, convey, assign or transfer its entire right and interest in each
Non-Operating Asset for an aggregate consideration, consisting of cash or
its equivalent, not less than the U.S. Company's carrying value therefor,
as set forth in the Target Company Financial Statements, and (iii) use its
reasonable efforts to close, subject to Acquiror's supervision, the sale of
all Non-Operating Assets pursuant to the terms and conditions so
established. To the extent any such assets are not sold prior to the
Effective Time, Nelson agrees he shall purchase same immediately prior to
consummation of the U.S. Merger for the consideration set forth in clause
(ii), payable in accordance with the terms of a Promissory Note executed by
Nelson and delivered to the U.S. Company (the "Nelson Note"), in form and
substance reasonably satisfactory to Acquiror, and providing, INTER ALIA,
the following terms and conditions:
The Nelson Note shall be in a principal amount equal to the carrying
value of such Non-Operating Assets remaining unsold by the U.S.
Company immediately prior to the Effective Time and shall be payable,
together with interest calculated at the short-term applicable federal
rate from time to time in effect, compounded monthly, in one lump sum
on the one-year anniversary of the Effective Time. The Nelson Note
shall be unsecured and fully negotiable. The holder of the Nelson
Note shall have all the rights of a commercial lender under Illinois
Law in the event Nelson shall default in the payment of principal or
interest thereunder. The Nelson Note shall be prepayable without
premium or penalty by Nelson. Nelson shall be obligated to make
mandatory prepayments against the principal amount of the Nelson Note
and interest accrued thereunder to the extent of the net proceeds
received by Nelson from the first sales of "Registered Shares"
(hereafter defined) through and until payment in full of all amounts
outstanding and accrued under the Nelson Note. Acquiror and Nelson
agree that the default provisions under the Nelson Note shall be
commercially reasonable for commercial loans of the same relative
magnitude.
The Target Companies agree that neither they, nor any employee, officer,
director, shareholder or agent of the Target Companies, shall be
compensated, directly or indirectly, for their services in connection with
the sale of the Non-Operating Assets; provided, the foregoing provision
shall not prevent such individual from receiving his regular
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compensation from a Target Company or, to the extent of the documentation
therefor, reimbursement for reasonable out-of-pocket expenditures incurred
on behalf of the U.S. Company in effectuating a sale to a person other than
Nelson.
(h) At the Effective Time, each individual reflected as an obligor
under a loan from the U.S. Company in Section 3.29(2) to the Target Company
Disclosure Schedules shall execute and deliver to the U.S. Surviving
Corporation a promissory note for the outstanding principal balance under
such loan, which promissory note shall have a term as set forth on such
Schedules, bear interest at the short-term applicable federal rate and
otherwise be in form and substance reasonably satisfactory to Acquiror.
Nelson hereby agrees to indemnify and hold the U.S. Surviving Corporation
harmless from and against any losses under each such promissory note,
including principal and interest which is not paid when due, and upon full
satisfaction of the principal amount and accrued interest outstanding under
any such promissory note by Nelson, the U.S. Surviving Corporation shall
quitclaim to Nelson, without recourse of any nature whatsoever, its entire
right, title and interest in such promissory note. Thereafter, Nelson
shall hold the U.S. Surviving Corporation (and its successor) harmless from
and against any and all claims arising thereunder.
(i) Prior to the Effective Time, Acquiror and the U.S. Company shall
mutually determine the Taxes, if any, payable by the U.S. Shareholders with
respect to the Subchapter S Status of the U.S. Company for the taxable year
ending December 31, 1996 and the 1997 short period ending prior to the
Effective Time (the "Stub Period"). Such Taxes shall be calculated at a
combined rate equal to the highest marginal rate of federal and state
income tax applicable to Nelson's taxable income for the taxable year
ending December 31, 1996. Immediately prior to the Effective Time, the
U.S. Company shall declare and pay to each U.S. Shareholder an amount in
cash (the "S Corporation Tax Distribution") equal to the difference between
(i) the Taxes so determined by Acquiror and the U.S. Company based on their
estimate of such Shareholder's portion of U.S. Company taxable income for
the taxable year ended December 31, 1996, and the Stub Period, LESS (ii)
aggregate distributions by the U.S. Company to such Shareholder after
January 1, 1996; provided, however, such distributions shall be net of any
cash distributions (1) reported to such Shareholder as wages on Form W-2,
or interest, rents, periodic payments, reimbursement amounts, loans,
annuities and pension distributions on Forms 1099 issuable in respect of
such Shareholder in respect of the 1996 taxable year, or (2) made to Nelson
in April, 1996 to cover his Taxes on U.S. Company taxable income for the
year ended December 31, 1995 (such net distribution amount is hereafter the
"Prior S Corporation Distribution").
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(i) Acquiror has informed the U.S. Shareholders, and the U.S.
Shareholders hereby acknowledge, that Acquiror's ability to
characterize the Unitary Transaction herein as a
pooling-of-interests may be compromised if Prior S Corporation
Distributions and S Corporation Tax Distributions to a U.S.
Shareholder exceed his share of the U.S. Company's taxable income
for 1996. The U.S. Shareholders therefore agree that, upon
Acquiror's written demand after the Effective Time, they shall be
jointly and severally obligated to pay the U.S. Surviving
Corporation the amount, if any, by which the U.S. Company's
taxable income during the entire 1996 taxable year, as reported
on the U.S. Company's Form 1120S for such period, is less than
the sum of the S Corporation Tax Distribution and the Prior S
Corporation Distribution. The U.S. Shareholders agree that
payment of such amount to the U.S. Surviving Corporation shall be
made promptly upon written demand by Acquiror. Each U.S.
Shareholder jointly and severally warrants to Acquiror that from
the date of this Agreement to the Effective Time, the U.S.
Company shall not make any distributions to, for or on account of
any U.S. Shareholder other than in respect of wages or those
other Form 1099 items enumerated above.
(ii) The U.S. Shareholders agree the S Corporation Tax Distribution
shall be final and binding for all purposes under this Agreement,
notwithstanding subsequent changes in the U.S. Company's net
income or Nelson's tax calculations for 1995, and whether due to
error, mistake, permissive adjustments, the recalculation of U.S.
Company income or expenses, or other matters, and whether within
or outside the control of the U.S. Company or U.S. Shareholders.
SECTION 5.02. NEGATIVE COVENANTS OF THE TARGET COMPANIES. Except as
expressly contemplated by this Agreement, or otherwise consented to in writing
by Acquiror, which consent shall not be unreasonably withheld, from the date of
this Agreement until the Effective Time, the Target Companies shall not, and
shall not cause their subsidiaries to, and no U.S. Shareholder shall cause a
Target Company to, individually or collectively, do any of the following:
(a) (i) Increase the compensation payable or to become payable to any
director, officer, manager or employee, except for increases in salary,
bonuses or wages payable or to become payable in the ordinary course of
business and consistent with past practice to employees who are not
directors, officers or managers, (ii) grant any severance or termination
pay (other than pursuant to normal severance policy) to, or enter into
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any severance agreement with, any director, officer, manager or employee,
(iii) enter into any employment agreement of any nature whatsoever with any
director, officer, manager or employee that would extend beyond the
Effective Time, except on an at-will basis, or (iv) establish, adopt, enter
into or amend any employee benefit plan or arrangement, except as may be
required to comply with applicable Law;
(b) Except as provided in Section 5.01(i) hereof, declare or pay, or
agree to declare or pay, in any manner whatsoever, any dividend on, or make
any other distribution in respect of, outstanding shares of U.S. Company
Stock, Other U.S. Company Securities or U.S. Company Options, and the
stock, securities or options of each of the Canadian Target Companies;
(c) (i) Redeem, purchase or otherwise acquire any shares of its or
any of its subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of its or its subsidiaries'
capital stock, or any options, warrants or conversion or other rights to
acquire any shares of its or its subsidiaries' capital stock or any such
securities or obligations, (ii) effect any reorganization or
recapitalization, or (iii) split, combine or reclassify any of its or its
respective subsidiaries' capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its or its subsidiaries' capital stock;
(d) Issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale of (including the grant of any security
interests, liens, claims, pledges, limitations in voting rights, charges or
other encumbrances), any shares of any class of its or its subsidiaries'
capital stock (including shares held in treasury), any securities
convertible into or exercisable or exchangeable for any such shares, or any
rights, warrants or options to acquire any such shares, or amend or
otherwise modify the terms of any such rights, warrants or options, the
effect of which shall be to make such terms more favorable to the holders
thereof;
(e) Acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business and
consistent with reasonable past practices);
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(f) Except to the extent required under Section 5.01(g) of this
Agreement, sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any amount of any of its or its subsidiaries'
operating assets, except for retirements of operating assets in the
ordinary course of business and consistent with reasonable past practices;
(g) The U.S. Shareholders agree not to sell their shares in any of
the Target Companies;
(h) Initiate, solicit or encourage (including by way of furnishing
any information or assistance in connection with) any inquiries or the
making of any offer that constitutes, or may reasonably be expected to lead
to, any "Competing Transaction" (as such term is defined below), enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction. Each Target Company shall
promptly notify Acquiror if any such inquiries or proposals are received by
a Target Company or any of its subsidiaries, or by any of their respective
officers, directors, financial advisors, attorneys, accountants or other
representatives. For purposes of this Agreement, the term "Competing
Transaction" shall mean 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 two percent (2%) or more
of the assets of a Target Company or a subsidiary thereof, in a single
transaction; (iii) any sale or exchange for any outstanding shares of
capital stock of a Target Company or any subsidiary thereof; or (iv) any
agreement to, or announcement by a Target Company of a proposal, plan or
intention, to do any of the foregoing;
(i) Adopt any amendments to their Articles or By-Laws;
(j) Change any methods of accounting in effect at December 31, 1995,
or make or rescind any express or deemed election relating to taxes
(including an election to file a Subchapter S Return), settle or compromise
any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, or change any method
of reporting income, gain, expense, loss or deduction for foreign, federal,
state, provincial or local income tax purposes from those employed in the
preparation of income tax returns for taxable years ending on or prior to
September 30, 1996, in the case of the Canada Company, or December 31,
1995,
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in the case of the U.S. Company, except in either case as may be required
by Law;
(k) Incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except for borrowings under the Credit Agreement
described in Section 6.08(b)(1) hereof in furtherance of a Target Company's
activities with respect to the sale of product inventories to customers in
the ordinary course of business, or those borrowings made with the prior
written consent of Acquiror, which consent shall not be unreasonably
withheld; provided, however, such consent may be withheld in Acquiror's
sole discretion in the event (i) such borrowing exceeds fifty thousand
dollars ($50,000) in any instance, or the aggregate of all such borrowings
after the date hereof exceeds two hundred fifty thousand dollars
($250,000), or (ii) no funds are available for disbursement under the said
Credit Agreement;
(l) Agree in writing or otherwise to do any of the foregoing; or
(m) Without first consulting with Acquiror, (i) perform any act
which, if performed, would prevent or excuse the performance of this
Agreement by Acquiror or which would result in any representation or
warranty herein contained of the Target Companies to be untrue in any
material respect as if originally made on and as of the Effective Time, or
(ii) fail to perform any act which, if omitted to be performed, would
prevent or excuse the performance of this Agreement by Acquiror or which
would result in any representation or warranty herein contained of the
Target Companies to be untrue in any material respect as if originally made
on and as of the Effective Time.
SECTION 5.03. AFFIRMATIVE COVENANTS OF ACQUIROR. Acquiror hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by the
Target Companies, Acquiror will, and will cause each of its subsidiaries to:
(a) Operate its business in the usual and ordinary course;
(b) Use reasonable efforts to preserve intact its business
organization and assets, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain the
relationships with its respective customers and suppliers;
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(c) Use reasonable efforts to keep in full force and effect liability
insurance and bonds comparable in amount and scope of coverage to that
currently maintained; and
(d) Disclose a reasonable time beforehand and consult with Nelson
with respect to any material acquisition prior to entering into any binding
agreement with respect to such acquisition.
SECTION 5.04. NEGATIVE COVENANTS OF ACQUIROR. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by the
Target Companies, from the date of this Agreement to the Effective Time,
Acquiror shall not, and shall not permit any of its subsidiaries to (i) amend
any of the material terms or provisions of Acquiror's securities, (ii) agree in
writing or otherwise to do the foregoing, or (iii) without first consulting with
the Target Companies, (x) perform any act which, if performed, would prevent or
excuse the performance of this Agreement by the Target Companies or which would
result in any representation or warranty herein contained of the Acquiror to be
untrue in any material respect as if originally made on and as of the Effective
Time, or (y) fail to perform any act which, if omitted to be performed, would
prevent or excuse the performance of this Agreement by the Target Companies or
which would result in any representation or warranty herein contained of
Acquiror to be untrue in any material respect as if originally made on and as of
the Effective Time.
SECTION 5.05. ACCESS AND INFORMATION.
(a) Upon reasonable prior notice from Acquiror, the Target Companies
shall (and shall cause their subsidiaries to) afford to Acquiror and its
officers, employees, accountants, consultants, legal counsel and other
representatives, reasonable access during business hours to (i) the
properties and locations at which the Target Companies and their
subsidiaries are conducting business activities, (ii) the directors,
officers and management personnel of the Target Companies at all such
locations, and (iii) all information (including, if available, original
documents and Returns) concerning the business, properties, contracts,
records and personnel of the Target Companies and their subsidiaries. The
Target Companies shall permit Acquiror to make copies of such books,
records and other documents as Acquiror reasonably considers necessary or
appropriate for the purpose of familiarizing itself with the business,
properties, contracts, records and personnel of such corporations, and/or
for obtaining any approvals, consents, licenses or permits for the
transactions contemplated by this Agreement.
(b) Acquiror shall (and shall cause its subsidiaries to) afford to
the Target Companies and their respective officers,
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employees, accountants, consultants, legal counsel and other
representatives, reasonable access upon reasonable notice to all
information concerning the business, properties, contracts, records,
personnel (whether employees or independent contractors), and independent
accountants and legal counsel of Acquiror or its subsidiaries as the Target
Companies may reasonably request, and as may be lawfully disclosed by
Acquiror.
(c) The parties and their respective officers, employees,
accountants, consultants, legal counsel and other representatives shall
comply with all of their respective obligations under that certain
Confidentiality Letter Agreement dated August, 1996, among Acquiror, the
U.S. Company, and Nelson.
SECTION 5.056. NEW U.S. SHAREHOLDERS. Only to the extent Acquiror consents
in writing to the addition of a new U.S. Shareholder prior to the Effective
Date, the Target Companies shall cause each person so becoming a U.S.
Shareholder to be bound by this Agreement, by executing a counterpart of this
Agreement and such other documents in form and substance reasonably satisfactory
to Acquiror which causes this Agreement, and the duties and obligations of
current and subsequent U.S. Shareholders hereunder, to become valid and binding
on such new U.S. Shareholder; provided, however, prior to the Effective Time no
person shall be permitted to acquire shares of stock in, and consent shall be
deemed automatically denied with respect to any (i) proposed transfer of shares
of, the Canada Company or Canada Holding Company-2, or (ii) proposed transfer of
shares of the U.S. Company or the Canada Company if Acquiror believes such
transfer may prevent the Unitary Transaction from qualifying as a
pooling-of-interests.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. AFFILIATE STATUS; ACCOUNTING AND TAX TREATMENT. Each U.S.
Shareholder acknowledges and agrees that (i) as of the date hereof, he/she is an
affiliate of the Target Companies under applicable accounting releases with
respect to pooling-of-interests accounting treatment, and (ii) at and after the
Effective Time, by virtue of his/her shareholdings in Acquiror, as well as
his/her employment status, status set forth in Section 6.13 hereof, or
relationship to Nelson, he/she shall be deemed to be an affiliate of Acquiror.
As used herein, the term "affiliate" shall have the same meaning given to such
term for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations of the Commission under the Securities Act, and/or as used in and
for purposes of Accounting Series, Releases 130 and 135, as amended, of the
Commission. Prior to the Effective Time, but in any event not later than the
second business day following any acquisition by a
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U.S. Shareholder of registered shares of Acquiror's Common Voting Stock in a
transaction executed on a recognized public securities exchange, each U.S.
Shareholder shall execute and deliver to each of Acquiror, the U.S. Company and
the Canada Company an agreement substantially in the form of Exhibit B hereto
("Affiliate Agreement"), and thereafter such U.S. Shareholder shall perform in
accordance with the terms and conditions thereof. In addition, each party shall
use reasonable efforts to cause the U.S. Merger, the Canada Reorganization and
the Unitary Transaction to qualify, and shall not take any actions which could
prevent any such transaction from qualifying, for pooling-of-interests
accounting treatment and as a reorganization qualifying under the provisions of
Section 368(a) of the Code; provided, however, that the incurrence of tax by
Nelson upon consummation of the Canada Reorganization by virtue of the Canada
Company's status as a "controlled foreign corporation" under the Code shall not,
in itself, be deemed a disqualification from reorganization treatment under the
provisions of Section 368(a) of the Code.
SECTION 6.02. RULES GOVERNING THE ISSUANCE AND HOLDING OF ACQUIROR COMMON
STOCK. Shares of Acquiror Common Stock are being issued by Acquiror to the U.S.
Shareholders under the U.S. Merger and Canada Reorganization in reliance upon
the following representations, warranties and agreements of the U.S.
Shareholders, each of which shall be true and correct as of the date hereof and
at the Effective Time, and each of which shall survive the Effective Time.
(a) Each U.S. Shareholder acknowledges that shares of Acquiror Common
Stock issuable to him/her at the Effective Time in the U.S. Merger and
Canada Reorganization will not have been registered under the Securities
Act or under applicable state securities laws.
(b) All shares of Acquiror Common Stock deliverable to a U.S.
Shareholder in the Unitary Transaction are being acquired solely for
investment purposes and for such Shareholder's account, and not as a
nominee or agent for others or with a view to or for sale in connection
with any distribution, and such Shareholder has no present intention of
selling, granting a participation in or otherwise distributing such shares
of Acquiror Common Stock or any portion thereof.
(c) Each U.S. Shareholder agrees that he/she shall not make a
disposition of any shares of Acquiror Common Stock issued in the Unitary
Transaction unless such shares have been registered in accordance with
Section 6.03 hereof, or are sold in accordance with the terms and
conditions of the Affiliate Agreement.
(d) Each U.S. Shareholder acknowledges that his/her investment in
shares of Acquiror Common Stock is a speculative
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investment with limited liquidity and subject to the risk of loss. Each
U.S. Shareholder represents and warrants to Acquiror that he/she is able to
fend for himself/herself in the transactions contemplated by this
Agreement, has such knowledge and expertise in financial and business
matters as to be capable of evaluating the merits and risks of his/her
investment and has the ability to bear the economic risks (including the
risk of loss) of his/her investment.
(e) Each U.S. Shareholder represents and warrants that he/she has had
the opportunity to ask questions of Acquiror concerning its business and to
obtain any information which he/she considered necessary to verify the
accuracy of or to amplify upon Acquiror's disclosures, and has had all
questions which have been asked by him/her answered by Acquiror. The
information, documentation, analyses, compilations, studies or other
documentation, whether supplied by Acquiror to a U.S. Shareholder or
prepared by any of them on their own behalf, in connection with the
transactions contemplated hereby (hereinafter "Information"), will be kept
confidential and shall not, without Acquiror's prior written consent or as
may be required by Law, be disclosed directly or indirectly by the U.S.
Shareholders, the Target Companies, or their subsidiaries, employees,
officers, directors, agents or representatives in any manner whatsoever, in
whole or in part, and shall not be used by the U.S. Shareholders, the
Target Companies, or their subsidiaries, employees, officers, directors,
agents or representatives in any manner whatsoever, except for the purpose
of assessing the transactions contemplated hereby.
(f) Each U.S. Shareholder acknowledges that his/her shares of
Acquiror Common Stock must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration
is available. Such U.S. Shareholder acknowledges he/she is aware of the
provisions of Rule 144 and Rule 144A promulgated under the Securities Act
which permit limited resales of unregistered securities, subject to the
satisfaction of certain conditions.
(g) Each U.S. Shareholder acknowledges that his/her shares of
Acquiror Common Stock are subject to set-off and cancellation as provided
herein for (i) the breach by a U.S. Shareholder or a Target Company of a
covenant or agreement hereunder, (ii) a breach of or misstatement in the
representations or warranties of a U.S. Shareholder or a Target Company
under this Agreement, or (iii) a claim as to which a U.S. Shareholder has
agreed to indemnify Acquiror in accordance with the terms and conditions of
Article IX hereof; provided, however, Acquiror's right of set-off and
cancellation in respect of such indemnification shall be limited to two
hundred two thousand five hundred (202,500)
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unregistered shares of Acquiror Common Stock, representing nine percent
(9%) of the total number of shares of Acquiror Common Stock issuable by
Acquiror to the U.S. Shareholders in the Unitary Transaction; and provided,
further, Acquiror rights under this Agreement shall not be so limited with
respect to any claim respecting, or breach or violation of, those matters
described in Schedule 6.02(g) to the Acquiror Disclosure Schedules.
SECTION 6.03. STEP REGISTRATION OF ACQUIROR COMMON STOCK. On or prior to
May 17, 1997, Acquiror shall effect the registration for resale of thirty-three
and one-third percent (33 1/3%) of the Acquiror Common Stock previously issued
to the U.S. Shareholders in the Unitary Transaction. Acquiror further agrees
that (i) on or prior to the first anniversary of the Effective Time, it shall
effect the registration for resale of an additional thirty-three and one-third
percent (33 1/3%) of the unregistered shares of the original total Acquiror
Common Stock, and (ii) on or prior to the second anniversary of the Effective
Time, except as provided below, it shall effect the registration for resale of
the balance of such unregistered shares of Acquiror Common Stock, to the extent
then owned by the U.S. Shareholders. Acquiror shall use all reasonable efforts
to effect the registration of the unregistered shares of Acquiror Common Stock
for resale under the Securities Act, by performing the following:
(a) The registration for resale shall be effected through a shelf
registration statement and related prospectus (collectively, "Resale
Prospectus") covering the applicable unregistered shares of Acquiror Common
Stock ("Unregistered Shares"), prepared and filed by Acquiror with the
Securities and Exchange Commission (the "Commission"). Acquiror shall
cause each Resale Prospectus to become and remain effective for a period of
five years from the Effective Time.
(b) Acquiror shall, if deemed reasonably necessary by any U.S.
Shareholder, use its best efforts to register, or obtain and maintain
exemption from registration or qualification for, such Unregistered Shares
otherwise qualifying for registration under this Section under the
securities or blue sky laws of each state as such Shareholder shall
reasonably request, and update such registration, qualification or
exemption and take any other action which may be reasonably necessary or
advisable to enable such Shareholder to consummate the sale or disposition
of Acquiror Common Stock in such states; provided, however, Acquiror shall
not be required to (i) qualify to do business as a foreign corporation in
any such state, (ii) consent to general service of process in any such
state, or (iii) comply with any requirement or condition to registration or
qualification which would impose an unreasonable burden on Acquiror or any
of its respective officers, directors or shareholders.
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(c) Acquiror shall identify and cause there to be provided at all
times to the U.S. Shareholders a transfer agent for all the Acquiror Common
Stock required to be registered under this Agreement;
(d) Acquiror shall provide, or cause there to be provided, such
certificates, instruments and any other documents required under the
Securities Act, requested by the Commission in connection with the sale by
any U.S. Shareholder of Acquiror Common Stock covered by a Resale
Prospectus, or otherwise necessary or reasonably required in connection
with, or to facilitate, the sale of Acquiror Common Stock in accordance
with this Agreement or any other related agreement;
(e) Acquiror shall file with the appropriate stock exchange or
trading system a notification form for the listing of additional shares
with respect to the Unregistered Shares at the time(s) and in the manner
required by the such exchange or trading system;
(f) Acquiror shall prepare and file with the Commission such required
amendments and supplements to each Resale Prospectus as may be necessary to
update and keep such Resale Prospectus effective and to comply with the
provisions of the Securities Act with respect to the sale of securities
covered by such Resale Prospectus; provided, however, nothing herein shall
require Acquiror to disclose any confidential information concerning its
business, results of operations or contemplated activities not otherwise
required to be disclosed; provided however, that Acquiror covenants and
agrees that it shall not allow any period of greater than three (3) months
to exist wherein the Acquiror would have information such that it could not
appropriately update the Resale Prospectus.
(g) Acquiror shall furnish the U.S. Shareholders with such number of
copies of the preliminary and final Resale Prospectus as the U.S.
Shareholders may reasonably request in order to facilitate the sale of
registered shares of Acquiror Common Stock ("Registered Shares") owned by
such Shareholder; provided that the U.S. Shareholders shall comply with all
prospectus delivery requirements under the Securities Act; and provided,
further, all sales of Registered Shares shall be in accordance with and
subject to the conditions of the Affiliate Agreement.
(h) All expenses incurred by Acquiror in effecting the registration
for resale of Unregistered Shares including, without limitation, all
registration and filing fees with any governmental entity, printing
expenses, and fees and disbursements of counsel for Acquiror, shall be paid
by and the sole obligation of Acquiror. All selling commissions
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applicable to sales of Registered Shares and all fees and disbursements of
counsel in connection therewith shall be paid by and be the sole obligation
of the U.S. Shareholders.
(i) The U.S. Shareholders shall timely furnish such information as
may reasonably be requested by Acquiror for inclusion in, or necessary to
the preparation of, a Resale Prospectus or other filing ancillary thereto.
The information supplied by the U.S. Shareholders (or by a Target Company
on their behalf) for inclusion in a Resale Prospectus shall not, at the
time such Resale Prospectus is declared effective, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
(j) The information supplied by Acquiror for inclusion in a Resale
Prospectus shall not, at the time such Resale Prospectus is declared
effective, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading.
(k) To the extent required by the rules and regulations of the
Commission, the U.S. Shareholders hereby consent to the use of his or her
name and to the inclusion of financial statements and business information
relating to the Target Companies in any registration statement or proxy
statement prepared by Acquiror. The U.S. Shareholders agree to use
reasonable efforts to obtain the written consent of any person or entity
retained by him or a Target Company and required to be named (as an expert
or otherwise) in such registration statement or proxy statement, and
further, agrees to cooperate, with any legal counsel, investment banker,
accountant or other agent or representative retained by Acquiror in
connection with the preparation of any and all information required.
SECTION 6.04. DEMAND REGISTRATION RIGHTS OF U.S. SHAREHOLDERS.
(a) DEMAND REGISTRATION. If, by December 31, 1997, the U.S.
Shareholders have not sold Registered Shares in open market and private
transactions yielding aggregate gross proceeds (hereafter, the "Realized
Value") of eighteen million dollars ($18,000,000), at discounts of seven
percent (7%) or better, then Nelson shall have the right, exercisable at
any time through and including June 30, 1998, to notify Acquiror in writing
of his election to sell a quantity of Registered Shares then having an
aggregate fair market value not exceeding the difference between eighteen
million dollars ($18,000,000) and the Realized Value (Registered Shares
with
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such aggregate fair market value are the "Underwritten Block"). Promptly
upon its receipt of Nelson's notice, but in no event later than ninety (90)
days thereafter, Acquiror shall select a managing underwriter reasonably
acceptable to Nelson to conduct an underwritten offering of the
Underwritten Block, together with such shares as Acquiror may elect to sell
in such underwritten offering, and each of Acquiror, such managing
underwriter and Nelson shall use their respective best efforts to cause
such an underwritten offering to become effective on or prior to June 30,
1998. In connection with the underwritten offering, Acquiror will:
(i) promptly give to the U.S. Shareholders written notice
thereof of their ability to participate therein to the extent of the
Underwritten Block; and
(ii) include in such registered offering and in the underwriting
involved therein all securities, to the extent of the Underwritten
Block, specified in a written request or requests made within twenty
(20) days after receipt of such written notice from Acquiror by a U.S.
Shareholder. Acquiror, together with such U.S. Share-holders who
shall elect to participate in such registered offering, shall enter
into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by Acquiror. In no event
shall any other holder of registration rights with respect to a
security of Acquiror be given preferential or similar treatment to the
registration rights granted to U.S. Shareholders in accordance with
this Section 6.04.
(b) PIGGYBACK REGISTRATION. If at any time or from time to time,
prior to the disposition of the Acquiror Common Stock issued pursuant to
this Agreement, Acquiror proposes to register under the Securities Act any
Shares of Acquiror Common Stock for its own account or the account of any
other person Acquiror will:
(i) promptly give the U.S. Shareholders written notice thereof;
and
(ii) subject to the other provisions of this Section 6.04 and to
the rights of other stockholders of Acquiror pursuant to (1)
those certain Registration Rights Agreements dated sa of
September 30, 1996 between Acquiror and the former
stockholders of Market USA, Inc., and (2) the Registration
Rights Agreement dated as of January 11, 1995, as amended,
between Acquiror and Merchant Partners, L.P. (and its
distributors and permitted assignees), include in such
registration and
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in the underwriting involved therein all securities
specified in a written request or requests made within
twenty (20) days after delivery of such written notice by
Acquiror to the U.S. Shareholders.
U.S. Shareholders electing to participate in such registration shall enter
into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by Acquiror. With the exception
of the rights of certain Acquiror stockholders Registrants in existence on
the date of this Agreement, no other person shall be granted registration
rights with respect to shares of Acquiror Common Stock which are superior
to or on a par with the rights of the U.S. Shareholders pursuant to this
subsection (b); provided, however, the foregoing prohibition shall expire
and have no further force or effect upon the earlier of (1) expiration of
the "Nominating Period" (hereafter defined), or (2) Nelson's sale of
sixty-five percent (65%) or more of the shares of Acquiror Common Stock
issued to him in the Unitary Transaction.
(c) REGISTRATION EXPENSES. All demand and piggyback registration
expenses incurred in connection with any registration, qualification or
compliance pursuant this Section 6.04, including but not limited to fees
and expenses of counsel appointed to represent the selling U.S.
Shareholders, shall be borne by Acquiror, except that the selling U.S.
Shareholders shall be responsible for and separately pay their pro-rata
portion of any underwriting discount and any fees of counsel retained by
them.
SECTION 6.05. INDEMNIFICATION FOR SECURITIES MATTERS.
(a) In connection with the registration of the Unregistered Shares
under the Securities Act pursuant to a Resale Prospectus, Acquiror agrees
to indemnify and hold harmless the seller of the Registered Shares, each
underwriter of the Registered Shares and each other person, if any, who
controls such seller or underwriter within the meaning of Section 15 of the
Securities Act, against any Damage (as hereafter defined), joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such Damages (or
actions or proceedings in respect thereof) arise out of or are based upon
any untrue statement (or alleged untrue statement) of a material fact
contained in any Resale Prospectus (or any amendment or supplement
thereto), or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and Acquiror will reimburse such seller,
underwriter and controlling person for any legal or other
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expenses reasonably incurred by such seller, underwriter or controlling
person in connection with investigating or defending against any such
Damage; provided, however, that Acquiror shall not be liable in any such
case to the extent that any such Damage (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement (or alleged
untrue statement) or omission (or alleged omission) of a material fact made
in such Resale Prospectus (or amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to Acquiror
through an instrument duly executed by such seller or underwriter
specifically for use in the preparation thereof; and provided, further,
that Acquiror shall not be liable to any person who participates as an
underwriter in the offer or sale of Registered Shares or any other person,
if any, who controls such underwriter within the meaning of the Securities
Act (or the Exchange Act), in any such case to the extent that any Damage
(or action or proceeding in respect thereof) arises out of such person's
failure to send or give a copy of the final Resale Prospectus, as the same
may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to written confirmation of the sale of Registered Shares to such
person if such statement or omission was corrected in such final Resale
Prospectus.
(b) In connection with the registration of the Unregistered Shares
under the Securities Act pursuant to a Resale Prospectus, Nelson and the
other sellers of the Registered Shares, severally and not jointly, will
indemnify and hold harmless Acquiror, each person, if any, who controls
Acquiror within the meaning of Section 15 of the Securities Act, each
officer of Acquiror who signs the Resale Prospectus, each director of
Acquiror, each underwriter and each person who controls an underwriter
within the meaning of Section 15 of the Securities Act, against any Damage,
joint or several, to which Acquiror or such officer, director, underwriter
or controlling person may become subject under the Securities Act or
otherwise, and will reimburse Acquiror or such officer, director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by Acquiror or such officer, director, underwriter or
controlling person in connection with investigating or defending against
any such Damage, but only insofar as such Damage (or actions in respect
thereof) arises out of or is based upon an untrue statement (or alleged
untrue statement) or omission (or alleged omission) of a material fact
referred to in subsection (a), above; and provided, further, that this
subsection (b) shall apply if and only if such statement (or alleged untrue
statement) or omission (or alleged omission) was made in reliance upon and
in conformity with information furnished in
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writing to Acquiror by or on behalf of Nelson or such seller specifically
for use in such Resale Prospectus.
(c) It shall be a condition of Acquiror's obligations to effect the
registration of Unregistered Shares that the sellers participating in such
registration provide Acquiror and the underwriters, if any, with all
material facts, including, without limitation, furnishing such
certificates, questionnaires and legal opinions as may be required by
Acquiror or such underwriters, concerning such participating sellers and
the Unregistered Shares to be registered which are reasonably required to
be stated in the Resale Prospectus or are otherwise required in connection
with the offering. If any seller does not provide such requisite
information, Acquiror shall have the right to prevent the registration of
unregistered shares held by the cooperative sellers.
(d) If the indemnification provided in this Section 6.05 is for any
reason unavailable or insufficient to hold an indemnified party harmless
hereunder, then the indemnifying party shall contribute the amount paid or
payable by such indemnified party as a result of the Damage referred to
herein in such proportion as is appropriate to reflect the relative fault
of Acquiror, on the one hand, and Nelson, on the other, in connection with
the statements or omissions that resulted in such Damage, as well as any
other relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from a person who was not guilty of
fraudulent misrepresentation. Each party entitled to contribution agrees
that upon the service of a summons or other initial legal process upon it
in any action in respect of which contribution may be sought, it shall
promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission to so notify such party
or parties shall not relieve the party from whom contribution may be sought
from any obligation it may have hereunder.
(e) Acquiror covenants and agrees at the reasonable request of any of
the Shareholders to enter into underwriting agreements containing
indemnification provisions substantially identical to those contained in
this Section 6.05.
SECTION 6.06. MERGERS, ETC. Acquiror agrees that it shall not, directly
or indirectly, enter into any merger, consolidation or reorganization in which
it shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation or reorganization, agree
in writing to assume the obligations of Acquiror under Sections 6.02(c) and (i),
6.03 and 6.04 hereof; provided, however, that the provisions of Section 6.03
hereof shall not apply in the event of any merger,
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consolidation or reorganization in which Acquiror is not the surviving
corporation if all Acquiror shareholders are entitled to receive consideration
in exchange for their shares of Acquiror Common Stock consisting solely of cash,
securities of the acquiring corporation which may be immediately sold to the
public without registration under the Securities Act, or securities of the
acquiring corporation which the acquiring corporation has agreed to register for
resale to the public within ninety (90) days after the completion of such
transaction.
SECTION 6.07. RATIFICATION OF TARGET COMPANY APPROVAL. At any time or
times prior to the Effective Time as Acquiror shall reasonably request, the U.S.
Shareholders shall provide Acquiror with documents, in such form and substance
as reasonably requested by Acquiror, executed by the shareholder(s) and/or Board
of Directors of each Target Company, affirming and ratifying their unanimous
approval of and consent to the Unitary Transaction and the other transactions
contemplated hereunder.
SECTION 6.08. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Target Companies, U.S. Shareholders and Acquiror shall use
all reasonable efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Laws or otherwise to consummate and make
effective the transactions contemplated by this Agreement as promptly as
practicable, (ii) obtain from any Governmental Entities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by the Target Companies, U.S. Shareholders or Acquiror
or any of their respective subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated herein, including, without
limitation, the Unitary Transaction, and (iii) make all necessary filings,
and thereafter make any other required submissions, with respect to this
Agreement and the Unitary Transaction required under (A) the Securities Act
and the Exchange Act, and any other applicable U.S. and Canadian, federal,
provincial or state securities Laws, (B) the HSR Act, (C) the Competition
Act, and (D) any other applicable Law; provided, however, that the Target
Companies and Acquiror shall cooperate with each other in connection with
the making of all such filings, including providing copies of all such
documents to the non-filing party and its advisors prior to filing and, if
requested, to accept all reasonable additions, deletions or changes
suggested in connection therewith. The Target Companies, U.S. Shareholders
and Acquiror shall furnish to each other all information
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required for any application or other filing to be made pursuant to the
rules and regulations of any applicable Law (including, if so requested by
Acquiror, all information required to be included in the Resale Prospectus)
in connection with the transactions contemplated by this Agreement.
(b)(i) The Target Companies, U.S. Shareholders and Acquiror shall give
(or shall cause their respective subsidiaries or affiliates to give) any
notices to third parties, and use, and cause their respective subsidiaries
to use, all reasonable efforts to obtain any third party consents, (A)
necessary or advisable to consummate the transactions contemplated in this
Agreement, or (B) required to prevent a Target Company Adverse Effect from
occurring prior to or after the Effective Time or an Acquiror Adverse
Effect from occurring prior to or after the Effective Time (collectively,
"Material Consents"). Without limiting the generality of the foregoing,
the Target Companies and U.S. Shareholders agree that the consents
described below shall constitute Material Consents, and on and after the
date hereof they shall use their reasonable best efforts to secure such
Material Consents in writing, at no cost to the U.S. Surviving Corporation,
prior to the Effective Time:
1. Consent of Comerica Bank, as Agent, to the assignment by the U.S.
Company to the U.S. Surviving Corporation of all rights under Credit
Agreement dated as of June 28, 1996.
2. Consent of Ford Motor Company to the assignment by the U.S. Company to
the U.S. Surviving Corporation of all rights under (i) Agreement
Relating to Fulfillment and Corporate Marketing and Licensing
Representation, and (ii) Trademark License Agreement, each dated July
11, 1996.
3. Consent of Roots USA, Inc. and Roots Canada Limited to the assignment
by the U.S. Company to the U.S. Surviving Corporation of all rights
under an Agreement dated as of February 2, 1996 with the U.S. Company
and the Canada Company.
(ii) In the event that any party shall fail to obtain a third party
consent described in subsection (b)(i), above, without incurring additional
premium, penalty or cost (excepting, however, legal costs incurred by the
contract principal and charged to a Target Company in connection with such
assignment), such party shall use best reasonable efforts, and shall take
any such actions reasonably requested by the other party hereto, to
minimize any adverse effect upon the Target Companies and Acquiror, their
respective subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
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(c) From the date of this Agreement until the Effective Time, the
Target Companies and U.S. Shareholders shall promptly notify Acquiror in
writing of any pending or, to the knowledge of any Target Company,
threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking damages in connection with
the U.S. Merger, the Canada Reorganization, the Unitary Transaction, the
conversion of U.S. Company Stock into Acquiror Common Stock pursuant to the
U.S. Merger, the conversion of Canada Holding Company Stock into Acquiror
Common Stock pursuant to the Canada Reorganization, and the conversion of
Acquiror Sub capital stock into capital stock of the U.S. Surviving
Corporation, or (ii) seeking to restrain or prohibit the consummation of
the Unitary Transaction, the other transactions contemplated under this
Agreement, or otherwise limit the right of Acquiror or its subsidiaries to
own or operate all or any portion of the businesses or assets of the Target
Companies, the U.S. Surviving Corporation or their subsidiaries, which in
either case is reasonably likely to have a Target Company Adverse Effect
prior to or after the Effective Time, or an Acquiror Adverse Effect after
the Effective Time.
(d) From the date of this Agreement until the Effective Time,
Acquiror shall promptly notify the Target Companies and Nelson in writing
of any pending or, to the knowledge of Acquiror, threatened action,
proceeding or investigation by any Governmental Entity or any other person
(i) challenging or seeking damages in connection with the U.S. Merger, the
Canada Reorganization, the Unitary Transaction, the conversion of U.S.
Company Stock into Acquiror Common Stock pursuant to the U.S. Merger, the
conversion of Canada Holding Company Stock into Acquiror Common Stock
pursuant to the Canada Reorganization, or the conversion of Acquiror Sub
capital stock into capital stock of the U.S. Surviving Corporation, or (ii)
seeking to restrain or prohibit the consummation of the Unitary Transaction
or the other transactions contemplated under this Agreement, or in either
case reasonably likely to have an Acquiror Adverse Effect prior to the
Effective Time.
SECTION 6.09. UPDATED TARGET COMPANY FINANCIAL STATEMENTS. The Target
Companies and U.S. Shareholders shall use their reasonable efforts,
respectively, to cause Coopers & Lybrand, L.L.P., independent public accountants
for the Target Companies and Nelson, to revise and restate the Target Company
Financial Statements for the years ended December 31, 1994 and 1995, in the
format as previously discussed between the respective financial officers of
Acquiror and the U.S. Company to bring them into conformity with the accounting
practices and principles utilized by Acquiror and to satisfy the
pooling-of-interest rules, and which revised and restated Financial Statements
shall be in form and substance reasonably satisfactory to Acquiror.
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SECTION 6.10. UPDATE DISCLOSURE; BREACHES. From and after the date of
this Agreement until the Effective Time, the Target Companies and Nelson, on the
one hand, and Acquiror, on the other hand, shall promptly notify the other by
written update to its Disclosure Schedules of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any condition to the obligations of any party to effect the
Unitary Transaction and the other transactions contemplated by this Agreement
not to be satisfied, or (ii) the failure of any Target Company, Nelson or
Acquiror, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it pursuant to this Agreement
which would be likely to result in any condition to the obligations of any party
to effect the U.S. Merger and the other transactions contemplated by this
Agreement not to be satisfied; provided, however, that the delivery of any
notice pursuant to this Section 6.10 shall not be deemed to cure any breach of
any representation or warranty requiring disclosure of such matter prior to the
date of this Agreement, or otherwise limit or affect the remedies available
hereunder to the party receiving such notice. If the Chief Financial Officer
shall obtain actual knowledge during the course of his due diligence, or in any
other manner prior to the Effective Time, of the occurrence of a change or event
which shall cause a Target Company's or U.S. Shareholder's representation or
warranty under Article III hereof to become untrue, and thereafter, provided
Acquiror shall have had the right to terminate this Agreement in accordance with
the provisions of Section 8.01 hereof (due to the magnitude of the breach or
misstatement in such representation or warranty), but elected not to terminate
this Agreement, Acquiror shall be forever barred, as of and after the Effective
Time, from asserting a claim for indemnification under Article IX of this
Agreement with respect to such change or event, or otherwise alleging Damages
had been incurred or suffered after the Effective Time as a result of such
change or event.
SECTION 6.11. PUBLIC ANNOUNCEMENTS. Acquiror shall consult with the
Target Companies and Nelson before issuing any press release with respect to the
Unitary Transaction or this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, including
as may be required by Law or the requirements of the NASDAQ. The Target
Companies and Nelson acknowledge and agree that any such press release or other
public announcement respecting the Unitary Transaction or this Agreement may be
disseminated only through the agents of Acquiror, except that following
Acquiror's dissemination of a public announcement hereunder, the Target
Companies may issue a press release or other public announcement respecting the
Unitary Transaction with the prior written consent of Acquiror, which consent
shall not be unreasonably withheld.
SECTION 6.12. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE U.S.
COMPANY. From and after the Effective Time, Acquiror
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shall cause the U.S. Surviving Corporation to indemnify, defend and hold
harmless the present and former officers and directors of the U.S. Company (such
U.S. Company present and former officers and directors are collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement, but specifically excluding damages or liabilities attributable
to an inaccuracy in or breach or violation of the representations, warranties,
covenants and agreements of the Target Companies made under or pursuant to the
Agreement) to the fullest extent permitted or required under Michigan Law (and
shall also cause the U.S. Surviving Corporation to advance expenses as incurred
to the fullest extent permitted under Michigan Law, provided that the person to
whom expenses are advanced provides the undertaking to repay such advances
contemplated by Michigan Law). Acquiror and Acquiror Sub agree that all rights
to indemnification, including provisions relating to advances of expenses
incurred in defense of any claim, action, suit, proceeding or investigation (a
"Claim") existing in favor of the Indemnified Parties as provided in each Target
Company's Articles of Incorporation or By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Time, shall
(subject to the exclusions provided for damages and liabilities attributable to
inaccuracies in, and breaches and violations of, this Agreement, as provided
above) survive the Unitary Transaction and continue in full force and effect, as
provided by Law.
SECTION 6.13. ELECTION OF NELSON TO ACQUIROR BOARD; ELECTION OF NELSON AS
ACQUIROR VICE CHAIRMAN.
(a) During the unexpired term (and any extension term) of Nelson's
Employment Agreement in the form attached to this Agreement as Exhibit D,
and thereafter, so long as Nelson shall continue to hold at least
thirty-five percent (35%) of the shares of Acquiror Common Stock issued to
him in the Unitary Transaction (hereafter, the "Nominating Period"),
Acquiror will use its best efforts, subject to applicable fiduciary
requirements under Illinois Law (and any other principles or rules which
may apply to the composition of Acquiror's Board of Directors, including
rules promulgated by the Commission), to maintain two (2) seats on
Acquiror's Board of Directors to be filled by Nelson and a second
individual experienced in matters pertaining to public corporations who is
recommended by Nelson and approved by the then-acting Chief Executive
Officer of Acquiror ("Nelson's Nominee").
(b) Throughout the Nominating Period, Acquiror shall use its best
efforts and take all reasonable steps to cause two (2) seats on its Board
of Directors to be reserved for Nelson and Nelson's Nominee. The parties
agree that such seats may be newly established by amendment to Acquiror's
By-Laws, or
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pre-existing, through a prior vacancy in Acquiror's Board of Directors. To
the extent Acquiror, consistent with fiduciary requirements and principles,
is unable to nominate Nelson and/or Nelson's Nominee to such seats on the
Board, then Acquiror shall refrain from nominating any person to such
seats, unless such action would itself violate applicable requirements and
principles. Nelson acknowledges that, due to the fact Acquiror's Directors
are elected annually by its public shareholders, Acquiror is unable to
guarantee the election of Nelson and Nelson's Nominee to Acquiror's Board.
(c) As soon as practicable following the Effective Time, but not
later than ten (10) days prior to Acquiror's solicitation of proxies in
connection with the Annual Meeting of the Shareholders next following the
Effective Time, Acquiror shall cause a Special Meeting of its Directors to
be convened for the purpose of voting on the appointment of Nelson and
Nelson's Nominee to (i) any vacancy then existing in the Board, or (ii) to
new seat(s) previously established by action of the Directors of Acquiror.
To the extent the Directors of Acquiror do not elect Nelson and Nelson's
Nominees to such seats on the Board, Acquiror agrees, to the extent
consistent with applicable fiduciary requirements and principles, to
conduct a reasonable solicitation of its shareholders prior to the next
Annual Meeting for the express purpose of securing the election of Nelson
and Nelson's Nominee to Acquiror's Board of Directors. Until the
Nominating Period shall have expired, and except to the extent prohibited
by Law or applicable fiduciary requirements and principles, Acquiror shall
refrain from withdrawing its recommendation of or support for Nelson and
Nelson's Nominee in subsequent solicitations mailed to its shareholders.
(d) Nelson acknowledges and agrees that Lou Weisbach, Acquiror's
current Chief Executive Office, and his successor, shall have the sole
authority and discretion, exercised in a reasonable manner and with due
regard for the significant interest in Acquiror's Common Stock owned by
Nelson and the other U.S. Shareholders, to approve or disapprove of
Nelson's Nominee; provided, however, Nelson shall be entitled to receive an
adequate explanation of (i) the reasons for any such disapproval, and (ii)
the separate criteria, if any, which must be satisfied by Nelson's Nominee.
(e) As soon as practicable following the Effective Time, Acquiror
shall cause its directors to amend Acquiror's By-Laws to include the office
of Vice Chairman (which office is described on Exhibit C to this Agreement)
as an elected position of Acquiror, and shall so elect Nelson to such
position. Thereafter, until the Nominating Period shall have expired,
Acquiror's Directors shall nominate and elect Nelson as Vice Chairman of
Acquiror at each Annual Meeting of
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the Board of Directors of Acquiror. Once so nominated and elected,
Acquiror's Directors shall not, until expiration of the Nominating Period
and except to the extent of applicable fiduciary requirements and
principles, remove Nelson from such position.
SECTION 6.14. OBLIGATIONS OF ACQUIROR SUB. Acquiror shall take all
reasonable action necessary to cause of Acquiror Sub to perform its obligations
under this Agreement and to consummate the Unitary Transaction on the terms and
conditions set forth in this Agreement.
SECTION 6.15. OBLIGATIONS OF THE TARGET COMPANIES. Each Target Company
shall take all reasonable action necessary to cause the others to perform its
obligations under this Agreement and to consummate the Unitary Transaction on
the terms and conditions set forth in this Agreement.
SECTION 6.16. OBLIGATIONS OF THE U.S. SHAREHOLDERS. Each U.S. Shareholder
shall take all reasonable action necessary to cause the Target Companies to
perform their respective obligations under this Agreement and to consummate the
Unitary Transaction on the terms and conditions set forth in this Agreement.
SECTION 6.17. REAL ESTATE PURCHASE.
(a) At the Effective Time, the U.S. Surviving Corporation, as
successor to the U.S. Company, shall purchase from Maple Lane Acquisition,
L.L.C., a Michigan Limited Liability Company and affiliate of Nelson
("Nelson's LLC"), and Nelson's LLC shall sell, convey and assign to the
U.S. Surviving Corporation, the vacant parcel of real property located at
1499 Maple Lane, Troy, Oakland County, Michigan, and more particularly
described on Schedule 6.17(a) attached hereto or all of the outstanding
interests in Nelson's LLC (the "Maple Property"), together with all rights
of way, privileges and appurtenances pertaining thereto, and all
foundations, structures, wiring, plumbing and property of every kind,
character and description appurtenant thereto. The purchase price for the
Maple Property shall be that quantity of unregistered shares of Acquiror
Common Stock as shall have an aggregate market value (determined in
accordance with the last sentence of this subsection) of one million
dollars ($1,000,000) LESS the value of the adjustments described in
subsection (b) hereof. Such Unregistered Shares shall be subject
to the restrictions and rights otherwise set forth in this Agreement and
made applicable to Unregistered Shares issuable to Nelson in the Unitary
Transaction, and shall be registered for resale in accordance with a Resale
Prospectus on the last date provided in Section 6.03 hereof; provided,
however, no Unregistered Shares issuable to Nelson in respect of the sale
of the Maple Property shall be subject
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to Acquiror's right of set-off arising upon a breach of the other provisions
of this Agreement, and such shares shall be subject to cancellation or
set-off, if at all, for a breach in or violation of the representations,
warranties, covenants and agreements of Nelson and Nelson's LLC set forth
in the agreements prepared in accordance with the provisions of Section
6.17(c) hereof. For purposes of this Section 6.17(a), each share of
Acquiror's Common Stock issuable in respect of the Maple Property shall be
valued at the mean between the bid and ask prices for shares of Acquiror
Common Stock as reported by the NASDAQ National Market or other securities
exchange on which the Acquiror Common Stock is traded ("NASDAQ") as of the
close of trading on the date of this Agreement.
(b) The purchase price for the Maple Property shall be reduced by the
unamortized value of all assets or costs reflected in the Interim Target
Company Disclosure Schedules which are attributable or pertain to, or have
been incurred in connection with, the Maple Property (hereafter,
"Construction Plans"), including, without limiting the generality of the
foregoing, the following assets:
(i) Those certain architectural plans for the construction of
an office/ warehouse complex prepared by Ben Tiseo Architects, and
approved by the City of Troy, Michigan;
(ii) That certain Construction Contract with Contractor
International Development Co. of Farmington Hills, Michigan;
(iii) That certain Construction Loan Agreement with Comerica
Bank; and
(iv) Excavation costs, tear-down costs for any structures
previously in place on the Maple Property, foundation costs, land
acquisition costs, capitalized interest and construction loan
principal payments, and real estate taxes attributable to the Maple
Property.
(c) Within fifteen (15) days after the date of this Agreement, the
Target Companies, Nelson and Nelson's LLC shall provide Acquiror with all
documents, instruments and other items in their possession (or in the
possession of an affiliate) which relate to the Maple Property, including
the Construction Plans, surveys, charts, warranties, other plans, designs
and the like. Not later than forty-five (45) days following the date of
this Agreement, Acquiror Sub, the U.S. Company, Nelson and Nelson's LLC
shall enter into binding agreements for the purchase and sale of the Maple
Property in accordance with the terms of this Section 6.17, pursuant to
instruments and other documents required or customary in
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connection with the sale of real property under Michigan Laws, all in the
condition provided for herein, with full warranty of title, and in form and
substance reasonably satisfactory to Acquiror. Such agreements shall
contain provisions for Nelson's (i) repurchase of the Maple Property, at
Acquiror's election, for an all-cash purchase price which is not less than
the price reflected in Section 6.17(a) hereof, plus the sum of all
construction expenditures and interest on construction loans incurred with
respect thereto after the date hereof, and (ii) obligation to enter into a
lease with the U.S. Surviving Corporation, at Acquiror's option, for such
repurchased improved Maple Property (should the repurchase election have
been exercised) and, until the Maple Property has been fully improved and
occupied, such other commercial real properties as have been previously
leased to the Target Companies, at rentals which do not exceed market
rates.
(d) At least forty-five (45) days prior to the Effective Time, Nelson
shall cause Nelson's LLC, at its sole cost, to furnish Acquiror a title
commitment in form and substance reasonably satisfactory to Acquiror
("Title Commitment") for the issuance of an owner's title insurance policy
on ALTA Form B or other form reasonably acceptable to Acquiror ("Title
Policy") for the Maple Property. The Title Commitment shall be issued in
the name of Acquiror for an amount of title coverage equal to one hundred
thousand dollars ($100,000). The Title Commitment shall set forth the
state of title of the Maple Property as of the date of such Title
Commitment (which date shall be a date subsequent to the date of this
Agreement), and shall describe all exceptions or conditions to title or
usage, including, but not limited to, easements, zoning and other
restrictions, rights-of-way, covenants, reservations, mortgages, liens and
other encumbrances, whether or not separately insured, waived or cured by
easement or other endorsement. No information disclosed by the Title
Commitment shall materially or adversely affect the value of, or the
ability of the U.S. Surviving Corporation to operate, occupy or use, the
Maple Property.
(e) At least ten (10) days prior to the Effective Time, Nelson shall
cause Nelson's LLC, at its sole cost, to furnish Acquiror a so-called
"Phase I" environmental impact audit for the Maple Property, commenced not
earlier than the date of this Agreement, by a licensed environmental
consultant in the general vicinity of the insured property selected by the
U.S. Company and reasonably acceptable to Acquiror. No information
respecting the Maple Property coming to the attention of Acquiror prior to
the Effective Time as a result of such Phase I audit shall (i) disclose
necessity for performing material environmental remediation activities at
such property, or (ii) otherwise materially affect the value of, or
Acquiror's
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ability to construct upon, operate, occupy or use, the Maple Property.
SECTION 6.18. INITIAL EXECUTIVE STOCK OPTION GRANTS. At the Effective
Time and as directed by Nelson, Acquiror shall issue a total of one hundred
fifty thousand (150,000) options (the "Initial Options") to acquire one hundred
fifty thousand (150,000) shares of Acquiror Common Stock pursuant to the terms
of the HA-LO Industries, Inc. Stock Plan (the "Plan") to certain executives
employed by the U.S. Surviving Corporation and the Canada Company. Acquiror
agrees to amend the Plan as necessary to fulfill the requirements of this
Section 6.18.
SECTION 6.19. ADDITIONAL EXECUTIVE STOCK OPTION GRANTS. In addition to
the Initial Options, Acquiror shall issue a total of three hundred fifty
thousand (350,000) options (the "Additional Options") to acquire three hundred
fifty thousand (350,000) shares of Acquiror Common Stock pursuant to the terms
of the Plan. The issuance of the Additional Options shall be subject to the
following terms and conditions.
(a) Acquiror shall issue the Additional Options in four (4) annual
installments of eighty seven thousand five hundred (87,500) options each.
The issuance of each installment is subject to the achievement of certain
annual profitability goals for the U.S. Surviving Corporation and the
Canada Company, to be set by mutual agreement of Nelson and Lou Weisbach
from time to time for each of the four (4) installments, the first such
goal to be established within thirty (30) days after the Effective Time.
As promptly as possible after the end of a year as to which the
profitability goal has been satisfied, the entire installment shall be
granted to such company executive employees designated by Nelson.
(b) The Additional Options shall then, when issued, vest according to
the Plan and shall have an exercise price per option equal to the
arithmetic mean between the bid and the ask price of Acquiror Common Stock
at the close of business on the date of grant.
(c) Acquiror agrees to cause the amendment of the Plan as necessary
to fulfill the requirements of this Section 6.19. If for any reason
Acquiror does not amend the Plan, Acquiror shall create a separate
non-qualified stock option plan for the executives of the U.S. Surviving
Corporation and the Canada Company and as necessary, cause the registration
of the shares of Acquiror Common Stock covered thereunder with respect to
the Additional Options.
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ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Unitary
Transaction and the other transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable Law:
(a) NO ACTION OR PROCEEDING. There shall not have been instituted
and there shall not be pending any action or proceeding by a Governmental
Entity, and no such action or proceeding shall have been specifically
threatened in a written communication from a representative of a
Governmental Entity with authority to institute such an action or
proceeding, before any court of competent jurisdiction or governmental
agency or regulatory or administrative body, and no order or decree shall
have been entered in any action or proceeding before such court, agency or
body (i) imposing or seeking to impose limitations on the ability of
Acquiror to acquire or hold or to exercise full rights of ownership of any
securities of the U.S. Surviving Corporation, Canada Holding Company-1 or
any of their respective subsidiaries or affiliates, (ii) imposing or
seeking to impose limitations on the ability of Acquiror to combine and
operate the business and assets of any Target Company with any of
Acquiror's subsidiaries or other operations, (iii) imposing or seeking to
impose other sanctions, damages or liabilities arising out of the Unitary
Transaction on Acquiror, Acquiror Sub, the U.S. Company, the Canadian
Target Companies, any of their respective officers or directors, and
Nelson, (iv) requiring or seeking to require divestiture by Acquiror of all
or any significant portion of the business, assets or properties of any
Target Company or any of its subsidiaries, or (v) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
the U.S. Merger, the Canada Reorganization, or both.
(b) HSR ACT. The applicable waiting period, together with any
extensions thereof, under the HSR Act shall have expired or been
terminated.
(c) COMPETITION ACT. 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; provided, if approval is required thereunder, then such
approval, consent or order shall have been received.
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(d) SECTION 116 CERTIFICATE. Nelson shall have delivered to Acquiror
a certificate issued under Section 116 of the Treaty indicating a
certificate limit equal to the value of Acquiror's Common Stock issued in
connection herewith.
Section 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR. The
obligations of Acquiror to effect the Unitary Transaction and the other
transactions contemplated in this Agreement are also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Target Companies and Nelson contained in this Agreement
shall be true and correct in all material respects as of the Effective
Time, as though made on and as of the Effective Time, and Acquiror shall
have received a certificate of the Chief Executive Officer (acting in such
capacity) of each Target Company to that effect (subject to provisions for
identified breaches of or misstatements in representations and warranties);
provided, however, that those representations and warranties which address
matters only as of a particular date shall remain true and correct in all
material respects as of such date.
(b) AGREEMENTS AND COVENANTS. Nelson and each Target Company shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
or him on or prior to the Effective Time, and Acquiror shall have received
a certificate of the Chief Executive Officer (acting in such capacity) of
each Target Company to that effect.
(c) CONSENTS UNDER AGREEMENTS. The Material Consents shall have been
obtained.
(d) AFFILIATE AGREEMENTS. Acquiror shall have received from each
U.S. Shareholder, and any other person who may be deemed to have become an
affiliate or shareholder of a Target Company after the date of this
Agreement and on or prior to the Effective Time (or affiliate of Acquiror
after the Effective Time), a duly executed Affiliate Agreement in the form
of Exhibit B.
(e) EMPLOYMENT AND OTHER AGREEMENTS. Acquiror, on behalf of the U.S.
Surviving Corporation, shall have received from (i) Nelson, an executed
Employment Agreement in the form of Exhibit D hereto, (ii) Steven J.
Lemberg, an executed Addendum to Employment Agreement in the form of
Exhibit E hereto, (iii) Eric Rosenbloom, an executed Addendum to Employment
Agreement in the form of Exhibit F hereto, (iv) Alan Baldwin, an executed
Addendum to Employment Agreement in the form of Exhibit G hereto, and (v)
Mark Freed and Jon
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Sloan, executed Employment Agreements in the form of Exhibit H hereto, and
all such Employment Agreements, as amended, shall be in full force and
effect at and as of the Effective Time. In addition, Acquiror shall have
received from Nelson an executed Agreement and Covenant Against Unfair
Competition, in the form of Exhibit I hereto, and from Nelson and each
other individual executing an Employment Agreement or Addendum thereto
pursuant to this subsection (e), a General Release of Claims, in the form
of Exhibit J hereto.
(f) RESIGNATIONS. Except as specifically provided in the Employment
Agreements referenced in Section 7.02(e), above, each Director or Officer
of a Target Company shall provide such Target Company with his written
resignation from office, effective as of the Effective Time.
(g) THE CANADA REORGANIZATION. Acquiror, Nelson and the Canadian
Target Companies shall have closed the transactions under the Canada
Reorganization.
(h) CASH ACCOUNTS. Acquiror shall have received, if it so requests,
terminations of authority, effective as of the Effective Time, by each
employee or agent of a Target Company having signatory or other authority
over such Target Company's cash, checking, lock box, safe deposit and other
depositary arrangements, and for each institution described in Section 3.22
to the Target Company Disclosure Schedules.
(i) OPINION OF COUNSEL. Acquiror shall have received the opinion of
Miro Weiner & Kramer, legal counsel for the Target Companies, dated as of
the Effective Time, with respect to those matters set forth in Exhibit K
hereto, and in a form reasonably acceptable to Acquiror.
(j) COMPLETE FINANCIAL INFORMATION. Acquiror shall have received
true and complete financial information from the Target Companies and U.S.
Shareholders in the form required, in the reasonable opinion of Arthur
Andersen, L.L.P., the independent auditor for Acquiror, to be included in
any and all of Acquiror's filings with the Commission after the Effective
Time. In addition, Acquiror shall have received the Target Company
Financial Statements as provided in Section 6.09 hereof.
(k) DIRECTOR RESOLUTIONS. Acquiror shall have received resolutions
of each Target Company's Board of Directors, dated after the date hereof
and immediately prior to the Effective Time, and certified by such Target
Company's Secretary, unanimously approving, ratifying and confirming (1)
all matters and things done by the officers and directors of such Target
Company at any time in the conduct its business or otherwise during the
course of operations, and (2) the
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consummation of the Unitary Transactions and other transactions
contemplated by this Agreement.
(l) SHAREHOLDER RESOLUTIONS. Acquiror shall have received
resolutions of each Target Company's shareholders, dated after the date
hereof and immediately prior to the Effective Time, and certified by such
Target Company's Secretary, unanimously approving, ratifying and confirming
(1) all matters and things done by the officers and directors of such
Target Company at any time in the conduct its business or otherwise during
the course of operations, and (2) the consummation of the Unitary
Transactions and other transactions contemplated by this Agreement.
(m) WAIVER OF AGREEMENT. Acquiror shall have received a written
waiver and termination, in form and substance satisfactory to Acquiror, of
the provisions of Section 16 of that certain Asset Purchase Agreement dated
as of February 27, 1995, and described at Item 1 of Section 3.35 to the
Target Company Disclosure Statements.
(n) OTHER DOCUMENTS AND INSTRUMENTS. Acquiror shall have received,
upon its written request given at least two (2) days prior to the Effective
Time, such other certificates, instruments and other documents reasonably
required to effectuate the transactions contemplated hereby, or to confirm
to Acquiror the effectiveness thereof.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF THE TARGET COMPANIES AND
NELSON. The obligations of the Target Companies and Nelson to effect the
Unitary Transaction and the other transactions contemplated in this Agreement
are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Acquiror contained in this Agreement shall be true and
correct in all material respects as of the Effective Time, as though made
on and as of the Effective Time, and the Target Companies and U.S.
Share-holders shall have received a certificate of the Chief Operating
Officer or Chief Financial Officer of Acquiror to that effect (subject to
provisions for identified breaches of or misstatements in representations
and warranties); provided, however, that those representations and
warranties which address matters only as of a particular date shall remain
true and correct in all material respects as of such date.
(b) AGREEMENTS AND COVENANTS. Acquiror and its subsidiaries shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Target Companies and Nelson
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shall have received a certificate of the Chief Operating Officer or Chief
Financial Officer of Acquiror to that effect.
(c) CONSENTS UNDER AGREEMENTS. Acquiror shall have obtained the
consent or approval of each person whose consent or approval shall be
required in connection with the Unitary Transaction under all loan or
credit agreements, notes, mortgages, indentures, leases or other agreements
or instruments to which it or any of its subsidiaries is a party, except
those agreements or instruments for which failure to obtain such consents
and approvals would, in the Target Companies' reasonable estimation, not
have a Target Company Adverse Effect prior to or after the Effective Time,
or an Acquiror Adverse Effect after the Effective Time.
(d) AFFILIATE AGREEMENTS. Each person entering into an Affiliate
Agreement shall have received an executed counterpart thereof from
Acquiror.
(e) EMPLOYMENT AGREEMENTS. Each individual entering into an
Employment Agreement/Addendum with the U.S. Surviving Corporation or Canada
Company shall have received an executed counterpart thereof from Acquiror
and the U.S. Surviving Corporation or Canada Company, as the case may be.
(f) OPINION OF COUNSEL. The Target Companies and U.S. Shareholders
shall have received the opinion of Neal Gerber & Eisenberg, counsel for
Acquiror, dated as of the Effective Time, with respect to those matters set
forth in Exhibit M hereto, and in a form reasonably acceptable to the
Target Companies.
(g) OTHER DOCUMENTS AND INSTRUMENTS. The Target Companies and U.S.
Shareholders shall have received, upon their written request given at least
two (2) days prior to the Effective Time, such other certificates,
instruments and other documents reasonably required to effectuate the
transactions contemplated hereby, or to confirm to the Target Companies and
U.S. Shareholders the effectiveness thereof.
(h) RELEASE OF NELSON GUARANTEES. Nelson shall have received from
Acquiror a release, in form and substance reasonably satisfactory to
Nelson, of Nelson's guarantee obligations under those Agreements described
in Section 3.35 to the Target Company Disclosure Schedules.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement, and the Unitary Transaction,
may be terminated at any time prior to the Effective Time in the following
manner:
(a) MUTUAL CONSENT. By mutual consent of Acquiror and the Target
Companies (or Nelson acting on their behalf and on behalf of the other U.S.
Shareholders).
(b) TARGET BREACH. By Acquiror, if (i) there has been a breach by a
Target Company or U.S. Shareholder of any covenant or agreement on their
part to be performed under this Agreement, or (ii) Acquiror shall
reasonably determine that any one or more of the representations and
warranties of the Target Companies and U.S. Shareholders contained in
Article III of this Agreement is in breach, and the aggregate potential
Damages which could be sustained, directly or indirectly, by Acquiror as a
result of such breach exceeds five hundred thousand dollars ($500,000)
(hereafter, the "Termination Threshold"); provided, however, (x) the Target
Companies and U.S. Shareholders shall have the right to cure any such
breach in accordance with the provisions of Section 8.01(h) hereof, and (y)
Acquiror shall have the right to compel Nelson to cure any such breach in
accordance with the provisions of Section 8.01(i) hereof.
(c) ACQUIROR BREACH. By Nelson (acting alone and on behalf of the
Target Companies and other U.S. Shareholders), if (i) there has been a
material breach by Acquiror of any covenant or agreement on its part to be
performed under this Agreement, and such breach is not cured within thirty
(30) days following receipt by Acquiror of written notice thereof from the
Target Companies or Nelson, or (ii) Nelson shall reasonably determine that
any one or more of the representations and warranties of Acquiror contained
in Article IV of this Agreement is in material breach, and the aggregate
potential Damages which could be sustained, directly or indirectly, by
Nelson and the Target Companies as a result of such breach exceeds five
hundred dollars ($500,000).
(d) INJUNCTION. By Acquiror or Nelson (acting alone and on behalf of
the Target Companies and other U.S. Shareholders) if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting
consummation of the U.S. Merger or the Canada Stock Reorganization shall
have become final and nonappealable.
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(e) OUTSIDE DATE. By Acquiror or Nelson (acting alone and on behalf
of the Target Companies and other U.S. Shareholders) if the Unitary
Transaction shall not have been consummated on or prior to January 31, 1997
(the "Outside Date") unless otherwise mutually agreed to by the parties.
(f) TARGET COMPETING TRANSACTION. By Acquiror, if any Target Company
or U.S. Shareholder shall have engaged or shall propose to engage in any
Competing Transaction (as defined in Section 5.02(h) hereof.
(g) ACQUIROR REFUSAL TO CLOSE. By Nelson (acting alone and on behalf
of the Target Companies and other U.S. Shareholders), if Acquiror shall
have refused to consummate the U.S. Merger or Canada Reorganization, and
(i) Acquiror shall not have exercised its right to terminate this Agreement
under any provision of this Section 8.01, and (ii) no Target Company or
U.S. Shareholder is otherwise in breach of the provisions of this Agreement
in an amount that would give Acquiror the right to terminate this
Agreement.
(h) TARGET CURE PROVISIONS. Acquiror shall not exercise its
termination rights under this Section 8.01 until the expiration of thirty
(30) days following a written election by the Target Companies and Nelson
(acting alone and on behalf of the other U.S. Shareholders) to cure a
breach or violation of any covenant, agreement, representation or warranty
set forth in this Agreement; provided, however, such election by the Target
Companies and U.S. Shareholders, and the manner in which any such breach is
cured, shall be in strict accordance with the following provisions:
(i) In the event there has been a breach by a Target Company or
U.S. Shareholder of any covenant or agreement on their part to be
performed under this Agreement, then immediately following written
notice by the Target Companies and Nelson to Acquiror given not later
than the Outside Date, the Target Companies and U.S. Shareholders
shall have thirty (30) days in which to cure such breach of covenant
or agreement, and in the event such covenant or agreement is cured,
(x) the new Outside Date shall be April 1, 1997, and (y) unless there
shall be any new or further breach hereunder by the Target Companies
or U.S. Shareholders, Acquiror shall not have the right to terminate
this Agreement under Section 8.01(b)(i); or
(ii) In the event there has been a breach by a Target Company or
U.S. Shareholder of any representation or warranty on their part made
under this Agreement, then immediately following written notice by the
Target Companies and Nelson to Acquiror given not later than the
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Outside Date, the Target Companies and U.S. Shareholders shall have
thirty (30) days in which to fully cure the matter or event which has
resulted in such breach of representation or warranty, and in the
event such breach of representation or warranty is cured, (x) the new
Outside Date shall be April 1, 1997, and (y) unless there shall be any
new or further breach hereunder by the Target Companies or U.S.
Shareholders, Acquiror shall not have the right to terminate this
Agreement under Section 8.01(b)(ii); provided, however, if such
representation or warranty is not capable of cure and relates to a
loss or expense incurred by a Target Company prior to the Effective
Time or which may be incurred by a Target Company after the Effective
Time, then Nelson shall have the right, prior to the expiration of
such thirty (30) day period, to cure such breach by contributing cash
to the affected Target Company equal to the difference between (1) the
total loss or expense incurred or to be incurred by such Target
Company, LESS (2) that portion of the Termination Threshold, if any,
which exceeds the aggregate potential Damages which could be
sustained, directly or indirectly, by Acquiror as a result of all
breaches of this Agreement by the Target Companies and U.S.
Shareholders prior to the Effective Time, and Acquiror agrees that
upon such contribution by Nelson, the representation or warranty which
was the subject matter of the breach shall be deemed cured for
purposes of this Agreement.
(i) ACQUIROR FORCED CURE PROVISIONS. In the event there has been a
breach by a Target Company or U.S. Shareholder of any representation or
warranty (or series thereof) on their part made under this Agreement, and
the aggregate potential Damages which could be sustained, directly or
indirectly, by Acquiror as a result of all such breaches exceeds the
Termination Threshold, then in the event Nelson shall not elect to cure
such breach in accordance with the provisions of Section 8.01(h) hereof,
and immediately following Acquiror's written notice to Nelson given not
later than the Outside Date, Nelson shall be obligated to cure such breach
within thirty (30) days following receipt of such notice by making a cash
contribution to the affected Target Company equal to the difference between
(x) the total loss or expense incurred or to be incurred by such Target
Company, LESS (y) that portion of the Termination Threshold, if any, which
exceeds the aggregate potential Damages which could be sustained, directly
or indirectly, by Acquiror as a result of all breaches of this Agreement by
the Target Companies and U.S. Shareholders prior to the Effective Time, and
Acquiror agrees that upon such contribution by Nelson, the representations
or warranties which were the subject matter of its notice shall be deemed
cured for purposes of this Agreement; provided, however,
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Nelson shall not be obligated to contribute more than $1 million to the
affected Target Companies, and in the event Acquiror's aggregate potential
Damages from all breaches exceeds $1.5 million, then Acquiror shall be
required to waive its claims for Damages in excess of $1.5 million or,
alternatively, it may elect to terminate this Agreement in accordance with
Section 8.01(b); and provided, further, if Nelson breaches his obligations
under this subsection (i), Acquiror shall, if it otherwise elects to close
the Unitary Transaction, retain all remedies at law or in equity to proceed
against Nelson on account of such breach.
SECTION 8.02. EFFECT OF TERMINATION. Upon termination of this Agreement
in accordance with the provisions of Section 8.01 hereof, the remedies of the
terminating party shall be limited to those provided under Sections 8.03 and
9.02, and except to the extent necessary for the enforcement of such party's
rights thereunder, this Agreement shall be null and void, and all other rights
and obligations of Acquiror, Acquiror Sub, the U.S. Company, the Canada Company,
Canada Holding Company-1, Canada Holding Company-2 and U.S. Shareholders shall
forthwith cease and have no further force or effect.
SECTION 8.03. FEES AND EXPENSES.
(a) Except as specifically provided in subsections (d) and (e),
below, all "Expenses" (as hereafter defined) incurred by the parties hereto
shall be borne solely and entirely by the party which has incurred the
same.
(b) As used in this Agreement, the term "Expenses" shall include all
reasonable out-of-pocket expenses and disbursements (including, without
limitation, all reasonable fees and expenses of counsel and accountants to
a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the preparation of the Resale
Prospectus and all other matters related to the closing of the transactions
contemplated herein. As used herein, the term "Payment Date" shall mean
the tenth business day following a party's receipt of an election to
terminate this Agreement pursuant to Section 8.01 hereof.
(c) The Target Companies and U.S. Shareholders agree that if Acquiror
shall terminate this Agreement pursuant to Section 8.01(b), and Acquiror
shall be without fault of its own, on the Payment Date, the Target
Companies shall pay to Acquiror an amount equal to the sum of the Expenses
incurred by Acquiror in connection with this Agreement.
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(d) Acquiror agrees that if the Target Companies shall terminate this
Agreement pursuant to Section 8.01(c), and each of the Target Companies and
U.S. Shareholders shall be without fault of their own, on the Payment Date,
Acquiror shall pay to the Target Companies an amount equal to the sum of
the Expenses incurred by them in connection with this Agreement.
(e) The Target Companies agree that if Acquiror shall terminate this
Agreement pursuant to Section 8.01(f), on the Payment Date the Target
Companies shall jointly and severally pay to Acquiror an amount equal to
fifteen million dollars ($15,000,000) plus all of the Expenses incurred by
Acquiror in connection with this Agreement.
(f) Acquiror agrees that if the Target Companies shall terminate this
Agreement pursuant to Section 8.01(g) without fault of their own, on the
Payment Date Acquiror shall pay to the Target Companies an amount equal to
fifteen million dollars ($15,000,000) plus all of the Expenses incurred by
the Target Companies in connection with this Agreement.
(g) Any demand for the payment of Expenses shall itemize in
reasonable detail all qualifying disbursements and accruals, and
notwithstanding one party's payment of another party's Expenses, the party
incurring such items may update and/or supplement its demand at any time
and from time to time, until the expiration of sixty (60) days from the
date of the initial demand. All payments owing in accordance with this
Section 8.03 shall be made by wire transfer of immediately available funds
to an account designated by the party so entitled to receive payment
therefor.
(h) Notwithstanding the provisions of this Article VIII, in the event
a party shall refuse to comply with the terms and provisions of this
Agreement, the other party may bring an action to specifically enforce this
Agreement, each party hereby acknowledging and agreeing that (i) time is of
the essence of this Agreement, (ii) a party may suffer irreparable injury
in the event of a wilful breach of this Agreement, and (iii) monetary
damages from a party's wilful failure to observe the provisions hereof may
be impossible to calculate; provided, however, no action to specifically
enforce this Agreement may be brought by any party who actually receives
the amounts provided under Sections 8.03(d) or (e) hereof.
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ARTICLE IX
INDEMNIFICATION MATTERS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Notwithstanding the closing of the Unitary Transaction, the
representations and warranties of Nelson, the Target Companies and Acquiror
contained in this Agreement shall survive the Effective Time until sixty (60)
days following the audit by Acquiror's independent accountants of the Target
Companies' results of operations for the fiscal year ending December 31, 1997
(the expiration of such sixty (60) days is hereafter the "Audit Cut-Off"). The
covenants and agreements contained herein to be performed or complied with on or
prior to the Effective Time shall expire at the Effective Time. The covenants
and agreements contained herein to be performed or complied with after the
Effective Time, and the parties' liabilities in respect of a breach thereof
(other than the covenant to indemnify against breaches of the representations
and warranties of the parties), shall survive the Effective Time until such
covenants and agreements have been performed or complied with, or until they
shall have expired in accordance with their respective terms.
SECTION 9.02. INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF ACQUIROR.
(a) From and after the Effective Time, the U.S. Shareholders covenant
and agree they shall jointly and severally indemnify and save harmless
Acquiror from and against any and all Damages incurred or suffered directly
or indirectly by Acquiror and proximately resulting from the breach of any
one or more of the representations or warranties of Nelson and the Target
Companies made in this Agreement. Except as provided in Section 9.03
hereof, such indemnification by the U.S. Shareholders shall be subject to
the following limitations:
(i) Any and all claims by Acquiror for Damages pursuant to this
Section 9.02 shall be enforceable, if at all, only against the shares
of Acquiror Common Stock issuable to the U.S. Shareholders in the
Unitary Transaction and further limited as provided herein; provided,
however, the U.S. Shareholders may, upon reasonable notice to
Acquiror, elect to pay any claim hereunder in cash, opposed to set-off
against Unregistered Shares.
(ii) In valuing the Unregistered Shares for purposes of
Acquiror's set-off and indemnification rights under this Section 9.02,
such Unregistered Shares shall in all events be valued at the average
closing sale price of a
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share of Acquiror Common Stock as reported by the NASDAQ for the ten
(10) trading days prior to the Effective Time (the "Average Value").
In illustration of the foregoing, if an indemnification claim for
thirty thousand dollars ($30,000) is asserted, and the Average Value
is calculated at thirty dollars ($30) per share, then subject to
clause (iii) herein, and notwithstanding that the fair market value of
such shares may be higher at the time, one thousand (1,000) shares of
Acquiror Common Stock shall be subject to set-off in satisfaction of
such claim. Each U.S. Shareholder acknowledges that any such set-off
shall be treated as a reduction of the share consideration received in
the Unitary Transaction, and agree that any and all Returns filed in
connection with the Unitary Transaction after such set-off shall so
reflect.
(iii) Acquiror's right of indemnification under this Section 9.02
shall in each and every instance be limited to the set-off against and
cancellation of no greater than nine percent (9%) of the total number
of shares of Acquiror Common Stock issued in the Unitary Transaction.
Thus, if all two million two hundred fifty thousand (2,250,000) shares
of Acquiror Common Stock are issued to the U.S. Shareholders in
accordance with the provisions of Article II, then only two hundred
two thousand five hundred (202,500) of such shares, valued in
accordance with clause (ii), above, shall be subject to set-off
hereunder.
(iv) Acquiror shall not be entitled to any recovery under this
Section 9.02 unless a claim for indemnification is made prior to the
Audit Cut-Off.
(v) Acquiror shall not be entitled to any recovery for Damages
(or portion thereof) which are attributable to (x) amounts for which
Acquiror has received (or is indirectly entitled to receive) proceeds
of insurance under a policy which was in effect at the Effective Time
with respect to the matter for which indemnification is otherwise
available hereunder, or (y) the actual amounts of Closing Reserves
created in or added to the Interim Target Company Financial Statements
prior to the Effective Time by the U.S. Company, but only to the
extent such amounts were created or added at the specific request of
Acquiror's Treasurer or Chief Financial Officer.
(vi) Acquiror shall not be entitled to (i) make any
indemnification claim unless such claim equals or exceeds one thousand
dollars ($1,000); and (ii) recover any amount for such allowed
indemnification claims under this
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Section 9.02 unless and until the aggregate Damages which Acquiror is
entitled to recover in respect of all such claims exceeds five hundred
thousand dollars ($500,000) LESS the amount of any Damages sustained
by Acquiror as a result of any breach of representation or warranty
determined prior to the Effective Time and used in the calculation of
the Termination Threshold under Section 8.01(b)(ii) hereof (such
difference is hereafter the "Basket"), and only to the extent such
Damages exceed the Basket.
(vii) Acquiror shall not be entitled to recover any amount for
indemnification claims under this Section 9.02 for Damages arising
solely from the failure to obtain a Material Consent; provided,
however, that the U.S. Shareholders and the Target Companies have used
reasonable best efforts to obtain such Material Consent.
SECTION 9.03. SPECIAL PROVISIONS RELATING TO CERTAIN TAX LIABILITIES AND
OTHER MATTERS. Anything in this Agreement to the contrary notwithstanding:
(a) The U.S. Shareholders shall be primarily liable for and shall pay
directly all foreign, federal, state and local income Taxes imposed upon,
assessed against or attributable to the U.S. Company, and any Taxes
calculated or measured with respect to the revenues, receipts, gross
profits or net profits of the U.S. Company, in each case attributable to
periods (or portions thereof) ending on or prior to the Effective Time. In
addition, the U.S. Shareholders covenant and agree they shall indemnify and
save harmless Acquiror from and against any and all Damages incurred or
suffered directly or indirectly by Acquiror and resulting from the Taxes
described in the preceding sentence, or attributable to Taxes which would
not have been payable by or assessable against the U.S. Company if a valid
S Corporation Election had been in effect with respect to the U.S. Company
during such Tax periods.
(b) In the event of a recharacterization by any taxing authority of
the employment status of a Target Company's sales representatives, such
that the representations of the Target Companies and U.S. Shareholders set
forth in Section 3.12(a) (iv) or (xii) are breached or otherwise incorrect,
the U.S. Shareholders covenant and agree they shall, subject to application
of the Basket under Section 9.02(a)(vi) hereof, indemnify and save harmless
Acquiror from and against any and all Taxes, interest and penalties
incurred or suffered by the U.S. Surviving Corporation or Acquiror, and
resulting from such recharacterization.
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(c) Subject to application of the Basket under Section 9.02(a)(vi)
hereof, the U.S. Shareholders covenant and agree they shall indemnify and
save harmless Acquiror from and against any and all Damages incurred or
suffered directly or indirectly by Acquiror and proximately resulting from
or attributable to (i) Obsolete Program Inventory Costs, determined in
accordance with the provisions of Section 3.33 hereof, and (ii) slow moving
or excessive products reflected in the inventories of the Target Companies
as of December 31, 1996, and determined below. To the extent that, during
the period from January 1, 1997 through completion of the audit by
Acquiror's independent accountants of the Target Companies' results of
operations for the fiscal year ending December 31, 1997, the Target
Companies are unable to sell or dispose of at least ninety-five percent
(95%) of the entire quantity of product items included in each "product
unit" reflected in the inventories of the Target Companies as of December
31, 1996 (the "Base Shortfall"), or the Target Companies' net revenues from
the sale of product items so reflected are less than the extended cost
therefor (the "Secondary Shortfall"), then in each case, at the Audit
Cut-Off, the U.S. Shareholders shall indemnify Acquiror for the Base
Shortfall and the Secondary Shortfall, subject to the Basket, by payment of
such Shortfall(s) to Acquiror, or by set-off of an amount equal to such
Shortfall(s) against Unregistered Shares in accordance with the provisions
of this Article IX, as Nelson shall determine. For purposes of this
subsection, (1) the Base Shortfall shall equal the extended cost of all
items included in each product unit, and remaining unsold as of the
applicable date, and (2) the Secondary Shortfall shall mean the amount by
which net revenues from the sale such product items is less than the
extended cost therefor. As used herein, the term "product unit" shall mean
each separate product or merchandise unit offered for sale by a Target
Company. Product units shall be identified by vendor code, product code or
such other reasonable tracking method as Acquiror shall determine.
(d) Notwithstanding the Basket, the U.S. Shareholders shall indemnify
and hold Acquiror harmless from and against any and all Damages incurred or
suffered directly or indirectly by Acquiror and proximately resulting from
or attributable to those litigation matters described in Section 3.09(a) to
the Target Company Disclosure Schedules; provided, in the event the
liability of the U.S. Company under Item Nos. 1 and 2 thereon is zero or a
nominal amount, no indemnification shall be required in respect of
attorney's fees and costs; and provided, further, the Basket shall be
increased by the amount of any recovery, net of attorney's fees and costs,
under Item No. 3 thereon.
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SECTION 9.04. ACQUIROR'S INDEMNIFICATION. Acquiror covenants and agrees
to indemnify and save harmless the Target Companies and Nelson from and against
any and all Damages incurred or suffered directly or indirectly by them and
proximately resulting from or attributable to the breach of, or misstatement in,
any one or more of the representations or warranties of Acquiror made in this
Agreement. The Target Companies and Nelson shall not be entitled to recover any
amount for indemnification claims under this Section 9.04 unless and until the
aggregate Damages which the Target Companies are entitled to recover in respect
of all such claims exceed the Basket, and only to the extent the Target
Companies' aggregate Damages exceed the Basket. In addition, the Target
Companies and Nelson shall not be entitled to any recovery under this Section
9.04 unless a claim for indemnification is made prior to expiration of the Audit
Cut-Off.
SECTION 9.05. INDEMNIFICATION PROCEDURES.
(a) In the event that any party hereto shall sustain or incur any
Damages in respect of which indemnification may be sought by such party
pursuant to this Agreement, the party to be indemnified hereunder (the
"Indemnitee") shall assert a claim for indemnification by serving written
notice on the party providing indemnification (the "Indemnitor"), stating
the nature and basis of such claim.
(b) In case either party has received actual notice of any claim
asserted or any action or administrative or other proceeding in respect of
which claim, action or proceeding such party believes indemnity properly
may be sought against the other party pursuant to this Agreement, the
Indemnitee shall, within thirty (30) days of receiving such notice, give
notice thereof in writing to the Indemnitor, but failure to give such
notice within such time period shall relieve the Indemnitor of its
indemnification obligation only to the extent of actual prejudice resulting
therefrom. Within fifteen (15) days after receipt of notice of such claim,
action or proceeding, the Indemnitor may give the Indemnitee written notice
of its election to conduct the defense of such claim, action or proceeding;
provided, however, that the Indemnitee shall have the right to participate
in the defense thereof, but such participation shall be solely at the
expense of the Indemnitee, without a right of further reimbursement. Until
the Indemnitee has received notice of the Indemnitor's election whether to
defend any claim, action or proceeding, the Indemnitee shall take
reasonable steps to defend (but may not settle) such claim, action or
proceeding. If the Indemnitor has not so notified the Indemnitee in
writing within the time hereinabove provided of its election to conduct the
defense of such claim, action or proceeding, the Indemnitee shall conduct
the defense of any such claim, action or proceeding; provided that the
Indemnitee shall not at any
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time settle, compromise or satisfy any such claim, action or proceeding
without the written consent of the Indemnitor, which shall not unreasonably
be withheld. Any such settlement, compromise or satisfaction made by the
Indemnitee with the Indemnitor's consent of, or any such final judgment or
decree entered in, any claim, action or proceeding defended only by the
Indemnitee shall be binding upon the Indemnitor. The failure of the
Indemnitor to assume the defense of any claim, action or proceeding shall
not be deemed a concession that it is required to indemnify the Indemnitee
for the subject matter thereof. If the Indemnitor has elected under this
Section to conduct the defense of any claim, action or proceeding, then the
Indemnitor shall be obligated to pay the amount of any adverse final
judgment or decree rendered with respect to such claim, action or
proceeding.
SECTION 9.06. DISPUTE RESOLUTION. In the event a U.S. Shareholder shall
notify Acquiror in writing that it objects to any characterization of a breach,
Damage calculation, indemnification claim or other determination made by
Acquiror under this Agreement, and sets forth with particularity the amounts in
dispute, the nature of the dispute and the basis therefor, the parties shall in
good faith thereafter attempt to resolve such dispute, in which event no set-off
against Unregistered Shares shall be made by Acquiror until the resolution
thereof and, if applicable, no right of termination shall be exercised until the
resolution thereof. Any such objection must be delivered to Acquiror not later
than twenty (20) days following Acquiror's delivery of its claim for
indemnification. If the parties do not reach agreement resolving the dispute
within twenty (20) days after notice is given in accordance with herewith, the
parties shall submit the dispute to an independent certified public accounting
firm mutually agreeable to the parties, which firm shall not have had a material
relationship with Acquiror, the Target Companies or any of their respective
Affiliates within the two (2) years preceding the date hereof (the "Arbiter"),
for resolution in a proceeding to be conducted in Chicago, Illinois. If the
parties cannot agree on the selection of the independent certified public
accounting firm to act as Arbiter, the parties shall request the American
Arbitration Association (the "Association") to appoint such a firm, and such
appointment shall be conclusive and binding on the parties. Promptly, but not
later than sixty (60) days after acceptance of its appointment as Arbiter, the
Arbiter shall determine, based on presentations by Acquiror and Nelson (acting
on behalf of all U.S. Shareholders) or, if deemed necessary by the Arbiter, by
independent review, only those issues in dispute, and shall render a report as
to the dispute, and the resulting determination on Acquiror's claim for
indemnification, which determination shall be conclusive and binding upon the
parties, and in the event any portion of Acquiror's claim is allowed, Acquiror
may thereafter set-off such portion against the Unregistered Shares. In
resolving any disputed item, the Arbiter may not assign
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a value to any item greater than the greatest value for such item claimed by a
party in its claim or objection thereto, or less than the smallest value for
such item claimed by either party. The fees, costs and expenses of the Arbiter
shall be paid one-half by Acquiror and one-half by Nelson. Whether any dispute
is resolved by agreement among the parties or by the Arbiter, changes to
Acquiror's claim for indemnification shall be made hereunder only for items as
to which a U.S. Shareholder has taken exception as provided herein. Anything in
this Agreement to the contrary notwithstanding, Acquiror shall not be obligated
to register any Unregistered Shares under Section 6.03 hereof, to the extent
such Unregistered Shares are the subject of Acquiror's claim for indemnification
made prior to expiration of the Audit Cut-Off.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. NOTICES. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
If to Acquiror or Acquiror Sub:
HA-LO Industries, Inc.
5980 West Touhy Avenue
Niles, IL 60714
Attention: Mr. Gregory J. Kilrea, CFO
Facsimile number: 847.647.4970
with copies to:
Marc S. Roth, Esq.
Marc S. Roth & Associates, Ltd.
176 Ambrogio Drive
Gurnee, IL 60031
Facsimile number: 847.336.6368
-and-
Barry J. Shkolnik, Esq.
Neal Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, IL 60602
Facsimile number: 312.269.1747
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If to the Target Companies:
Creative Concepts in Advertising, Inc.
31535 Southfield Road
Beverly Hills, MI 48075
Attention: Steven J. Lemberg, CFO
Facsimile No.: 810.988.9406
with a copy to:
Ernest J. Weiner, Esq.
Miro Weiner & Kramer
500 North Woodward Avenue
Suite 100
Bloomfield Hills, MI 48304
Facsimile No.: 810.646.4204
If to Nelson:
Linden D. Nelson
c/o Creative Concepts in Advertising, Inc.
31535 Southfield Road
Beverly Hills, MI 48075
Facsimile No.: 810.258.1340
with a copy to:
Ernest J. Weiner, Esq.
Miro Weiner & Kramer
500 North Woodward Avenue
Suite 100
Bloomfield Hills, MI 48304
Facsimile No.: 810.646.4204
SECTION 10.02. AMENDMENT. This Agreement may be amended by the parties by
action taken personally, in the case of Nelson, or by their respective Boards of
Directors at any time prior to the Effective Time. This Agreement may not be
amended except by an instrument in writing signed by the parties.
SECTION 10.03. WAIVER. At any time prior to the Effective Time, any party
may (i) extend the time for the performance of any of the obligations or other
acts of the other party, (ii) waive in writing any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered pursuant to this Agreement, and (iii) waive compliance
by the other party with any of the agreements or conditions contained in this
Agreement. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
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SECTION 10.04. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.06. ENTIRE AGREEMENT. This Agreement (together with the
Exhibits, and the Target Company and Acquiror Disclosure Schedules and the other
documents delivered pursuant hereto), constitutes the entire agreement of the
parties and supersede all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other person any rights or remedies hereunder. Any matter which
is disclosed in any portion of the Target Company or Acquiror Disclosure
Schedules shall be deemed to have been disclosed for the purposes of all
relevant provisions of this Agreement. The inclusion of any item in any such
Disclosure Schedules shall not be deemed evidence of the materiality of such
item for purposes of this Agreement. The parties make no representations or
warranties to each other, except as contained in this Agreement, and any and all
prior representations and warranties made by any party or its representatives,
whether orally or in writing, shall be deemed to have been merged into this
Agreement, it being intended that no such prior representations or warranties
shall survive the execution and delivery of this Agreement.
SECTION 10.07. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 10.08. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party, and nothing in this Agreement,
express or implied, other than the right to receive the consideration payable in
the Unitary Transaction pursuant to Article II, is intended to or shall confer
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
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SECTION 10.09. GOVERNING LAW; CURRENCY DIFFERENCES. Except as provided in
Sections 1.01, 1.03 and 6.17(c) hereof, this Agreement shall be governed by and
construed in accordance with the Laws of the State of Illinois, regardless of
the Laws that might otherwise govern under applicable principles of conflicts of
law. As used herein, all dollar-denominated monetary amounts shall refer to
U.S. dollars, and there shall be no adjustments made for differences in the
value of currencies existing at the date of this Agreement, or for fluctuations
in such values after the date hereof.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Each person owning shares
of U.S. Company or Canada Holding Company Stock on the date of this Agreement
shall execute this Agreement on the date hereof as a Target Company shareholder,
and every other person so acquiring shares of U.S. Company or Canada Holding
Company Stock after the date of this Agreement and prior to the Effective Time
shall execute a separate undertaking or counterpart hereof, agreeing to be bound
by all the representations, warranties, covenants and agreements of a Target
Company shareholder herein.
SECTION 10.11. SCHEDULES. To the extent that any fact or facts set forth
in any Target Company Disclosure Schedule (delivered by the Company concurrently
herewith) is relevant to any one or more other schedules included in the
schedule volume, such fact or facts shall be deemed included on each such
relevant schedule or schedules.
IN WITNESS WHEREOF, Acquiror, Acquiror Sub, the U.S. Company, the Canada
Company, Canada Holding Company-1, Canada Holding Company-2 and the U.S.
Shareholders have caused this Agreement to be executed as of the date first
written above, in the case of each corporate entity, by their respective
officers duly authorized.
HA-LO INDUSTRIES, INC.
By:
-----------------------------------------
Its: CEO
HA-LO ACQUISITION CORPORATION
OF MICHIGAN, INC.,
By:
-----------------------------------------
Its: CEO
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CREATIVE CONCEPTS IN ADVERTISING, INC.,
By:
-----------------------------------------
Its: CEO
CREADIS GROUP INC.
By:
-----------------------------------------
Its: CEO
1132832 ONTARIO INC.
By:
-----------------------------------------
Its: CEO
1132831 ONTARIO INC.
By:
-----------------------------------------
Its: CEO
----------------------------------------------
LINDEN D. NELSON
----------------------------------------------
MICHELLE NELSON
----------------------------------------------
JULIE A. NELSON, not individually,
but as Trustee u/a/d 01/01/96
f/b/o Sanford E. Nelson
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----------------------------------------------
JULIE A. NELSON, not individually,
but as Trustee u/a/d 01/01/96
f/b/o Arielle L. Nelson
----------------------------------------------
STEVEN J. LEMBERG
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STATE OF MICHIGAN )
) SS.
COUNTY OF OAKLAND )
I, __________________________, a Notary Public in and for said State and
County, do hereby certify that Julie A. Nelson, who is personally known to me as
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person and acknowledged that she signed and delivered the
said instrument as her own free and voluntary act, for the uses and purposes
therein set forth.
Given under my hand and notarial seal this ____ day of October, 1996.
------------------------------
Notary Public
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March 17, 1997
Mr. Marshall J. Katz
3625 Indian Wells Road
Northbrook, IL 60062
RE: FINDER'S COMPENSATION PLAN
Dear Marshall:
The purpose of this letter is to confirm your engagement by HA-LO Industries,
Inc. ("HA-LO") for the purpose of your identification of businesses for
potential acquisition by HA-LO, your participation in all phases of review
and evaluation of such businesses, and your assistance to HA-LO in
negotiations for the purchase of the stock or assets of such businesses.
SERVICES TO BE RENDERED.
1. You agree that you will perform on a best efforts basis, solely for the
account and benefit of HA-LO, the following services (the "Services"):
(a) Soliciting the interest of, and identifying in writing to the
executive officers of HA-LO, businesses and sales representatives
for potential transactions in which HA-LO would acquire the stock
or assets of such businesses ("Prospects"); provided that such
Prospects shall be engaged in the operations which are similar to
the operations currently conducted by HA-LO or contemplated to be
conducted by HA-LO pursuant to its long-term business plans;
(b) Making formal and informal introductions to the executive officers
of HA-LO, and HA-LO's outside agents and representatives, of the
owners and key employees of the Prospects;
(c) Reviewing and evaluating the relevant business(es) of the Prospects,
including their operations and financial position, for compliance
with HA-LO's internal requirements as disclosed to you from time to
time, it being understood by HA-LO that you may rely upon
information supplied by the Prospects without independent
verification;
(d) Assisting HA-LO in its purchase negotiations with the Prospects; and
<PAGE>
(e) Performing such other and ancillary services with respect to the
Prospects, and HA-LO's acquisition thereof, as are reasonably
requested by HA-LO and not inconsistent with the provisions of this
Section 1.
For purposes of this agreement, the term "acquisition" shall mean, in one or
a series of transactions, directly or indirectly, the acquisition by HA-LO of
a majority interest in the voting securities of a Prospect, a merger,
consolidation or similar business combination in which HA-LO acquires a
Prospect, the transfer of assets of a Prospect to HA-LO, the election of, or
the ability by HA-LO to elect, nominees to a majority of the Board of
Directors of a Prospect, or any similar purchase, investment or arrangement,
however structured, by which HA-LO acquires an ownership interest in a
Prospect or in such Prospects' operating assets and all or substantially all
of the sales representatives of the Prospect become HA-LO sales
representatives.
Given the limited scope of the Services, the contingent nature of your
compensation for the Services and in recognition of your outside business
endeavors, HA-LO acknowledges and agrees that you shall not be required to
devote your full-time to the performance of the Services provided that any
contacts which you establish with Prospects shall be for the exclusive
benefit of HALO; and provided, further, that your outside business endeavors
shall not materially interfere with your performance of the Services.
1. COMPENSATION - SUCCESS FEE FOR ACQUISITIONS.
As compensation for the Services with respect to acquisitions, HA-LO agrees
to pay you a fee (the "Success Fee") following completion of each acquisition
of a Prospect (whether or not you have identified such Prospect or HA-LO
has requested your services in connection with such acquisition) during the
term of this agreement. The Success Fee shall be equal to the sum of the
following:
(a) An amount equal to four percent (4%) ( the "Applicable Percentage")
of the "gross profits" (as hereinafter defined) of each Prospect
during the full twelve (12) calendar month period immediately
preceding the completion of the acquisition of such Prospect by
HA-LO (the "Pre-Closing Gross Profits") up to a maximum fee of
$200,000 per transaction ("Fee Cap").
(b) Ten years options (the "Options") to acquire shares of the common
capital stock of HA-LO in an amount equal to two hundred fifty (250)
shares for every Ten Thousand Dollars ($10,000) of Success Fee earned
hereunder. The exercise price of the Options shall be equal to the
closing price for HA-LO shares as quoted by the NASDAQ (or similar
securities exchange on which HA-LO shares shall be trading) as of the
close of business on the day before the date of the closing of the
acquisition of such Prospect by HA-LO (or if a Saturday or a Sunday,
on the first business day preceding such date of closing). All
Options issued with respect to a Prospect shall be deemed issued as
of the close of business on the date of the completion of the
acquisition of such Prospect by HA-LO, vest 50% on issuance and 50%
after twelve months, and in all other respects shall be subject to
the rules, regulations, terms, conditions and provisions of the
HA-LO Stock Plan, as amended from time to time. As a
2
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precondition to your receiving such Options, you shall be required to
enter into and deliver to HA-LO an appropriate stock option
agreement.
(c) To the extent that the Success Fee is limited due to the Fee Cap,
additional options ("Excess Options") shall be granted at a rate of
10,000 shares for every $100,000 of Success Fee otherwise payable but
not paid due to the Fee Cap. The Excess Options shall be issued
pursuant to the provisions in paragraph (b) above, except the
exercise price shall be increased by 17.5%.
(d) As an example of the above, should an acquisition be closed with
Pre-Closing Gross Profits of $10,000,000 when the stock price closed
at $20 per share on the day prior to closing, the Success Fee would
be $200,000, the options issued pursuant to paragraph (b) would be
5,000 at $20 per share and the Excess Options would be 20,000 at
$23.50.
For purposes of calculating Success Fees under this Section 2, the term
"gross profits" shall mean the gross profits (revenues less returns and
allowances and less cost of goods sold) attributable to the operations or
business(es) conducted or previously conducted, or the assets owned or
previously owned, by a Prospect, exclusive of those gross profits
attributable to operations or business(es) that are discontinued or are
otherwise known to be non-recurring following acquisition by HA-LO; gross
profits to be calculated in accordance with the generally accepted accounting
principles, methods policies, practices and procedures employed by HA-LO in
the calculation of its own gross profits, on a consistent basis throughout
the periods.
Notwithstanding any provision in this letter agreements to the contrary, the
Success Fee otherwise payable hereunder with respect to an acquisition in
which more than fifty percent (50%) of the voting securities of HA-LO are
distributed to one or more persons shall be limited to no more than Two Hundred
Thousand Dollars ($200,000) plus options to purchase ten thousand (10,000)
shares of HA-LO stock.
The Success Fee described above, shall be calculated and paid within ten (10)
days following the date of the completion of the acquisition of each Prospect
by HA-LO.
You shall also be entitled to compensation from HA-LO with respect to
acquisitions of those Prospects with which you have devoted attention and
that are closed within six (6) months after the term of this agreement
expires; provided that HA-LO shall have provided a draft of an acquisition
contract to the Prospect within 30 days of the termination of this agreement.
Generally, we contemplate the term "devoted attention" to mean a meeting or
telephone call with the Prospect in which a meaningful discussion has occurred
regarding acquisition of such Prospect or its business coupled with the receipt
by HA-LO of financial statements of the Prospect. HA-LO will not unreasonably
delay the acquisition process to avoid paying a Success Fee. Your engagement
hereunder shall commence on the date of this agreement and expire on the second
anniversary of this agreement. The provisions of this paragraph shall survive
any termination of your engagement.
If, in the course of the negotiation witha Prospect, no acquisition is
consummated, but as a
3
<PAGE>
result of such negotiation one or more qualified sales representatives of the
Prospect (each a "qualified sales representative") enter into a sales
representative agreement with HA-LO within sixty (60) days of the
consummation of such negotiations with the Prospect, then HA-LO shall pay you
the following: an amount equal to four percent (4%) of the gross profits
generated by the qualified sales representatives (as determined by HA-LO)
during the twelve (12) month period prior to the execution of a written sales
representative agreement with HA-LO.
1. OTHER AGREEMENTS.
(a) In addition to any Success Fees payable to you hereunder, and
regardless whether an acquisition of a Prospect is proposed or
consummated, HA-LO hereby agrees, from time to time promptly upon
your written request, to reimburse you for all reasonable travel and
lodging expenses, and meals with Prospects, authorized by HA-LO and
incurred by you in connection with, or arising out of, the Services.
(b) This agreement shall be governed by and construed in accordance with
the laws of the State of Illinois without regard to the conflicts
of laws provisions thereof.
(a) HA-LO recognizes and confirms that, with respect to Prospects,
(1) you are not obligated to independently verify the accuracy or
completeness of information provided to you by a Prospect, and
(2) you do not assume responsibility for the accuracy or
completeness thereof. HA-LO further recognizes and agrees that all
analyses, evaluations and advice provided by you in connection with
Prospects (whether written or oral, formal or informal;) are
intended solely for the benefit and use of HA-LO in pursuing
acquisitions, and that no such analyses, evaluations or advice
shall be used for any other purpose or reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose.
You recognize and agree that all such analyses, evaluations and
advice, together with all information provided to you by Prospects,
is confidential and that no such analyses, evaluations, advice or
information shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner
or for any purpose. HA-LO hereby agrees to indemnify and hold
you harmless from and against all losses, claims, damages,
liabilities and expenses incurred by you (including fees and
disbursements of counsel) which are related to or arise out of
the Services, unless the same are finally judicially determined
to have resulted from your bad faith or recklessness.
(b) You and HA-LO mutually agree to file all tax returns, and take
reasonable, consistent positions therewith, with any taxing
authorities, in a manner which is consistent with the
characterization of any item by this agreement. You agree that,
with respect to the Services, you are an independent contractor
and not an employee of HA-LO.
(c) This agreement may be executed in two or more counterparts, all of
which together shall be considered a single instrument. This
agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, supersedes all prior
agreements and understandings, both written and oral, between the
parties with
4
<PAGE>
respect to the subject matter hereof, including but not limited to
the March 17, 1993 and March 17, 1994 letter agreements between us,
and cannot be amended or otherwise modified except in writing executed
by the parties hereto. The provisions of this agreement shall inure
to the benefit of and be binding upon the successors and assigns of
the parties hereto; provided, however, that you may not assign your
obligations or duties under this agreement without HA-LO's prior
written consent, which consent may be withheld in HA-LO's sole
discretion.
(d) At any time within thirty (30) days following the termination of the
term of this Agreement, HA-LO shall provide you the opportunity to
become a HA-LO independent sales representative pursuant to HA-LO's
independent sales representative agreement.
We are delighted to offer you this engagement and look forward to working
with you on this assignment. Please confirm that the foregoing is in
accordance with your understanding by signing and returning to us the
enclosed duplicate copy of this letter.
Sincerely,
HA-LO Industries, Inc.
By:
------------------------------
Richard A. Magid
Chief Operating Officer
ACCEPTED AND AGREED TO:
- ---------------------------------
Marshall J. Katz
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<PAGE>
AMENDMENT TO BONUS SHARES AGREEMENT
WHEREAS, HA-LO INDUSTRIES, INC., an Illinois corporation (the "Company"),
and DAVID C. ROBBINS, a resident of the State of Illinois (the "Participant"),
entered into a Bonus Shares Agreement dated the 1st day of February, 1995 (the
"Agreement"), whereby the Participant was granted Two Hundred Forty Thousand
(240,000) shares of the Company's common stock (which reflects all stock splits
since the date of the Agreement) as restricted stock (the "Bonus Shares"); and
WHEREAS, pursuant to Section 8 of the Agreement, the Agreement may be
amended at any time by mutual agreement of the Company and the Participant; and
WHEREAS, the Company and the Participant mutually desire to amend the
Agreement to change the vesting provisions applicable to the Bonus Shares under
Section 4 of the Agreement.
THEREFORE, Section 4 of the Agreement is hereby amended to read as follows
effective with respect to vesting of all Unvested Bonus Shares (as such term is
defined in the Agreement) effective January 1, 1996:
"4. VESTING OF BONUS SHARES. The Bonus Shares shall vest according to the
most rapid, from time to time, of the vesting schedules set forth in subsections
(a), (b) and (c), below; provided, however, that if Participant shall be in
default of or breach any of the covenants set forth in this Agreement, then,
subject to the opportunity to cure set forth in Section 1 hereof, any unvested
Bonus Shares shall be forfeited and shall not be awarded to Participant. Any
Bonus Shares in which Participant has not previously vested shall, for purposes
of this Section 4, be referred to as "Unvested Bonus Shares". Certificates
representing vested Bonus Shares shall be delivered to Participant as soon as
reasonably practicable but in no event later than the ninetieth (90th) day
following the date on which such Bonus Shares vested.
(a) Participant shall, to the extent of remaining Unvested Bonus
Shares, vest one hundred percent (100%) in Twenty-Six Thousand Six Hundred
Sixty-Seven (26,667) Bonus Shares on January 15 of each year commencing
January 15, 1997 through January 15, 2004; provided however, that
Participant shall have complied with the covenants set forth in Section 2
hereof for each calendar year ending immediately preceding the January 15
on which such Bonus Shares vest under this subsection (a).
(b)(i) On October 21, 1996 Participant shall vest in 30,000 Bonus
Shares.
(ii) On January 15, 1997 Participant shall, to the extent of remaining
Unvested Bonus Shares, vest in Twenty-Two and
<PAGE>
One-Half (22.5) shares for every One Thousand Dollars ($1,000) of gross
profit earned by the Company with respect to sales of merchandise to Ward
under the EPPA for the period January 1, 1996 through December 31, 1996,
less 60,000 shares; and
(iii) On January 15 of each of year commencing January 15, 1998
through January 15, 2005, Participant shall, to the extent of remaining
Unvested Bonus Shares, vest in Twenty-Two and One-Half (22.5) shares for
every One Thousand Dollars ($1,000) of gross profit earned by the Company
with respect to sales of merchandise to Ward under the EPPA for the
calendar year ending immediately prior to the January 15 on which such
Bonus Shares vest under this subsection (b).
For purposes of this Section 4(b) the term "gross profit" shall mean the
gross profit (revenues less returns, allowances and cost of goods sold) of
the Company attributable to sales to Ward under the EPPA calculated in
accordance with generally accepted accounting principles and rules applied
by the Company in the calculation of its own gross profits, on a consistent
basis from period to period. The calculation of Ward's purchases under the
EPPA shall be made in good faith by the Company, which calculation shall,
in the absence of fraud, be final and binding on Participant. Each
purchase shall be deemed to have taken place upon the Company's shipment of
merchandise to Ward.
(c) Participant shall vest one hundred percent (100%) in all Unvested
Bonus Shares as of the date on which (i) Participant dies, (ii) Participant
suffers a "permanent disability" (as hereinafter defined), or (iii) there
occurs a "change in control" (as hereinafter defined). For purposes of
this Agreement, the term "permanent disability" shall mean any disability,
whether caused by illness, injury or other incapacity, which can be
expected to permanently prevent Participant from fulfilling his regular
duties with the Company For purposes of this Agreement, a "change in
control" shall mean the termination of Participant's sales representative
status with the Company, or any material and adverse change by the company
in the method under which Participant's aggregate compensation, commissions
or sales support budgets are calculated, in each case occurring within
twelve (12) months following both (i) the purchase by any person, or group
of persons acting in concert, other than Lou Weisbach, of greater than
fifty percent (50%) of the shares of common stock of the Company then
outstanding, and (ii) the termination of Lou Weisbach as the Chief
Executive Officer of the Company."
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<PAGE>
IN WITNESS WHEREOF, this Amendment to the Bonus Shares Agreement having
been authorized by the Compensation Committee of the Board of Directors is
executed on this 21st day of October, 1996.
Participant: Company:
- ----------- -------
HA-LO INDUSTRIES, INC.
By:
- --------------------------- ------------------------
Its: Chief Financial Officer
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<PAGE>
EMPLOYMENT AGREEMENT
This Agreement made as of the 3rd day of January, 1997 (the "Effective
Date"), by and between HA-LO INDUSTRIES, INC., an Illinois corporation
("Employer"), and LINDEN D. NELSON ("Employee").
WHEREAS, in consideration of the employment of Employee with Employer and
other good and valuable consideration the receipt of which is hereof
acknowledged, Employee and Employer agree to execute and be bound by this
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the promise
and covenants contained herein the parties agree as follows:
1. RECITALS. Each of the above recitals are incorporated in this
Agreement and are binding upon the parties hereof.
2. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment as Vice Chairman of the Board of Employer and Chairman of the
Board and Chief Executive Officer of Creative Concepts in Advertising, Inc., a
Michigan corporation which is a wholly-owned subsidiary of Employer ("CCA"), all
on the terms and conditions set forth herein.
3. TERM. Subject to the provisions for termination hereinafter provided,
the term of this Agreement shall be a period of five (5) years from the
Effective Date (the "Term").
4. DUTIES OF EMPLOYEE. Employee shall perform, on a full-time best
efforts basis as his principal employment, such duties commensurate with his
position and experience as shall be assigned to him from time to time by the
Board of Directors of the Employer, including, without limitation, serving on
the Board of Directors of the Employer and/or the Board of Directors of such
subsidiaries of the Employer as the Employer may determine; provided, however,
that Employer shall not be entitled to any additional compensation for such
service.
5. COMPENSATION AND BENEFITS.
(a) Employer shall pay to Employee salary at an initial annual rate
of Five Hundred Thousand Dollars ($500,000) per year, payable monthly, on
the last day of each calendar month or upon such other frequency as the
parties hereto shall agree ("Base Pay") while this Agreement is in effect.
The Base Pay may be changed from time to time by the Board of Directors in
its sole discretion; provided, however, that so long as Lou Weisbach is the
Chief Executive Office of Employer, Employee shall at all times during the
Term receive no less than the base pay and cash bonus then received by Lou
Weisbach.
<PAGE>
(b) BONUS. Employee shall be entitled to such bonus payments as may
be determined in the sole and absolute discretion of the Board of Directors
of the Employer (or an authorized committee thereof), in such forms and at
such times as the Board of Directors of the Employer shall determine from
time to time in its sole discretion.
(c) FRINGE BENEFITS. Employer shall provide to Employee such
employee fringe benefits as are generally provided for employees of
Employer similarly situated to Employee, including, without limitation, one
car. Employee shall be entitled to take such annual vacation at such time
and in such amounts as are consistent with the Employer's policy.
(d) OPTIONS. Upon the execution hereof, Employee shall receive three
hundred twelve thousand five hundred (312,500) options to purchase the
common stock of Employer (the "Option Shares"). The exercise price of such
options shall be equal to the mean between the bid and asked prices for
Employer's common stock, as reported by NASDAQ System as of the close of
business on the date of this Agreement. The options shall be fully vested
upon grant. The option shall be valid for a term commencing as of the date
of this Agreement and ending ten (10) years thereafter. The options shall
be non-transferable (other than by will or otherwise upon death). During
Employee's lifetime, the options may be exercised only by the Employee.
(i) At any time after the first anniversary of the Effective
Date, Employee may, by written notice (the "Registration Notice") to
the Company request that the Company register for sale under the
Securities Act of 1933, as amended (the "Securities Act"), all or any
portion of the Option Shares that Employee has purchased, or will
purchase, on or before the effective of the registration statement
relating to the disposition of the Option Shares. As soon as
practicable following receipt of the Registration Notice, Employer (i)
shall commence to prepare and shall file a registration statement
under the Securities Act for the sale of the Option Shares specified
in such Registration Notice and (ii) use its best efforts to cause
such registration statement to become effective for the lesser of (y)
one year and (z) the date upon which all of the Option Shares which
are the subject of such registration statement have been disposed of.
The registration statement contemplated by this clause (d) shall
provide for the sale by Employee of the Option Shares included therein
from time to time on a delayed or continuous basis pursuant to Rule
415 under the Securities Act, but shall not provide for the
distribution of the Option Shares pursuant to an underwritten
distribution.
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<PAGE>
(ii) Notwithstanding anything to the contrary contained in this
Agreement, Employer shall not be required to file a registration
statement or cause it to be declared effective at a time (x) after
completion of a fiscal year end, but prior to the availability of the
year end audited financial statements, (y) when Employer, in the good
faith judgement of its board of directors shall determine that any
offering of Option Shares would impede, delay or otherwise interfere
with any pending or contemplated acquisition involving Employer or (z)
when Employer is in possession of material information which, in the
good faith judgment of Employer's board of directors, if disclosed in
a registration statement, would be materially harmful to the interests
of Employer and its shareholders. Employee shall cease all
disposition efforts with respect to Option Shares upon receipt of
notice from Employer indicating the existence of any circumstance of
any of the events described in this clause (ii).
(iii) Employer shall not be required to register the Option
Shares pursuant to this clause (d) on more than one occasion.
(iv) It shall be a condition to the inclusion of any Option
Shares in a registration statement that Employee cooperate in the
execution and filing of the registration statement and any necessary
state securities law filings.
(v) Whether or not any registration statement becomes
effective, Employer shall pay all costs, fees and expenses incident to
Employer's performance of or compliance with this clause (d).
Notwithstanding the foregoing, any discounts, commissions, brokers'
fees or fees of similar securities industry professional relating to
the distribution of the Option Shares and fees and expenses of counsel
for Employee will be payable by Employee and the Company will have no
obligation to pay any such amounts.
6. EXPENSE REIMBURSEMENT. Employee shall be entitled to reimbursement by
the Company for all reasonable and customary travel and other business expenses
incurred by Employee in carrying out his duties under this Agreement, including
but not limited to, gas, oil, automobile insurance, repairs and maintenance,
parking expenses, tolls, lodgings and meals, while performing services, and
other transportation expenses, all subject to and consistent with the Employer's
policy.
7. TERMINATION. This Agreement shall be terminated on the earliest to
occur of (i) the expiration of the Term; (ii) the
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<PAGE>
mutual agreement of Employer and Employee; (iii) the death of the Employee; (iv)
the permanent disability of the Employee as hereinafter defined, or (v) the
dismissal of Employee for "cause" as hereinafter defined. Upon any termination
of the term of this Agreement, Employee shall promptly deliver to the Employer
(without retaining any copies thereof) all the forms, brochures, project
materials, sales materials, manuals, letterhead, business cards or any other
written or printed materials relating to the business of the Employer.
Employee shall be deemed to be "permanently disabled" hereunder if it is
determined by a physician selected by the Employer, with the reasonable approval
of Employee, which physician is on the staff of a hospital associated with a
medical school and located in the Detroit, Michigan metropolitan area, that the
Employee is suffering from a mental, physical or emotional disability or
condition which is reasonably expected to last for two hundred and ten (210)
days or more, and which prevents Employee from fully performing his duties
hereunder.
The Company shall be deemed to have "cause" to dismiss Employee from
employment by the Employer hereunder upon the occurrence of any of the
following: (i) Employee's conviction of a felony; (ii) Employee's engagement in
illegal conduct tending to place Employee or Employer in disrepute; or (iii)
upon thirty (30) days prior written notice to Employee by Employer, upon
Employee's breach of, and failure to cure, any other material provision of this
Agreement.
8. NON-COMPETITION. Employee covenants that during the Term and for a
period of two (2) years after the Term, Employee shall not, directly or
indirectly, within the United States or Canada, on his own account, or as an
employee, consultant, agent, partner, joint venturer, owner or officer of any
other person, firm, partnership, corporation or other entity, or in any other
capacity, in any way, conduct, engage in or aid or assist anyone in the conduct
of a business competitive with the Employer (or any of its direct or indirect
subsidiaries).
9. NON-SOLICITATION. Employee covenants that during the Term and for a
period of two (2) years after the Term, Employee shall not, directly or
indirectly, as an employee, agent, salesman or member of any person,
corporation, firm or otherwise, (i) call upon, solicit, or engage in the
business conducted by the Employer (or any of its direct or indirect
subsidiaries) with a customer of the Employer (or any of its direct or indirect
subsidiaries) (a) with which Employee had direct or indirect contact or (b)
regarding which customer Employee learned Employer's confidential information or
trade secrets while employed by Employer or CCA or while on either of their
respective Boards of Directors or (ii) solicit any employee or agent of Employer
(or its direct or indirect subsidiaries) or make such other contact with such
employees or
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<PAGE>
agents, which contact will or may yield a termination of the employment or
agency relationship of such employees or agents.
10. REMEDIES. Employee acknowledges that compliance with the restrictive
covenants set forth in Section 8 and 9 herein is necessary to protect the
business, goodwill and proprietary information of the Employer and that a breach
of these restrictions will irreparably and continually damage the Employer for
which money damages may not be inadequate. Consequently, Employee agrees that,
in the event that he breaches or threatens to breach any of these covenants,
Employer shall be entitled to both (1) a temporary, preliminary or permanent
injunction in order to prevent the continuation of such harm and (2) money
damages insofar as they can be determined. In the event that any of the
provisions, covenants, warranties or agreements in this Agreement are held to be
in any respect an unreasonable restriction upon or are otherwise invalid, for
whatsoever cause, then the court so holding shall reduce and is so authorized to
reduce, the territory to which it pertains and/or the period of time in which it
operates, or the scope of activity to which it pertains or effect any other
change to the extent necessary to render any of the restrictions of this
Agreement enforceable.
11. SEVERABILITY. Each of the terms and provisions of this Agreement is
to be deemed severable in whole or in part and, if any term or provision of the
application thereof in any circumstances should be invalid, illegal or
unenforceable, the remaining terms and provisions or the application thereof to
circumstances other than those as to which it is held invalid, illegal or
unenforceable, shall not be affected thereby and shall remain in full force and
effect.
12. BINDING AGREEMENT. This Agreement shall be binding upon the parties,
their heirs, successors, personal representatives and assigns. Employer may
assign this Agreement to any successor in interest to the business, or part
thereof, of Employer. Employee may not assign any of his obligations or duties
hereunder.
13. CONTROLLING LAW AND JURISDICTION. This Agreement shall be governed by
and interpreted and construed according to the laws of the State of Illinois.
Employee hereby consents to the jurisdiction of the state and federal courts in
Illinois in the event that any disputes arise under this Agreement.
14. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties with regard to the subject matter hereof, may not be changed orally,
but only by an agreement in writing signed by the parties hereto.
15. FAILURE TO ENFORCE. The failure to enforce any of the provisions of
this Agreement shall not be construed as a waiver of such provisions. Further,
any express waiver by any party with
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<PAGE>
respect to any breach of any provision hereunder by any other party shall not
constitute a waiver of such party's right to thereafter fully enforce each and
every provision of the Agreement.
16. HEADINGS. All numbers and heading of paragraphs are for reference
only and are not intended to qualify, limit or otherwise affect the meaning or
interpretation of any paragraph.
17. NOTICES. All notices which are required, permitted or contemplated
hereunder to be given or made shall be given or made in writing by certified
mail (return receipt requested) to the Employer at 5980 West Touhy, Niles,
Illinois 60714, Attention: Board of Directors, and to the Employee at 6180 Wing
Lake Road, Bloomfield Hills, Michigan 48301.
18. GENDER. The masculine, feminine or neuter pronouns used herein shall
be interpreted without regard to gender, and the use of the singular or plural
shall be deemed to include the other whenever the context so requires.
WHEREFORE, the parties have executed this Agreement on the date and year
first above written.
EMPLOYER EMPLOYEE
By: HA-LO INDUSTRIES, INC.
By:
---------------------------- ------------------------------
Its: Linden D. Nelson
----------------------
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<PAGE>
EMPLOYMENT AGREEMENT
This Agreement dated as of April 15, 1996 by and between HA-LO INDUSTRIES,
INC., an Illinois corporation (hereinafter the "Company"), and GREG KILREA,
(hereinafter referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive desire to enter into this Agreement,
whereby the Company will be assured of the right to the Executive's services,
skills and expertise for the period and on the terms and conditions hereinafter
set forth, and the Executive will be assured of employment on such terms and
conditions.
NOW THEREFORE, in consideration of the foregoing, the Company and the
Executive hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions hereinafter set
forth, the Company hereby employs the Executive as Vice
President-Planning, of the Company and the Executive hereby accepts
such employment.
2. TERM. Subject to earlier termination in accordance with the provisions
of Section 6 of this Agreement, the term of the employment of the
Executive by the Company pursuant to this Agreement (the "Term") shall
be for a period of one (1) year, commencing on the date of closing
under this Agreement provided however, that the Term shall be
automatically extended, unless either party elects not to do so and
gives written notice to the other party at least ninety (90) days
prior to such scheduled termination date of their election not to so
extend.
3. EMPLOYMENT SERVICES. During the Term of his employment pursuant to
this Agreement, the Executive shall render his services to the Company
as Vice President Planning, of the Company, or in such other
capacities as the President or Board of Directors of the Company may,
from time to time, reasonably designate. The Executive shall report to
the Chief Financial Officer of the Company in the performance of his
duties hereunder. The Executive shall devote all of his business
time, efforts and his energy and skill to the business of the company
and, the Executive will not engage in the active operation of any
other business.
4. COMPENSATION. In consideration of the services to be rendered by the
Executive to the Company pursuant to this Agreement, the Company
agrees to pay the executive during the Term, and the Executive agrees
to accept the following:
a. A base salary at the rate of One Hundred Fourteen Thousand
Dollars ($114,000) per annum, payable in installments during
the Term hereof in accordance with the normal practice of
the Company.
b. Discretionary bonus being determined by the President or
Board of Directors.
c. Upon execution of this Agreement, the Executive shall
receive options ("Options") to purchase ten thousand
(10,000) shares of the Company's common stock. The Options
shall be issued pursuant to the HA-LO Industries, Inc. Stock
Plan and shall be exercisable at a purchase price equal to
the Fair Market Value at the date of grant (as defined in
the
<PAGE>
Stock Plan). The Options shall vest and be exercisable by
Executive one year from date of grant.
i. Except as provided below, the Option shall be
valid for a term commencing as of the date of
grant ("Date of Grant") and ending ten (10) years
from the date of Grant (the "Termination Date").
ii. If Executive is in default or otherwise breaches
the covenants set forth in this Agreement, or
otherwise ceases to be employed by the Company for
any reason other than death, permanent disability
or a "change in control" (as hereinafter defined),
all unvested Options shall be immediately
forfeited and all vested Options previously
granted to executive shall be exercisable at any
time prior to the earlier of (i) the Termination
date, or (ii) within sixty (60) days after the
date of Executive's breach of this Agreement, or
termination of employment.
iii. For purposes of this agreement, the term "change
in control" shall mean the acquisition, on or
after the date of this Agreement, of more than
fifty percent (50%) of the voting rights with
respect to outstanding common capital stock of
Employer, by a person, or group of persons acting
in concert, other than Lou Weisbach.
5. EMPLOYEE BENEFITS. During the Term of this Agreement, the Executive
shall be entitled to the following benefits:
a. The Executive shall be entitled to participate, subject to
qualification requirements, in medical or other insurance or
hospitalization plans which are presently maintained or
hereinafter instituted by the Company and are made generally
available to employees of the Company.
b. The Company shall reimburse the Executive for reasonable
out-of-pocket business expenses which the Executive shall incur
in connection with his services for the Company hereunder in
accordance with Company policy upon presentation by the Executive
of appropriate support.
c. Subject to the rules of the Company, the Executive shall be
entitled to vacation leave of four (4) weeks during any calendar
year.
d. Subject to qualification and other requirements, the Executive
shall be entitled to participate in any profit sharing/401(k),
bonus or management incentives (including Non-Qualified Key
Employee Plan), pension, retirement or insurance plan maintained
by the Company and made generally available to employees of the
Company.
6. TERMINATION.
i. The Term of this Agreement and the Executive's employment
hereunder shall terminate upon the first to occur of the
following events: (1) the mutual agreement of the Company and
the Executive to so terminate this Agreement, (2) the death or
disability (as hereinafter defined) of the Executive, or (3) the
Company's election to terminate this Agreement and the
Executive's employment hereunder "For Cause" (as hereinafter
defined). The term "Disability" shall mean any mental, physical
or emotional disability or condition which is reasonably expected
to last for one hundred twenty (120) days or more, and which
prevents the Executive from performing substantially all of his
duties hereunder. Disability shall be determined by a physician
selected by the Company with reasonable approval of Executive.
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ii. The term "For Cause" shall mean any of the following: A) the
commission by the Executive of a breach of any material covenant,
provision, term or condition set forth in this Agreement; or B)
the commission by the Executive of a felony or crime; or C) the
commission by the Executive of an act of personal dishonesty or
fraud involving personal profit, including, without limitation,
theft, embezzlement, fraud or other misappropriation of funds.
iii. In the event that there is a "change in control", as previously
defined, in the initial 12 months of employment and the Executive
is terminated because of this, the Company shall be obliged to
continue to pay the Executive his salary for one year.
7. EXECUTIVE'S REPRESENTATION. The Executive hereby represents and
warrant to and with the Company that the Executive is not subject to
any covenants, agreements or restrictions including without limitation
any covenants, agreement or restrictions arising out of the
Executive's prior employment or independent contractor relationships,
which would be breached or violated by the Executive's execution of
this Agreement or by Executive's performance of his duties hereunder.
8. CONFIDENTIALITY. Executive acknowledges that by virtue of his
employment with Company, he has been and/or will be exposed to or has
had or will have access to confidential information regarding
Company's business, including but not limited to, trade secrets and
proprietary information, all of which are proprietary to Company
referred to collectively as "Proprietary Information". Executive
acknowledges that Company's Proprietary Information constitutes a
proprietary and exclusive interest of Company, and, therefore, agrees
that during the term of his employment and thereafter, for any reason
whatsoever, Executive shall hold and keep secret the Proprietary
Information as described herein, as to which the Executive is now or
any time during his employment shall become informed, and Executive
shall not directly or indirectly disclose any such information to any
person, firm, court, governmental agency or corporation or use the
same except in connection with the business and affairs of Company.
9. NON-DISTURBANCE OF EMPLOYEES; NON-DISPARAGEMENT. The Executive
covenants that during the Term and for a period of two (2) years after
the termination thereof, for any reason whatsoever, the Executive
shall not, directly or indirectly, as an employee, agent, salesman or
member of any person, corporation, firm or otherwise (a) solicit any
employee, agent or independent contractor sales representative of the
Company, the product of which contact will or may yield a termination
of relationship of such employment, agency or independent contractor
sales representative relationship of such employees, agents or
independent contract sales representatives from the Company, or (b)
make, whether in writing or orally, disparaging statements or
inferences with respect to the company, its respective business,
officers or shareholders.
10. RETURN OF MATERIALS. The Executive will, at any time upon the
request of the Company, and in any event upon the termination of his
employment, for whatever reason, immediately return and surrender to
the company originals and all copies of all records, notes, memoranda,
electronic files, personal computers, computer discs, computer
equipment, telephones, price lists, customer and customer prospects
lists, business plans, recordings and other documents and other
property belonging to the Company, created or obtained by the
Executive as a result of or in the course of or in connection with the
Executive's employment with the Company. The executive acknowledges
that all such materials are, and will always remain, the exclusive
property of the Company.
11. REVISION. In the event that any of the provisions, covenants,
warranties or agreements in this Agreement are held to be in any
respect an unreasonable restriction upon or are otherwise invalid, for
whatsoever cause, then the court so holding shall reduce and is so
authorized to
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reduce, the territory to which it pertains and/or the period of time
in which it operates, to the scope of activity to which it pertains or
effect any other change to the extent necessary to render any of the
restrictions of the Agreements enforceable.
12. GENERAL PROVISIONS.
a. SEVERABILITY. Each of the terms and provisions of this Agreement
is to be deemed severable in whole or in part and, if any term or
provision of the application thereof in any circumstances should
be invalid, illegal or unenforceable, the remaining terms and
provisions or the application thereof to circumstances other than
those as to which it is held invalid, illegal or unenforceable,
shall not be affected thereby and shall remain in full force and
effect.
b. BINDING AGREEMENT. This Agreement shall be binding upon the
parties, their heirs, successors, personal representatives and
assigns. The Company may assign this agreement to any successor
in the interest to the business, or part thereof, of the Company.
The Executive may not assign any of his obligations or duties
hereunder.
c. CONTROLLING LAW AND JURISDICTION. This Agreement shall be
governed by and interpreted and construed according to the laws
of the State of Illinois. The Executive hereby consents to the
jurisdiction of the state and federal courts in Illinois in the
event that any disputes arise under this Agreement.
d. ENTIRE AGREEMENT. This instrument contains the entire agreement
of the parties with regard to the subject matter hereof, may not
be changed orally, but only by an agreement in writing signed by
the parties hereto.
e. FAILURE TO ENFORCE. The failure to enforce any of the provisions
of this Agreement shall not be construed as a waiver of such
provisions. Further, any express waiver by any party with respect
to any breach of any provision hereunder by any other party shall
not constitute a waiver of such party's right to thereafter fully
enforce each and every provision of the Agreement.
f. SURVIVAL. Subject to the provisions hereof, the obligations
contained in this Agreement shall survive the termination, for
any reason whatsoever, for cause or otherwise, of the Executive's
employment with the Company.
g. HEADINGS. All numbers and headings of sections are for reference
only and are not intended to qualify, limit or otherwise affect
the meaning or interpretation of any Section.
h. NOTICES. All notices which are required, permitted or
contemplated hereunder to be given or made shall be given or made
in writing by certified mail (return receipt required) to the
Executive at 1205 GLOUCESTER ROAD, WOODRIDGE, ILLINOIS 60517,
and to the Company at 5980 West Touhy Avenue, Niles, Illinois,
60714, Attention: President.
i. GENDER. The masculine, feminine or neuter pronouns used herein
shall be interpreted without regard to gender, and the use of the
singular or plural shall be deemed to include the other whenever
the context so requires.
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WHEREFORE, the parties have executed this Agreement on the date and year first
above written.
HA-LO INDUSTRIES, INC. EXECUTIVE:
By: Richard A. Magid Greg Kilrea
Its: Chief Financial Officer
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EMPLOYMENT AGREEMENT
This Agreement dated as of April 15, 1996 by and between HA-LO INDUSTRIES,
INC., an Illinois corporation (hereinafter the "Company"), and MICHAEL NEMLICH,
(hereinafter referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive desire to enter into this Agreement,
whereby the Company will be assured of the right to the Executive's services,
skills and expertise for the period and on the terms and conditions hereinafter
set forth, and the Executive will be assured of employment on such terms and
conditions.
1. EMPLOYMENT. Subject to the terms and conditions hereinafter set
forth, the Company hereby employs the Executive as Vice President
Corporate Development and Financial Relations, of the Company and the
Executive hereby accepts such employment.
2. TERM. Subject to earlier termination in accordance with the provisions
of Section 6 of this Agreement, the term of the employment of the
Executive by the Company pursuant to this Agreement (the "Term") shall
be for a period of one (1) year, commencing on the date of closing
under this Agreement provided however, that the Term shall be
automatically extended, unless either party elects not to do so and
gives written notice to the other party at least ninety (90) days
prior to such scheduled termination date of their election not to so
extend.
3. EMPLOYMENT SERVICES. During the Term of his employment pursuant to
this Agreement, the Executive shall render his services to the Company
as Vice President Corporate Development and Financial Relations, of
the Company, or in such other capacities as the President or Board of
Directors of the Company may, from time to time, reasonably designate.
The Executive shall report to the Chief Financial Officer of the
Company in the performance of his duties hereunder. The Executive
shall devote all of his business time, efforts and his energy and
skill to the business of the company and, the Executive will not
engage in the active operation of any other business.
4. COMPENSATION. In consideration of the services to be rendered by the
Executive to the Company pursuant to this Agreement, the Company
agrees to pay the executive during the Term, and the Executive agrees
to accept the following:
a. A base salary at the rate of One Hundred Twenty-Five Thousand
Dollars ($125,000) per annum, payable in installments during the
Term hereof in accordance with the normal practice of the
Company.
b. Discretionary bonus being determined by the President or Board of
Directors.
c. Upon execution of this Agreement, the Executive shall receive
options ("Options") to purchase ten thousand (10,000) shares of
the Company's common stock. The Options shall be issued pursuant
to the HA-LO Industries, Inc. Stock Plan and shall be exercisable
at a purchase price equal to the Fair Market Value at the date of
grant (as defined in the Stock Plan). The Options shall vest and
be exercisable by Executive one year from date of grant.
<PAGE>
i. Except as provided below, the Option shall be valid for a
term commencing as of the date of grant ("Date of Grant")
and ending ten (10) years from the date of Grant (the
"Termination Date").
ii. If Executive is in default or otherwise breaches the
covenants set forth in this Agreement, or otherwise ceases
to be employed by the Company for any reason other than
death, permanent disability or a "change in control" (as
hereinafter defined), all unvested Options shall be
immediately forfeited and all vested Options previously
granted to executive shall be exercisable at any time prior
to the earlier of (i) the Termination date, or (ii) within
sixty (60) days after the date of Executive's breach of this
Agreement, or termination of employment.
iii. For purposes of this agreement, the term "change in control"
shall mean the acquisition, on or after the date of this
Agreement, of more than fifty percent (50%) of the voting
rights with respect to outstanding common capital stock of
Employer, by a person, or group of persons acting in
concert, other than Lou Weisbach.
a. Performance is to be reviewed initially at six (6) months and
compensation reviewed annually.
5. EMPLOYEE BENEFITS. During the Term of this Agreement, the Executive
shall be entitled to the following benefits:
a. The Executive shall be entitled to participate, subject to
qualification requirements, in medical or other insurance or
hospitalization plans which are presently maintained or
hereinafter instituted by the Company and are made generally
available to employees of the Company.
b. The Company shall reimburse the Executive for reasonable
out-of-pocket business expenses which the Executive shall incur
in connection with his services for the Company hereunder in
accordance with Company policy upon presentation by the Executive
of appropriate support.
c. Subject to the rules of the Company, the Executive shall be
entitled to vacation leave of four (4) weeks during any calendar
year.
d. Subject to qualifications and other requirements, the Executive
shall be entitled to participate in any profit sharing/401(k),
bonus or management incentives (including Non-Qualified Key
Employee Plan), pension, retirement or insurance plan maintained
by the Company and made generally available to employees of the
Company.
6. TERMINATION.
i. The Term of this Agreement and the Executive's employment
hereunder shall terminate upon the first to occur of the
following events: (1) the mutual agreement of the Company and
the Executive to so terminate this Agreement, (2) the death or
disability (as hereinafter defined) of the Executive, or (3) the
Company's election to terminate this Agreement and the
Executive's employment hereunder "For Cause" (as hereinafter
defined). The term "Disability" shall mean any mental, physical
or emotional disability or condition which is reasonably expected
to last for one hundred twenty (120) days or more, and which
prevents the Executive from performing substantially all of his
duties hereunder. Disability shall be determined by a physician
selected by the Company with reasonable approval of Executive.
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ii. The term "For Cause" shall mean any of the following: A) the
commission by the Executive of a breach of any material covenant,
provision, term or condition set forth in this Agreement; or B)
the commission by the Executive of a felony or crime; or C) the
commission by the Executive of an act of personal dishonesty or
fraud involving personal profit, including, without limitation,
theft, embezzlement, fraud or other misappropriation of funds.
iii. In the event that there is a "change in control", as previously
defined, in the initial 12 months of employment and the Executive
is terminated because of this, the Company shall be obliged to
continue to pay the Executive his salary for one year.
7. EXECUTIVE'S REPRESENTATION. The Executive hereby represents and
warrant to and with the Company that the Executive is not subject to
any covenants, agreements or restrictions including without limitation
any covenants, agreement or restrictions arising out of the
Executive's prior employment or independent contractor relationships,
which would be breached or violated by the Executive's execution of
this Agreement or by Executive's performance of his duties hereunder.
8. CONFIDENTIALITY. Executive acknowledges that by virtue of his
employment with Company, he has been and/or will be exposed to or has
had or will have access to confidential information regarding
Company's business, including but not limited to, trade secrets and
proprietary information, all of which are proprietary to Company
referred to collectively as "Proprietary Information". Executive
acknowledges that Company's Proprietary Information constitutes a
proprietary and exclusive interest of Company, and, therefore, agrees
that during the term of his employment and thereafter, for any reason
whatsoever, Executive shall hold and keep secret the Proprietary
Information as described herein, as to which the Executive is now or
any time during his employment shall become informed, and Executive
shall not directly or indirectly disclose any such information to any
person, firm, court, governmental agency or corporation or use the
same except in connection with the business and affairs of Company.
9. NON-DISTURBANCE OF EMPLOYEES; NON-DISPARAGEMENT. The Executive
covenants that during the Term and for a period of two (2) years after
the termination thereof, for any reason whatsoever, the Executive
shall not, directly or indirectly, as an employee, agent, salesman or
member of any person, corporation, firm or otherwise (a) solicit any
employee, agent or independent contractor sales representative of the
Company, the product of which contact will or may yield a termination
of relationship of such employment, agency or independent contractor
sales representative relationship of such employees, agents or
independent contract sales representatives from the Company, or (b)
make, whether in writing or orally, disparaging statements or
inferences with respect to the company, its respective business,
officers or shareholders.
10. RETURN OF MATERIALS. The Executive will, at any time upon the
request of the Company, and in any event upon the termination of his
employment, for whatever reason, immediately return and surrender to
the company originals and all copies of all records, notes, memoranda,
electronic files, personal computers, computer discs, computer
equipment, telephones, price lists, customer and customer prospects
lists, business plans, recordings and other documents and other
property belonging to the Company, created or obtained by the
Executive as a result of or in the course of or in connection with the
Executive's employment with the Company. The executive acknowledges
that all such materials are, and will always remain, the exclusive
property of the Company.
11. REVISION. In the event that any of the provisions, covenants,
warranties or agreements in this Agreement are held to be in any
respect an unreasonable restriction upon or are otherwise
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invalid, for whatsoever cause, then the court so holding shall reduce
and is so authorized to reduce, the territory to which it pertains
and/or the period of time in which it operates, to the scope of
activity to which it pertains or effect any other change to the extent
necessary to render any of the restrictions of the Agreements
enforceable.
12. GENERAL PROVISIONS.
a. SEVERABILITY. Each of the terms and provisions of this
Agreement is to be deemed severable in whole or in part and,
if any term or provision of the application thereof in any
circumstances should be invalid, illegal or unenforceable, the
remaining terms and provisions or the application thereof to
circumstances other than those as to which it is held invalid,
illegal or unenforceable, shall not be affected thereby and
shall remain in full force and effect.
b. BINDING AGREEMENT. This Agreement shall be binding upon the
parties, their heirs, successors, personal representatives and
assigns. The Company may assign this agreement to any
successor in the interest to the business, or part thereof, of
the Company. The Executive may not assign any of his
obligations or duties hereunder.
c. CONTROLLING LAW AND JURISDICTION. This Agreement shall be
governed by and interpreted and construed according to the
laws of the State of Illinois. The Executive hereby consents
to the jurisdiction of the state and federal courts in Illinois
in the event that any disputes arise under this Agreement.
d. ENTIRE AGREEMENT. This instrument contains the entire
agreement of the parties with regard to the subject matter
hereof, may not be changed orally, but only by an agreement in
writing signed by the parties hereto.
e. FAILURE TO ENFORCE. The failure to enforce any of the
provisions of this Agreement shall not be construed as a waiver
of such provisions. Further, any express waiver by any party
with respect to any breach of any provision hereunder by any
other party shall not constitute a waiver of such party's
right to thereafter fully enforce each and every provision of
the Agreement.
f. SURVIVAL. Subject to the provisions hereof, the obligations
contained in this Agreement shall survive the termination, for
any reason whatsoever, for cause or otherwise, of the
Executive's employment with the Company.
g. HEADINGS. All numbers and headings of sections are for
reference only and are not intended to qualify, limit or
otherwise affect the meaning or interpretation of any Section.
h. NOTICES. All notices which are required, permitted or
contemplated hereunder to be given or made shall be given or
made in writing by certified mail (return receipt required) to
the Executive at 2012 N. CLEVELAND, CHICAGO, IL 60614, and to
the Company at 5980 West Touhy Avenue, Niles, Illinois, 60714,
Attention: President.
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i. GENDER. The masculine, feminine or neuter pronouns used herein
shall be interpreted without regard to gender, and the use of
the singular or plural shall be deemed to include the other
whenever the context so requires.
WHEREFORE, the parties have executed this Agreement on the date and year first
above written.
HA-LO INDUSTRIES, INC. EXECUTIVE:
By: Richard A. Magid Michael Nemlich
Its: Chief Financial Officer
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HA-LO INDUSTRIES, INC.
1997 STOCK PLAN
1. PREAMBLE.
In 1997, HA-LO Industries, Inc. (the "Company") established the HA-LO
Industries, Inc. 1997 Stock Plan (the "Plan") as a means whereby the Company
may, through awards of (i) stock appreciation rights ("SARs"), (ii)
non-qualified stock options ("NSOs"), (iii) restricted stock ("Restricted
Stock"), and (iv) phantom stock ("Phantom Stock"):
(a) provide employees who have substantial responsibilities for the
direction and management of the Company and other employees of the
Company with additional incentive to promote the success of the
Company's business;
(b) enable such employees to acquire proprietary interests in the Company;
(c) encourage such employees to remain in the employ of the Company;
(d) provide Officers and Directors of the Company (who are not otherwise
employees of the Company) with additional incentive to promote the
success of the Company's business; and
(e) provide Sales Representatives with an incentive to remain associated
with the Company and to promote the success of the Company's business.
By action of the Board of Directors of the Company, the Plan was approved.
The terms of the Plan are contained herein.
The provisions of this Plan do not apply to or affect any option, SAR, or
stock heretofore or hereafter granted under any other stock plan of the Company,
and all such options, SARs or stock continue to be governed by and subject to
the applicable provisions of the plan under which they were granted.
2. DEFINITIONS.
2.01 "BOARD" or "BOARD OF DIRECTORS" means the board of directors of the
Company.
2.02 "CAUSE" means, as determined in the sole discretion of the Board, a
Participant's (1) commission of a felony; (2) dishonesty or misrepresentation
involving the Company; (3) serious misconduct in the performance or
non-performance of Participant's
<PAGE>
responsibilities to the Company; (4) violation of a material condition of
employment; (5) unauthorized use of trade secrets or confidential information;
(6) aiding a competitor of the Company.
2.03 "CHANGE IN CONTROL" means, the occurrence of any one of the following
events:
(a) any consolidation or merger of the Company is not the continuing
or surviving corporation or which contemplates that all or substantially
all of the business and/or assets of the Company shall be controlled by
another corporation or a recapitalization in which the current controlling
stockholders do not continue to be the controlling stockholders;
(b) any sale, lease, exchange or transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company;
(c) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval;
(d) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act), other than a person who is a stockholder of the
Company on the Option Date, who shall become the beneficial owner of
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities ordinarily having the
right to vote in the election of directors;
(e) any sale, exchange or transfer (other than transfers affiliated
entities, i.e. entities controlling, controlled by or under common control
with, the transferor) of securities of the Company representing more than
50% of (i) the total fair market value of the Company's then outstanding
equity securities, or (ii) the combined voting power of the Company's then
outstanding securities ordinarily having the right to vote in the election
of directors, whether pursuant to a tender or exchange offer, open market
offering, purchase or sale, privately negotiated purchase and sale or
otherwise; or
(f) if during a period of two consecutive years from the Option Date,
individuals who at the beginning of such period constituted the directors
of the Company cease for any reason to constitute a majority thereof
(unless the election, or nomination for election by the Company's
stockholders, of each director of the Company first elected during such
period was approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of any such period.
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2.04 "CODE" means the Internal Revenue Code of 1986, as it exists now and
as it may be amended from time to time.
2.05 "COMMITTEE" means the Compensation Committee of the Board of
Directors. Each member of the Committee shall be a member of the Board of
Directors who has not at any time within one year prior thereto, or at any time
during such member's term of service on the Committee, received any stock
options, SARs or allocations of any equity securities under the Plan or any
other plan maintained by the Company or any of its affiliates, except as
permitted pursuant to the provisions of Rule 16b-3(c) (2) (i) of the Securities
and Exchange Commission or any successor rule thereof. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board of
Directors.
2.06 "COMMON STOCK" means the common stock of the Company, no par value.
2.07 "COMPANY" means HA-LO Industries, Inc., an Illinois corporation, and
any successor thereto.
2.08 "DIRECTOR" means a member of the Board.
2.09 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as it
exists now or from time to time may hereafter be amended.
2.10 "FAIR MARKET VALUE" means, at the discretion of the Company in each
case, either (a) the mean between the bid and asked prices or (b) the last sale
price, as of the close of business on the day Fair Market Value is to be
determined for Common Stock as reported by the NASDAQ System or any other stock
exchange on which the Common Stock is traded. If Common Stock is not traded on
that day, the next preceding day on which such stock was traded. If trading of
the Common Stock is not reported by the NASDAQ System or on a stock exchange,
Fair Market Value will be determined by the Board based upon the best available
data.
2.11 "NAKED SAR" means a SAR issued not in connection with a ISO or NSO.
2.12 "NSO" means non-qualified stock options, which are NOT intended to
qualify under Section 422 of the Code.
2.13 "OFFICER" means a corporate officer of the Company.
2.14 "OPTION" means the right of a participant to purchase a specified
number of shares of Common Stock, subject to the terms and conditions of the
Plan.
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2.15 "OPTION DATE" means the date upon which an Option, SAR, Restricted
Stock or Phantom Stock is awarded to a Participant under the Plan.
2.16 "OPTION PRICE" means the price per share at which an Option may be
exercised.
2.17 "PARTICIPANT" means an individual to whom an Option, SAR, Phantom
Stock or Restricted Stock has been granted under the Plan.
2.18 "PHANTOM STOCK" means a hypothetical share of Common Stock issued as
phantom stock under the Plan.
2.19 "PLAN" means the HA-LO Industries, Inc. 1997 Stock Plan, as set forth
herein and as from time to time amended.
2.20 "RESTRICTED STOCK" means Common Stock awarded to a Participant
pursuant to this Plan and subject to the restrictions contained in Section 8.
2.21 "SALES REPRESENTATIVE" means an independent contractor who has an
arrangement with the Company, whether or not exclusively, to market, promote and
sell the Company's products.
2.22 "SAR" means a stock appreciation right. A SAR may be a Naked SAR or a
Tandem SAR.
2.23 "TANDEM SAR" means a SAR associated with and issued in connection with
an Option.
2.24 RULES OF CONSTRUCTION.
(a) GOVERNING LAW. The construction and operation of this Plan are
governed by the laws of the State of Illinois.
(b) UNDEFINED TERMS. Unless the context requires another meaning, any
term not specifically defined in this Plan is used in the sense given
to it by the Code.
(c) HEADINGS. All headings in this Plan are for reference only and are
not to be utilized in construing the Plan.
(d) GENDER. Unless clearly appropriate, all nouns of whatever gender
refer indifferently to persons or objects of any gender.
(e) SINGULAR AND PLURAL. Unless clearly inappropriate, singular terms
refer also to the plural and VICE VERSA.
(f) SEVERABILITY. If any provision of this Plan is determined to be
illegal or invalid for any reason, the remaining provisions are to
continue in full force and
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<PAGE>
effect and to be construed and enforced as if the illegal or invalid
provision did not exist, unless the continuance of the Plan in such
circumstances is not consistent with its purposes.
3. STOCK SUBJECT TO THE PLAN.
Except as otherwise provided in Section 12, the aggregate number of shares
of Common Stock that may be issued under Options or as Restricted Stock, under
this Plan may not exceed One Million Five Hundred Thousand (1,500,000) shares.
Reserved shares may be either authorized but unissued shares or treasury shares,
in the Board's discretion. If any awards hereunder shall terminate or expire,
as to any number of shares, new NSOs, and Restricted Stock may thereafter be
awarded with respect to such shares.
4. ADMINISTRATION.
The Plan is administered by the Committee. In addition to any other powers
set forth in this Plan, the Committee has the following powers:
(a) to construe and interpret the Plan, including the power to remedy any
ambiguities or inconsistencies in the Plan document;
(b) to establish, amend and rescind appropriate rules and regulations
relating to the Plan;
(c) subject to the express provisions of the Plan, to determine the
individuals who will receive awards of Options, Restricted Stock,
Phantom Stock and/or SARs, the times when they will receive them, the
number of shares to be subject to each award and the Option Price,
payment terms, payment method, and expiration date applicable to each
award;
(d) to contest on behalf of the Company or Participants, at the expense of
the Company, any ruling or decision on any matter relating to the Plan
or to any awards of NSOs, Restricted Stock, Phantom Stock and/or SARs;
(e) generally, to administer the Plan, and to take all such steps and make
all such determinations in connection with the Plan and the awards of
NSOs, Restricted Stock, Phantom Stock and/or SARs granted thereunder
as it may deem necessary or advisable;
(f) to determine the form in which payment of a SAR or a Phantom Stock
award granted hereunder will be made (i.e., cash, Common Stock or a
combination thereof) or to approve a participant's election to receive
cash in
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whole or in part in settlement of the SAR or Phantom Stock award; and
(g) to determine the form in which tax withholding under Section 15 of
this Plan will be made.
5. ELIGIBILITY.
The Committee shall have the power to award Options, SARs, Restricted
Stock, and Phantom Stock. Subject to the provisions of the Plan, the Committee
shall determine from time to time those employees, Directors and Officers of the
Company and Sales Representatives who shall be designated as Participants and
the number, if any, of Options, SARs, Restricted Stock, and Phantom Stock, or
any combination thereof, to be awarded to each such participant.
6. TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION.
The Committee may, in its discretion, grant NSOs to any Participant under
the Plan. Each NSO shall be evidenced by an agreement between the Company and
the Participant. Each NSO agreement, in such form as is approved by the
Committee, shall be subject to the following express terms and conditions and to
such other terms and conditions, not inconsistent with the Plan as the Committee
may deem appropriate:
(a) OPTION PERIOD. Each NSO will expire as of the earliest of:
(i) the date on which it is forfeited under the provisions of
Section 11;
(ii) the date three months after the Participant's termination of
employment, directorship or relationship with the Company,
as applicable, for any reason other than death; or
(iii) the date six months after the Participant's death.
(b) OPTION PRICE. At the time of grant, the Committee will fix the Option
Price, which will be no less than eighty-five percent (85%) of the
Fair Market Value of the shares subject to the NSO on the Option Date.
(c) OTHER OPTION PROVISIONS. The form of NSO authorized by the Plan may
contain such other provisions as the Committee may from time to time
determine.
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7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
The Committee may, in its discretion, grant a SAR to any Participant under
the Plan. Each SAR shall be evidenced by an agreement between the Company and
the Participant, and may be a Naked SAR or a Tandem SAR. Each SAR awarded to
Participants under the Plan shall be subject to the following express terms and
conditions and to such other terms and conditions, not inconsistent with the
Plan, as the Committee shall deem appropriate:
(a) TANDEM SARS. Tandem SARs shall terminate on the same date as the
related NSO. A Tandem SAR shall be exercisable only if the Fair
Market Value of a share of Common Stock on the date of surrender
exceeds the Fair Market Value of the Common Stock on the Option Date,
if related to an NSO, and then shall be exercisable to the extent, and
only to the extent, that the related NSO is exercisable. A Tandem SAR
shall entitle the Participant to whom it is granted the right to
elect, so long as such Tandem SAR is exercisable and subject to such
limitations as the Committee shall have imposed, to surrender any then
exercisable portion of his related NSO, in whole or in part, and
receive from the Company in exchange, without any payment of cash
(except for applicable employee withholding taxes), that number of
shares of Common Stock having an aggregate Fair Market Value on the
date of surrender equal to the product of (i) the excess of the Fair
Market Value of a share of Common Stock on the date of surrender over
the per share Option Price under such NSO or the Fair Market Value of
the Common Stock on the Option Date, if such SAR is related to an NSO
and (ii) the number of shares of Common Stock subject to such NSO or
portion thereof which is surrendered. Any NSO or portion thereof
which is surrendered shall no longer be exercisable. The Committee,
in its sole discretion, may allow the Company to settle all or part of
the Company's obligation arising out of the exercise of a Tandem SAR
by the payment of cash equal to the aggregate Fair Market Value of the
shares of Common Stock which the Company would otherwise be obligated
to deliver.
(b) NAKED SARS. Naked SARs shall terminate as provided in the
Participant's SAR agreement. The Committee may at the time of
granting any Naked SAR add such conditions and limitations to the
Naked SAR as it shall deem advisable, including but not limited to,
limitations on the period within which the Naked SAR shall be
exercisable and the maximum amount of appreciation to be recognized
with regard to such Naked SAR.
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(c) OTHER CONDITIONS. If a Participant is subject to Section 16(a) and
Section 16(b) of the Exchange Act, the Committee may at any time add
such additional conditions and limitations to such SAR which, in its
discretion, the Committee deems necessary or desirable in order to
comply with such Section 16(a) or Section 16(b) and the rules and
regulations issued thereunder, or in order to obtain any exemption
therefrom. If a Participant subject to Section 16(a) or Section 16(b)
of the Exchange Act exercises a SAR and receives cash, the exercise
must be made within a ten-day period beginning on the third business
day after the release of quarterly or annual statements of sales and
earnings by the Company and ending on the twelfth business day after
such release of statements.
8. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
The Committee, in its discretion, may grant Restricted Stock to any
Participant under the Plan. Each grant of Restricted Stock shall be evidenced
by an agreement between the Company and the Participant. All shares of Common
Stock awarded to Participants under the Plan as Restricted Stock shall be
subject to the following express terms and conditions as to such other terms and
conditions, not inconsistent with the Plan, as the Committee shall deem
appropriate:
(a) RESTRICTED PERIOD. Shares of Restricted Stock awarded to Participants
may not be sold, transferred, pledged or otherwise encumbered before
they vest. Subject to the provisions of subparagraphs (b) and (c)
below and any other restrictions imposed by law, any shares of
Restricted Stock that vest will be transferred, to the Participant or,
in the event of his death, to the beneficiary or beneficiaries
designated by writing filed by the Participant with the Committee for
such purpose or, if none, to his estate. Delivery of shares in
accordance with the preceding sentence shall be made within the
thirty-day period after they vest.
(b) FORFEITURES. A Participant shall forfeit all unpaid accumulated
dividends and all shares of Restricted Stock which have not vested
prior to the date that his employment, membership on the Board, if a
Director, or relationship, if a Sales Representative with the Company
is terminated for any reason.
(c) CERTIFICATES DEPOSITED WITH COMPANY. Each certificate issued in
respect of shares of Restricted Stock awarded under the Plan shall be
registered in the name of the Participant and deposited with the
Company. Each such
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<PAGE>
certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) relating to Restricted Stock contained in the HA-LO
Industries, Inc. 1997 Stock Plan and an agreement entered into between
the registered owner and HA-LO Industries, Inc. Copies of such Plan
and agreement are on file at the principal office of HA-LO Industries,
Inc."
(d) STOCKHOLDER RIGHTS. Subject to the foregoing restrictions, each
Participant shall have all the rights of a stockholder with respect to
his shares of Restricted Stock including, but not limited to, the
right to vote such shares.
(e) DIVIDENDS. On each Common Stock dividend payment date, each
Participant shall receive an amount equal to the dividend paid on that
date on a share of Common Stock, multiplied by his number of shares of
Restricted Stock.
9. TERMS AND CONDITIONS OF PHANTOM STOCK.
The Committee may, in its discretion, award Phantom Stock to any
Participant under the Plan. Each award of Phantom Stock shall be evidenced by
an agreement between the Company and the Participant. The Committee may at the
time of awarding any Phantom Stock add such additional conditions and
limitations to the Phantom Stock as it shall deem advisable, including, but not
limited to, the right for Participants to receive payments equivalent to
dividends paid on Common Stock, limitations on the period or periods within
which the Phantom Stock may be surrendered, and the maximum amount of
appreciation to be recognized with regard to such Phantom Stock. If a
Participant is subject to Section 16(a) and Section 16(b) of the Exchange Act,
the Committee may at any time add such additional conditions and limitations to
such Phantom Stock which, in its discretion, the Committee deems necessary or
desirable in order to comply with such Section 16(a) or Section 16(b) and the
rules and regulations issued thereunder, or in order to obtain any exemption
therefrom. An award of Phantom Stock shall entitle the Participant to whom it
is awarded the right to elect, so long as such Phantom Stock is vested and
subject to such limitations as the Committee shall have imposed, to surrender
any then vested portion of the Phantom Stock, in whole or in part, and receive
from the Company in exchange therefor the Fair Market Value on the date of
surrender of the Common Stock to which the surrendered Phantom Stock relates in
cash or in shares of Common Stock as the Committee may determine. If a
Participant subject to Section 16(a) or 16(b) of the Exchange Act receives cash
in exchange for the surrender of Phantom Stock, the surrender of such
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Phantom Stock must be made within a ten-day period beginning on the third
business day after the release of quarterly or annual statements of sales and
earnings by the Company and ending on the twelfth business day after such
release of statements.
10. MANNER OF EXERCISE OF OPTIONS.
To exercise an Option in whole or in part, a Participant (or, after his
death, his executor or administrator) must give written notice to the Committee,
stating the number of shares to which he intends to exercise the Option. The
Company will issue the shares with respect to which the Option is exercised upon
payment in full of the Option Price. Upon receipt of such notice, and prior to
issuance of shares, the Company may require the Participant (or after his death,
his executor or administrator) to pay to the Company any and all amounts which
the Participant may owe the Company on such date. The Option Price may be paid
in cash, certified bank check or by delivery of irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay for all Common Stock acquired through such exercise and any tax
withholding obligations resulting from such exercise. At the discretion of the
Company, the Option Price may also be paid in shares of Common Stock having an
aggregate Fair Market Value, as determined on the date of delivery, equal to the
Option Price. At the discretion of the Company, the Option Price may be paid in
shares of Common Stock which were received by the Participant upon the exercise
of one or more Options, including shares which the Participant directs the
Company to withhold for the purpose of paying the Option Price from shares the
Participant would have received upon the exercise of the Option. At the
discretion of the Company, the Option Price may be paid in shares of Common
Stock which were received by the Participant as an award of Restricted Stock
under the Plan. The Option Price may be paid by surrender of Tandem SARs equal
to the Option Price.
11. VESTING.
(a) A Participant may not exercise an Option or surrender a SAR or
Phantom Stock until it has become vested. The portion of an Option, SAR or
Phantom Stock award that is vested depends upon the period that has elapsed
since the Option Date. The following schedule applies to any Options
granted under this Plan, to Restricted Stock, SARs, and Phantom Stock
awarded under this Plan unless the Committee establishes a different
vesting schedule at the time when an Option is granted or, the Restricted
Stock, SAR or Phantom Stock is awarded:
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Number of Years
Since Option Date Vested Percentage
----------------- -----------------
Fewer than one 0%
One but fewer than two 20%
Two but fewer than three 40%
Three but fewer than four 60%
Four but fewer than five 80%
Five or more 100%
If a Participant terminates employment with, or if a Director, his
membership on the Board, or if a Sales Representative, his relationship
with, the Company for any reason, he will be deemed to have forfeited as of
the date of such termination any Options, Restricted Stock, SARs and/or
Phantom Stock that are not yet vested as of such date. A transfer from the
Company to a subsidiary or affiliate, or VICE VERSA is not a termination of
employment for purposes of this Plan. Notwithstanding the vesting schedule
contained herein or in the Participant's agreement, if the Participant's
employment, or if a Director, his membership on the Board, or if a Sales
Representative, his relationship is terminated for Cause, the Participant's
Vested Percentage shall be 0%, and he shall forfeit all Options, SARs,
Restricted Stock and/or Phantom Stock immediately upon delivery of notice
that his termination was for Cause.
(b) Notwithstanding the provisions of Section 11(a) or anything
contained in a Participant's agreement to the contrary, upon a Change in
Control all Option, Restricted Stock, SARs and/or Phantom Stock shall
become 100% vested and immediately exercisable.
12. ADJUSTMENTS TO REFLECT CHANGES IN CAPITAL STRUCTURE.
If there is any change in the corporate structure or shares of the Company,
the Board of Directors may make any adjustments necessary to prevent accretion,
or to protect against dilution, in the number and kind of shares authorized by
the Plan and, with respect to outstanding Options, Restricted Stock, Phantom
Stock and/or SARs, in the number and kind of shares covered thereby and in the
applicable Option Price. For the purpose of this Section 12, a change in the
corporate structure or shares of the Company includes, without limitation, any
change resulting from a recapitalization, stock split, stock dividend,
consolidation, rights offering, spin-off, reorganization, or liquidation and any
transaction in which shares of Common Stock are changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or another corporation.
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<PAGE>
13. NON-TRANSFERABILITY OF OPTIONS, SARS AND PHANTOM STOCK.
The Options and SARs granted or Phantom Stock awarded under the Plan are
not transferable, voluntarily or involuntarily, other than by will, by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in Section 414(p) of the Code. During a Participant's lifetime, his
Options may be exercised only by him.
14. RIGHTS AS STOCKHOLDER.
No Common Stock may be delivered upon the exercise of any Option until full
payment has been made. A Participant has no rights whatsoever as a stockholder
with respect to any shares covered by an Option until the date of the issuance
of a stock certificate for the shares. A Participant who has been granted SARs
or Phantom Stock shall have no rights whatsoever as a stockholder with respect
to such SARs or Phantom Stock.
15. WITHHOLDING TAX.
The Company shall have the right to withhold in cash or shares of Common
Stock with respect to any payments made to Participants under the Plan any taxes
required by law to be withheld because of such payments. With respect to a
Participant subject to Section 16(a) or 16(b) of the Exchange Act, withholding
made in Common Stock upon the exercise of an Option, or the exercise of a SAR or
Phantom Stock which the Participant had the discretion regarding the timing of
exercise, must be made during the period beginning on the third business day
following the release of quarterly or annual statements of sales and earnings by
the Company and ending on the twelfth business day after such release of
statements. Notwithstanding the foregoing, with respect to a Participant
subject to Section 16(a) or 16(b) of the Exchange Act, all amounts required to
be withheld upon either (i) the vesting of Restricted Stock or (ii) the exercise
of a SAR or surrender of Phantom Stock which had a set duration and for which
payment is made in Common Stock, shall automatically be withheld in Common Stock
otherwise deliverable to the Participant and having a Fair Market Value
determined on the date the income is includable in the Participant's income
equal to the amount of taxes required to be withheld.
16. NO RIGHT TO EMPLOYMENT.
Participation in the Plan will not give any Participant a right to be
retained as an employee of the Company, or any right or claim to any benefit
under the Plan, unless the right or claim has specifically accrued under the
Plan.
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<PAGE>
17. AMENDMENT OF THE PLAN.
The Board of Directors may from time to time amend or revise the terms of
this Plan in whole or in part and may without limitation, adopt any amendment
deemed necessary; provided, however, that no change in any award previously
granted to a Participant may be made that would impair the rights of the
Participant without the Participant's consent.
18. CONDITIONS UPON ISSUANCE OF SHARES.
An Option shall not be exercisable, a share of Common Stock shall not be
issued pursuant to the exercise of an Option, and Restricted Stock shall not be
awarded until such time as the award of Restricted Stock, exercise of such
Option and the issuance and delivery of such share pursuant thereto shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares of Common stock may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Common Stock is being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
19. EFFECTIVE DATE AND TERMINATION OF PLAN.
19.01 EFFECTIVE DATE. This Plan is effective as of January 1, 1997.
19.02 TERMINATION OF THE PLAN. The Board of Directors may terminate
the Plan at any time with respect to any shares that are not then subject to
Options or Restricted Stock. Termination of the Plan will not affect the rights
and obligations of any Participant with respect to Options, SARs, Phantom Stock
or Restricted Stock awarded before termination.
20. DIRECTOR STOCK OPTIONS.
(a) Each Director who is not otherwise an employee of the Company from and
after the effective date of the Plan shall, at the first regularly
scheduled meeting of the Board held after January 1 of each calendar
year, automatically be granted NSOs to purchase five thousand (5,000)
shares of Common Stock having an exercise price per share equal to
100% of the Fair Market Value of the Common Stock at the Option Date.
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<PAGE>
(b) Each Director's interest in any NSO granted pursuant to this Section
20 shall vest ratably over a period of twelve months from the Option
Date; provided, however, such NSO may not be exercised at any time
prior to six months after the Option Date. NSOs granted pursuant to
this Section 20 shall expire ten years from the Option Date.
(c) In the event that the number of shares of Common Stock available for
future grant under the Plan is insufficient to make all automatic
grants required to be made on such date, then all non-employee
Directors entitled to a grant on such date shall share ratably in the
number of NSOs on shares available for grant under the Plan.
(d) The provisions of paragraph (a) of this Section 20 may not be amended
more often than once every six months. Except as expressly provided
in this Section 20, any NSO granted hereunder shall be subject to the
terms and conditions of the Plan if the grant were made pursuant to
Section 6 hereof.
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CREDIT AGREEMENT
DATED AS OF JANUARY 31, 1997
among
HA-LO INDUSTRIES, INC.,
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO,
individually and as Agent
and
the Lenders
which are or become parties hereto
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Revolving Credit . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Revolving Loans. . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Letters of Credit. . . . . . . . . . . . . . . . . . . 2
(a) General Terms. . . . . . . . . . . . . . . . . . . . . 2
(b) Applications . . . . . . . . . . . . . . . . . . . . . 2
(c) The Reimbursement Obligation . . . . . . . . . . . . . 3
(d) The Participating Interests. . . . . . . . . . . . . . 3
(e) Indemnification. . . . . . . . . . . . . . . . . . . . 4
Section 1.4. Term Credit. . . . . . . . . . . . . . . . . . . . . . 4
Section 1.5. Manner of Borrowing Loans. . . . . . . . . . . . . . . 5
(a) Generally. . . . . . . . . . . . . . . . . . . . . . . 5
(b) Reimbursement Obligation . . . . . . . . . . . . . . . 5
(c) Agent Reliance on Bank Funding . . . . . . . . . . . . 6
(d) Reliance . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2. INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1. Options. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2. Base Rate Portion. . . . . . . . . . . . . . . . . . . 7
Section 2.3. LIBOR Portions . . . . . . . . . . . . . . . . . . . . 7
Section 2.4. Manner of Rate Selection . . . . . . . . . . . . . . . 8
Section 2.5. Change of Law. . . . . . . . . . . . . . . . . . . . . 8
Section 2.6. Unavailability of Deposits or Inability to Ascertain
the Adjusted LIBOR Rate. . . . . . . . . . . . . . . . 8
Section 2.7. Taxes and Increased Costs. . . . . . . . . . . . . . . 8
Section 2.8. Funding Indemnity. . . . . . . . . . . . . . . . . . . 9
Section 2.9. Lending Branch . . . . . . . . . . . . . . . . . . . .10
Section 2.10. Discretion of Lenders as to Manner of Funding. . . . .10
Section 2.11. Capital Adequacy . . . . . . . . . . . . . . . . . . .10
SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS. .11
Section 3.1. Commitment Fee . . . . . . . . . . . . . . . . . . . .11
Section 3.2. Letter of Credit Fees. . . . . . . . . . . . . . . . .11
Section 3.3. Computation of Interest and Fees . . . . . . . . . . .11
Section 3.4. Agents Fees. . . . . . . . . . . . . . . . . . . . . .11
Section 3.5. Voluntary Prepayments. . . . . . . . . . . . . . . . .11
Section 3.6. Commitment Terminations. . . . . . . . . . . . . . . .12
Section 3.7. Place and Application. . . . . . . . . . . . . . . . .12
Section 3.8. Notations and Requests . . . . . . . . . . . . . . . .13
SECTION 4. THE GUARANTIES. . . . . . . . . . . . . . . . . . . . . .14
Section 4.1. Guaranties . . . . . . . . . . . . . . . . . . . . . .14
Section 4.2. Further Assurances.. . . . . . . . . . . . . . . . . .14
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SECTION 5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . .14
Section 5.1. Organization and Qualification . . . . . . . . . . . .14
Section 5.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . .14
Section 5.3. Corporate Authority and Validity of Obligations. . . .15
Section 5.4. Use of Proceeds; Margin Stock. . . . . . . . . . . . .15
Section 5.5. Financial Reports. . . . . . . . . . . . . . . . . . .15
Section 5.6. No Material Adverse Change . . . . . . . . . . . . . .16
Section 5.7. Litigation and Other Controversies . . . . . . . . . .16
Section 5.8. Taxes. . . . . . . . . . . . . . . . . . . . . . . . .16
Section 5.9. Approvals. . . . . . . . . . . . . . . . . . . . . . .16
Section 5.10. Investment Company; Public Utility Holding Company . .16
Section 5.11. ERISA. . . . . . . . . . . . . . . . . . . . . . . . .16
Section 5.12. Compliance with Laws . . . . . . . . . . . . . . . . .17
Section 5.13. Other Agreements . . . . . . . . . . . . . . . . . . .17
Section 5.14. No Default . . . . . . . . . . . . . . . . . . . . . .17
SECTION 6. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . .17
Section 6.1. All Advances . . . . . . . . . . . . . . . . . . . . .17
Section 6.2. Initial Advance. . . . . . . . . . . . . . . . . . . .18
SECTION 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . .19
Section 7.1. Maintenance of Business. . . . . . . . . . . . . . . .19
Section 7.2. Maintenance of Properties. . . . . . . . . . . . . . .19
Section 7.3. Taxes and Assessments. . . . . . . . . . . . . . . . .20
Section 7.4. Insurance. . . . . . . . . . . . . . . . . . . . . . .20
Section 7.5. Financial Reports. . . . . . . . . . . . . . . . . . .20
Section 7.6. Inspection . . . . . . . . . . . . . . . . . . . . . .21
Section 7.7. Current Ratio. . . . . . . . . . . . . . . . . . . . .22
Section 7.8. Tangible Net Worth . . . . . . . . . . . . . . . . . .22
Section 7.9. Leverage Ratio . . . . . . . . . . . . . . . . . . . .22
Section 7.10. Cash Flow Coverage Ratio . . . . . . . . . . . . . . .22
Section 7.11. Indebtedness for Borrowed Money. . . . . . . . . . . .22
Section 7.12. Liens. . . . . . . . . . . . . . . . . . . . . . . . .22
Section 7.13. Investments, Acquisitions, Loans, Advances and
Guaranties . . . . . . . . . . . . . . . . . . . . . .23
Section 7.14. Mergers, Consolidations and Sales. . . . . . . . . . .25
Section 7.15. Dividends and Certain Other Restricted Payments. . . .25
Section 7.16. ERISA. . . . . . . . . . . . . . . . . . . . . . . . .26
Section 7.17. Compliance with Laws . . . . . . . . . . . . . . . . .26
Section 7.18. Change in the Nature of Business . . . . . . . . . . .26
SECTION 8. EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . .26
Section 8.1. Events of Default. . . . . . . . . . . . . . . . . . .26
Section 8.2. Non-Bankruptcy Remedies. . . . . . . . . . . . . . . .28
Section 8.3. Bankruptcy Remedies. . . . . . . . . . . . . . . . . .28
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Section 8.4. Collateral for Undrawn Letters of Credit . . . . . . .28
SECTION 9. DEFINITIONS; INTERPRETATIONS. . . . . . . . . . . . . . .29
Section 9.1. Definitions. . . . . . . . . . . . . . . . . . . . . .29
Section 9.2. Interpretation.. . . . . . . . . . . . . . . . . . . .37
SECTION 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . .38
Section 10.1. Appointment and Authorization. . . . . . . . . . . . .38
Section 10.2. Rights as a Lender . . . . . . . . . . . . . . . . . .38
Section 10.3. Standard of Care . . . . . . . . . . . . . . . . . . .38
Section 10.4. Costs and Expenses . . . . . . . . . . . . . . . . . .39
Section 10.5. Indemnity. . . . . . . . . . . . . . . . . . . . . . .39
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . .39
Section 11.1. Withholding Taxes. . . . . . . . . . . . . . . . . . .39
Section 11.2. Non-Business Days. . . . . . . . . . . . . . . . . . .40
Section 11.3. No Waiver, Cumulative Remedies . . . . . . . . . . . .41
Section 11.4. Waivers, Modifications and Amendments. . . . . . . . .41
Section 11.5. Costs and Expenses . . . . . . . . . . . . . . . . . .41
Section 11.6. Documentary Taxes. . . . . . . . . . . . . . . . . . .41
Section 11.7. Survival of Representations. . . . . . . . . . . . . .42
Section 11.8. Notices. . . . . . . . . . . . . . . . . . . . . . . .42
Section 11.9. Participations . . . . . . . . . . . . . . . . . . . .42
Section 11.10. Assignment Agreements. . . . . . . . . . . . . . . . .42
Section 11.11. Extension of the Revolving Credit Commitments. . . . .43
Section 11.12. Lender's Obligations Several . . . . . . . . . . . . .44
Section 11.13. Headings . . . . . . . . . . . . . . . . . . . . . . .44
Section 11.14. Severability of Provisions . . . . . . . . . . . . . .44
Section 11.15. Counterparts . . . . . . . . . . . . . . . . . . . . .44
Section 11.16. Binding Nature and Governing Law . . . . . . . . . . .44
Section 11.17. Entire Understanding . . . . . . . . . . . . . . . . .44
Section 11.18. Submission to Jurisdiction; Waiver of Jury Trial . . .44
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
EXHIBIT A -- Form of Revolving Credit Note
EXHIBIT B -- Notice of Payment Request
EXHIBIT C -- Form of Term Note
EXHIBIT D -- Compliance Certificate
EXHIBIT E -- Opinion of Counsel
EXHIBIT F -- Assignment and Acceptance
SCHEDULE 5.2 -- Subsidiaries
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CREDIT AGREEMENT
American National Bank
and Trust Company of Chicago
Chicago, Illinois
Harris Trust and Savings Bank
Chicago, Illinois
Comerica Bank
Detroit, Michigan
and the other Lenders from time to time party hereto
Ladies and Gentlemen:
The undersigned, HA-LO Industries, Inc., an Illinois corporation (the
"COMPANY"), applies to you for your several commitments, subject to the terms
and conditions hereof and on the basis of the representations and warranties
hereinafter set forth, to make credit available to the Company, all as more
fully hereinafter set forth.
SECTION 1. THE CREDITS.
SECTION 1.1. REVOLVING CREDIT. Subject to the terms and conditions
hereof, each Lender, by its acceptance hereof, severally agrees to extend a
revolving credit (the "REVOLVING CREDIT") to the Company in the aggregate amount
of such Lender's commitment to extend the Revolving Credit as set forth on the
applicable signature page hereof or pursuant to Section 11.10 hereof (its
"REVOLVING CREDIT COMMITMENT" and cumulatively for all the Lenders, the
"REVOLVING CREDIT COMMITMENTS") (subject to any reductions thereof pursuant to
the terms hereof) prior to the Termination Date. The Revolving Credit, subject
to all of the terms and conditions hereof, may be utilized by the Company in the
form of Revolving Loans and Letters of Credit, all as more fully hereinafter set
forth; PROVIDED, HOWEVER, that the aggregate principal amount of the Revolving
Loans and L/C Obligations outstanding at any one time shall not at any time
exceed the Revolving Credit Commitments then in effect. During the period from
and including the date hereof to but not including the Termination Date, the
Company may use the Revolving Credit Commitments by borrowing, repaying and
reborrowing Revolving Loans in whole or in part and/or by having the Agent issue
Letters of Credit, having such Letters of Credit expire or otherwise terminate
without having been drawn upon or, if drawn upon, reimbursing the Agent for each
such drawing, and having the Agent issue new Letters of Credit, all in
accordance with the terms and conditions of this Agreement. For all purposes of
this Agreement, where a determination of the unused or available amount of the
Revolving Credit Commitments is necessary, the Revolving Loans and L/C
Obligations shall all be deemed to utilize the Revolving Credit Commitments.
The obligations of the Lenders hereunder are several and not joint, and no
Lender shall under any circumstances be obligated to extend credit hereunder in
excess of its Revolving Credit Commitment.
SECTION 1.2. REVOLVING LOANS. Subject to the terms and conditions
hereof, the Revolving Credit may be availed of in the form of loans
(individually a "REVOLVING LOAN" and collectively the "REVOLVING LOANS"). Each
Borrowing of Revolving Loans shall be made ratably by the Lenders in accordance
with their Percentages. Each Borrowing of Revolving Loans shall be in an amount
of $100,000 or such greater amount which is an
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integral multiple of $50,000; PROVIDED, HOWEVER, that (i) a Borrowing made to
repay a Reimbursement Obligation may be made in the amount thereof and (ii) a
Borrowing of Revolving Loans, or any part thereof, which bears interest with
reference to the Adjusted LIBOR Rate shall be in such greater amount as is
required by Section 2 hereof. All Revolving Loans made by a Lender shall be
evidenced by a single Revolving Credit Note of the Company (individually a
"REVOLVING CREDIT NOTE" and collectively the "REVOLVING CREDIT NOTES", which
shall include the Revolving Credit Notes issued pursuant to Section 11.10
hereof) payable to the order of such Lender in the amount of its Revolving
Credit Commitment, each Revolving Credit Note to be in the form (with
appropriate insertions) attached hereto as Exhibit A. Each Revolving Credit
Note shall be dated the date of issuance thereof, be expressed to bear interest
as set forth in Section 2 hereof, and be expressed to mature on the Termination
Date. Without regard to the principal amount of each Revolving Credit Note
stated on its face, the actual principal amount at any time outstanding and
owing by the Company on account thereof shall be the sum of all Revolving Loans
then or theretofore made thereon less all payments of principal actually
received thereon.
SECTION 1.3. LETTERS OF CREDIT.
(a) GENERAL TERMS. Subject to the terms and conditions hereof, as part of
the Revolving Credit, the Agent shall issue standby and commercial letters of
credit (each a "LETTER OF CREDIT") for the account of the Company in U.S.
Dollars in an aggregate undrawn face amount up to the amount of the L/C
Commitment. Each Letter of Credit shall be issued by the Agent, but each Lender
shall be obligated to reimburse the Agent for such Lender's Percentage of the
amount of each draft drawn under a Letter of Credit and, accordingly, each
Letter of Credit shall be deemed to utilize the Revolving Credit Commitment of
each Lender pro rata in accordance with its Percentage thereof.
(b) APPLICATIONS. At any time before the Termination Date, the Agent
shall, at the request of the Company, issue one or more Letters of Credit to or
for the account of the Company in a form satisfactory to the Agent, with
expiration dates no later than the earlier of (i) 12 months from the date of
issuance (or be cancellable not later than 12 months from the date of issuance
and each renewal) and (ii) 3 months after the Termination Date then in effect,
in an aggregate face amount as set forth above, upon the receipt of an
application for the relevant Letter of Credit in the form then customarily
prescribed by the Agent duly executed by the Company (each an "APPLICATION").
On the Termination Date, the Company shall pay to the Agent an amount equal to
the aggregate amounts undrawn on all Letters of Credit which are outstanding on
that date to be held as cash collateral for the Obligations of the Company with
respect to such Letters of Credit and the Applications therefor.
Notwithstanding anything contained in any Application to the contrary, (i) the
obligation of the Company to pay fees in connection with each Letter of Credit
shall be as set forth in Section 3.2 hereof and (ii) except during the existence
of an Event of Default, the Agent will not call for the funding by the Company
of any amount under a Letter of Credit, or any other form of collateral security
for the obligations of the Company in connection with such Letter of Credit,
before being presented with a drawing thereunder. The Agent will promptly
notify the Lenders of each issuance by the Agent of a Letter of
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Credit. If the Agent issues any Letter of Credit with an expiration date that
is automatically extended unless the Agent gives notice that the expiration date
will not so extend beyond its then scheduled expiration date, the Agent will
give such notice of non-renewal before the time necessary to prevent such
automatic extension if before such required notice date (i) the expiration date
of such Letter of Credit if so extended would be after the Termination Date,
(ii) the Revolving Credit Commitments have been terminated or (iii) a Default or
an Event of Default exists and the Required Lenders have given the Agent
instructions not to so permit the extension of the expiration date of such
Letter of Credit. The Agent shall provide the Company with a copy of such
notice of non-renewal promptly after issuance thereof. The Agent agrees to
issue amendments to the Letter(s) of Credit increasing the amount, or extending
the expiration date, thereof at the request of the Company subject to the
conditions of Section 6 and the other terms of this Section 1.3. Without
limiting the generality of the foregoing, the Agent will not issue, amend or
extend the expiration date of any Letter of Credit if any Lender notifies the
Agent of any failure to satisfy or otherwise comply with the conditions and
terms of Section 6 or of this Section 1.3 and directs the Agent not to take such
action.
(c) THE REIMBURSEMENT OBLIGATION. Subject to Section 1.3(b) hereof, the
obligation of the Company to reimburse the Agent for all drawings under a Letter
of Credit (a "REIMBURSEMENT OBLIGATION") shall be governed by the Application
related to such Letter of Credit, except that (i) reimbursement of each drawing
shall be made in immediately available funds at the Agent's principal office in
Chicago, Illinois by no later than 2:00 p.m. Chicago time on the date when such
drawing is paid if the Company has been informed of such drawing by the Agent on
or before 11:30 a.m. Chicago time on the date when such drawing is paid or, if
notice of such drawing is given to the Company after 11:30 a.m. Chicago time on
the date when such drawn is paid, by 2:00 p.m. Chicago time on the next Business
Day and (ii) the Company's Reimbursement Obligation shall bear interest (which
the Company hereby promises to pay), whether before or after judgment, until
payment in full thereof at the rate per annum equal to the Base Rate as in
effect from time to time. If the Company does not make any such reimbursement
payment on the date due and the Participating Lenders fund their participations
therein in the manner set forth in Section 1.3(d) below, then all payments
thereafter received by the Agent in discharge of any of the relevant
Reimbursement Obligations shall be distributed in accordance with Section 1.3(d)
below.
(d) THE PARTICIPATING INTERESTS. Each Lender (other than the Lender then
acting as Agent in issuing Letters of Credit), by its acceptance hereof,
severally agrees to purchase from the Agent, and the Agent hereby agrees to sell
to each such Lender (a "PARTICIPATING LENDER"), an undivided percentage
participating interest (a "PARTICIPATING INTEREST"), to the extent of its
Percentage, in each Letter of Credit issued by, and each Reimbursement
Obligation owed to, the Agent. Upon any failure by the Company to pay any
Reimbursement Obligation in respect of a Letter of Credit at the time required
on the date the related drawing is paid, as set forth in Section 1.3(c) above,
or if the Agent is required at any time to return to the Company or to a
trustee, receiver, liquidation, custodian or other Person any portion of any
payment of any Reimbursement Obligation, each
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Participating Lender shall, not later than the Business Day it receives a
certificate in the form of Exhibit B hereto from the Agent to such effect, if
such certificate is received before 2:00 p.m. Chicago time, or not later than
the following Business Day, if such certificate is received after such time, pay
to the Agent an amount equal to such Lender's Percentage of such unpaid or
recaptured Reimbursement Obligation together with interest on such amount
accrued from the date the related payment was made by the Agent to the date of
such payment by such Participating Lender at a rate per annum equal to (i) from
the date the related payment was made by the Agent to the date 2 Business Days
after payment by such Participating Lender is due hereunder, the Federal Funds
Rate for each such day and (ii) from the date 2 Business Days after the date
such payment is due from such Participating Lender to the date such payment is
made by such Participating Lender, the Base Rate in effect for each such day.
Each such Participating Lender shall thereafter be entitled to receive its
Percentage of each payment received in respect of the relevant Reimbursement
Obligation and of interest paid thereon, with the Agent retaining its Percentage
as a Lender hereunder.
The several obligations of the Participating Lenders to the Agent under
this Section 1.3 shall be absolute, irrevocable and unconditional under any and
all circumstances whatsoever and shall not be subject to any set-off,
counterclaim or defense to payment which any Participating Lender may have or
have had against the Company, the Agent, any other Lender or any other Person
whatsoever. Without limiting the generality of the foregoing, such obligations
shall not be affected by any Default or Event of Default or by any reduction or
termination of any Revolving Credit Commitment of any Lender, and each payment
by a Participating Lender under this Section 1.3 shall be made without any
offset, abatement, withholding or reduction whatsoever. The Agent shall be
entitled to offset amounts received for the account of a Lender under this
Agreement against unpaid amounts due from such Lender to the Agent hereunder
(whether as fundings of participations, indemnities or otherwise), but shall not
be entitled to offset against amounts owed to the Agent by any Lender arising
outside this Agreement.
(e) INDEMNIFICATION. The Participating Lenders shall, to the extent of
their respective Percentages, indemnify the Agent (to the extent not reimbursed
by the Company) against any cost, expense (including reasonable counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from the Agent's gross negligence or willful misconduct) that the Agent may
suffer or incur in connection with any Letter of Credit. The obligations of the
Participating Lenders under this Section 1.3(e) and all other parts of this
Section 1.3 shall survive termination of this Agreement, the Applications, and
all drafts and any other documents presented in connection with a drawing under
any Letter of Credit.
SECTION 1.4. TERM CREDIT. Subject to the terms and
conditions hereof, each Lender severally agrees to make one or more
loans (individually a "TERM LOAN" and collectively the "TERM LOANS")
to the Company in the aggregate amount of such Lender's commitment
to make Term Loans as set forth on the applicable signature page
hereof or pursuant to Section 11.10 hereof (its "TERM LOAN
COMMITMENT" and collectively for all Lenders the "TERM LOAN
COMMITMENTS") (subject to any reductions thereof pursuant to the
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terms hereof) prior to the Term Credit Termination Date. Each
Borrowing of Term Loans shall be made ratably by the Lenders in
accordance with their Percentages. Each Borrowing of Term Loans
shall be in an amount of $1,000,000 or such greater amount which is
an integral multiple of $100,000; PROVIDED, HOWEVER, that a
Borrowing of Term Loans, or any part thereof, which bears interest
with reference to the Adjusted LIBOR Rate shall be in such greater
amount as is required by Section 2 hereof. The principal amount of
each Term Loan shall permanently reduce the amount available to the
Company under each Lender's Term Loan Commitment, and no amount
repaid or prepaid on any Term Loan may be borrowed again. Each Term
Loan made by a Lender shall be evidenced by a Term Note of the
Company (individually a "TERM NOTE" and collectively the "TERM
NOTES", which shall include the Term Notes issued pursuant to
Section 11.10 hereof) payable to the order of such Lender in an
amount equal to such Lender's Percentage of the Borrowing of Term
Loans then being made, each Term Note to be in the form (with
appropriate insertions) attached hereto as Exhibit C. Each Term
Note shall be dated the date of issuance thereof, be expressed to
bear interest as set forth in Section 2 hereof, and be expressed to
mature in consecutive quarterly principal installments, with each
principal installment of a Term Note to be in an amount equal to
1/20th of the original principal amount of the Term Loan evidenced
thereby, commencing on the date which is three calendar months after
the date on which the relevant Term Loan is made and continuing on
the same date of each and every third calendar month thereafter (or
if no such date exists for any one or more of such installments,
then on the last day of such third calendar month), except that the
final payment of both principal and interest, if not sooner paid,
shall be due on the earlier of (i) the fifth anniversary date of the
date on which the relevant Term Loan was made or (ii) June 30, 2003.
The obligations of the Lenders hereunder are several and not joint,
and no Lender shall under any circumstances be obligated to extend
credit hereunder in excess of its Term Loan Commitment.
SECTION 1.5. MANNER OF BORROWING LOANS.
(a) GENERALLY. The Company shall give the Agent notice
(which may be written or oral, but if oral, promptly confirmed in
writing) by 10:00 a.m. Chicago time on any Business Day of each
request that any Borrowing of Loans, in each case specifying the
amount of each such Borrowing, the type of Loan being requested,
and the date such Borrowing is to be made (which shall be a
Business Day). The Agent shall notify each Lender of its receipt
of each such notice by 12:00 noon Chicago time on the Business Day
any Borrowing of Loans constituting the Base Rate Portion is to be
made and by 12:00 noon Chicago time on the Business Day it receives
such a request for any Borrowing of Loans constituting a LIBOR
Portion. Each Borrowing shall initially constitute part of the
relevant Base Rate Portion except to the extent the Company has
timely elected that such Borrowing, or any part thereof, constitute
part of a LIBOR Portion as provided in Section 2 hereof. Not later
than 2:00 p.m. Chicago time on the date specified for any Borrowing
of Loans to be made hereunder, each Lender shall make the proceeds
of its Loan comprising part of such Borrowing available in
immediately available funds to the Agent in Chicago, Illinois.
Subject to all of the terms and conditions hereof, the proceeds of
each Lender's Loan shall be made available to the Company in
accordance with the instruction of the
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Company at the office of the Agent in Chicago, Illinois and in
funds there current.
(b) REIMBURSEMENT OBLIGATION. In the event the Company fails
to give notice pursuant to Section 1.5(a) above of a Borrowing
equal to the amount of a Reimbursement Obligation and has not
notified the Agent by 11:30 a.m. Chicago time on the day such
Reimbursement Obligation becomes due that the Company intends to
repay such Reimbursement Obligation through funds not borrowed
under this Agreement, the Company shall be deemed to have requested
a Borrowing of Revolving Loans constituting part of the Base Rate
Portion on such day in the amount of the Reimbursement Obligation
then due, subject to Section 6 hereof, which Borrowing shall be
applied to pay the Reimbursement Obligation then due.
(c) AGENT RELIANCE ON BANK FUNDING. Unless the Agent shall
have been notified by a Lender before the date on which such Lender
is scheduled to make payment to the Agent of the proceeds of a Loan
(which notice shall be effective upon receipt) that such Lender
does not intend to make such payment, the Agent may assume that
such Lender has made such payment when due and the Agent may in
reliance upon such assumption (but shall not be required to) make
available to the Company the proceeds of the Loan to be made by
such Lender and, if any Lender has not in fact made such payment to
the Agent, such Lender shall, on demand, pay to the Agent the
amount made available to the Company attributable to such Lender
together with interest thereon in respect of each day during the
period commencing on the date such amount was made available to the
Company and ending on (but excluding) the date such Lender pays
such amount to the Agent at a rate per annum equal to (i) from the
date the related amount was made available to the Company by the
Agent to the date 2 Business Days after such amount is due from the
Lender hereunder, the Federal Funds Rate for each such day and (ii)
from the date 2 Business Days after such amount is due from the
Lender hereunder to the date such amount is paid to the Agent by
such Lender, the Base Rate in effect for each such day. If such
amount is not received from such Lender by the Agent immediately
upon demand, the Company will, on demand, repay to the Agent the
proceeds of the Loan attributable to such Lender with interest
thereon at a rate per annum equal to the interest rate applicable
to the relevant Loan, but without such payment being considered a
payment or prepayment of a Loan under Section 2.8 hereof, so that
the Company will have no liability under Section 2.8 with respect
to such payment.
(d) RELIANCE. All requests for Borrowings and selection of
interest rates to be applicable thereto may be written or oral,
including by telephone or telecopy. The Company agrees that the
Agent may rely on any such notice given by any person the Agent in
good faith believes is an Authorized Representative without the
necessity of independent investigation (the Company hereby
indemnifying the Agent and the Lenders from any liability or loss
ensuing from such reliance), and in the event any such telephonic
or other oral notice conflicts with any written confirmation, such
oral or telephonic notice shall govern if the Agent has acted in
reliance thereon.
SECTION 2. INTEREST.
SECTION 2.1. OPTIONS. Subject to all of the terms and
conditions of this Section 2, portions of the principal
indebtedness evidenced by the Notes (all of the indebtedness
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evidenced by Notes of the same type and, with respect to the Term
Notes, relating to the same Borrowing, and bearing interest at the
same rate for the same period of time being hereinafter referred to
as a "PORTION") may, at the option of the Company, bear interest
with reference to the Base Rate ("BASE RATE PORTIONS") or with
reference to the Adjusted LIBOR Rate ("LIBOR PORTIONS"), and
Portions may be converted from time to time from one basis to the
other. All of the indebtedness evidenced by the Notes of the same
type and, with respect to the Term Notes, relating to the same
Borrowing, which is not part of a LIBOR Portion shall constitute a
single Base Rate Portion. All of the indebtedness evidenced by the
Notes of the same type and, with respect to the Term Notes,
relating to the same Borrowing, which bears interest with reference
to a particular Adjusted LIBOR Rate for a particular Interest
Period shall constitute a single LIBOR Portion. Anything contained
herein to the contrary notwithstanding, there shall not be more
than five (5) LIBOR Portions applicable to Notes of the same type
and, with respect to the Term Notes, relating to the same
Borrowing, outstanding at any one time and each Lender shall have a
ratable interest in each Portion. The Company hereby promise to
pay interest on each Portion applicable to it at the rates and
times specified in this Section 2.
SECTION 2.2. BASE RATE PORTION. Each Base Rate Portion
shall bear interest (which the Company hereby promises to pay at
the times herein provided) at the rate per annum equal to the Base
Rate as in effect from time to time minus .25% per annum, provided
that if a Base Rate Portion is not paid when due (whether by lapse
of time, acceleration or otherwise), such Portion shall bear
interest (which the Company hereby promises to pay at the times
hereinafter provided), whether before or after judgment, and until
payment in full thereof, at the rate per annum determined by adding
2% to the Base Rate as in effect from time to time. Interest on
the Base Rate Portions shall be payable monthly in arrears on the
last day of each month in each year and at maturity of the
applicable Notes, and interest after maturity shall be due and
payable upon demand.
SECTION 2.3. LIBOR PORTIONS. Each LIBOR Portion shall bear
interest (which the Company hereby promises to pay at the times
herein provided) for each Interest Period selected therefor at a
rate per annum determined by adding the Applicable Margin to the
Adjusted LIBOR Rate for such Interest Period, provided that if any
LIBOR Portion is not paid when due (whether by lapse of time,
acceleration or otherwise), such Portion shall bear interest (which
the Company hereby promises to pay at the times hereinafter
provided), whether before or after judgment, and until payment in
full thereof, through the end of the Interest Period then
applicable thereto at the rate per annum determined by adding 2% to
the interest rate otherwise applicable thereto and effective at the
end of such Interest Period, such LIBOR Portion shall automatically
be converted into and added to the applicable Base Rate Portion and
shall thereafter bear interest at the rate per annum determined by
adding 2% to the Base Rate as in effect from time to time.
Interest on each LIBOR Portion shall be due and payable on the last
day of each Interest Period applicable thereto (provided that if
any Interest Period is longer than three months, then interest on
the LIBOR Portion having such Interest Period shall be due and
payable on the date occurring every three months after the date
such Interest Period began and on the last day of such Interest
Period), and interest after maturity shall be due and payable upon
demand. The Company
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shall notify the Agent on or before 10:00 a.m. Chicago time on the
third Business Day preceding the end of an Interest Period
applicable to a LIBOR Portion whether such LIBOR Portion is to
continue as a LIBOR Portion, in which event the Company shall
notify the Agent of the new Interest Period selected therefor, and
in the event the Company shall fail to so notify the Agent, such
LIBOR Portion shall automatically be converted into and added to
the applicable Base Rate Portion as of and on the last day of such
Interest Period. The Agent shall promptly notify each Lender of
each notice received from the Company pursuant to the foregoing
provisions. Each LIBOR Portion shall be in an amount equal to
$500,000 or such greater amount which is an integral multiple of
$100,000. Anything contained herein to the contrary
notwithstanding, the obligation of the Lenders to create, continue
or effect by conversion any LIBOR Portion shall be conditioned upon
the fact that at the time no Default or Event of Default shall have
occurred and be continuing.
SECTION 2.4. MANNER OF RATE SELECTION. The Company shall
notify the Agent by 10:00 a.m. Chicago time at least 3 Business
Days prior to the date upon which it requests that any LIBOR
Portion be created or that any part of the applicable Base Rate
Portion be converted into a LIBOR Portion (such notice to specify
in each instance the amount thereof and the Interest Period
selected therefor) and the Agent shall advise each Lender of each
such notice by 12:00 noon Chicago time on the same Business Day it
receives such notice. If any request is made to convert a LIBOR
Portion into the applicable Base Rate Portion, such conversion
shall only be made so as to become effective as of the last day of
the Interest Period applicable thereto. All requests for the
creation, continuance or conversion of Portions under this
Agreement shall, subject to Section 2.6 hereof, be irrevocable.
SECTION 2.5. CHANGE OF LAW. Notwithstanding any other
provisions of this Agreement or the Notes, if at any time a Lender
shall determine in good faith that any change in applicable laws,
treaties or regulations or in the interpretation thereof makes it
unlawful for such Lender to create or continue to maintain LIBOR
Portions, it shall promptly so notify the Agent (which shall in
turn promptly notify the Company and the other Lenders) and the
obligation of such Lender to create, continue or maintain any LIBOR
Portion under this Agreement shall be suspended until it is no
longer unlawful for such Lender to create, continue or maintain
LIBOR Portions. The Company shall, on demand, if the continued
maintenance of a LIBOR Portion is unlawful, thereupon prepay the
outstanding principal amount of the LIBOR Portion, together with
all interest accrued thereon and all other amounts payable to the
affected Lender with respect thereto under this Agreement;
PROVIDED, HOWEVER, that the Company may instead elect to convert
the principal amount of the affected LIBOR Portion into the
applicable Base Rate Portion, subject to the terms and conditions
of this Agreement.
SECTION 2.6. UNAVAILABILITY OF DEPOSITS OR INABILITY TO
ASCERTAIN THE ADJUSTED LIBOR RATE. Notwithstanding any other
provision of this Agreement or the Notes, if prior to the
commencement of any Interest Period, (a) any Lender shall inform
the Agent that such Lender has determined that United States dollar
deposits in the amount of any LIBOR Portion scheduled to be
outstanding during such Interest Period are not readily available
to such Lender in the offshore interbank market or (b) the Required
Lenders shall advise the Agent that LIBOR as determined by the
Agent will not adequately and fairly reflect the
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cost to such Lenders of funding such LIBOR Portion for such
Interest Period, the Agent shall promptly give notice thereof to
the Company and each other Lender and the obligations of the
Lenders to create, continue or effect by conversion any LIBOR
Portion in such amount and for such Interest Period shall be
suspended until the circumstances giving rise to such suspension no
longer exist.
SECTION 2.7. TAXES AND INCREASED COSTS. With respect to the
LIBOR Portions, if any Lender shall determine in good faith that
any change in any applicable law, treaty, regulation or guideline
(including, without limitation, Regulation D of the Board of
Governors of the Federal Reserve System) or any new law, treaty,
regulation or guideline, or any interpretation of any of the
foregoing by any governmental authority charged with the
administration thereof or any central bank or other fiscal,
monetary or other authority having jurisdiction over such Lender or
its lending branch or the Portions contemplated by this Agreement
(whether or not having the force of law) shall:
(i) impose, increase, or deem applicable any reserve,
special deposit or similar requirement against assets held by,
or deposits in or for the account of, or loans by, or any
other acquisition of funds or disbursements by, such Lender
which is not in any instance already accounted for in
computing the Adjusted LIBOR Rate;
(ii) subject such Lender, the LIBOR Portions or any Note
to the extent it evidences any LIBOR Portion, to any tax
(including, without limitation, any United States interest
equalization tax or similar tax however named applicable to
the acquisition or holding of debt obligations and any
interest or penalties with respect thereto), duty, charge,
stamp tax, fee, deduction or withholding in respect of this
Agreement, any LIBOR Portion or any Note to the extent it
evidences such a Portion, except such taxes as may be measured
by the overall net income or gross receipts of such Lender or
its lending branches and imposed by the jurisdiction, or any
political subdivision or taxing authority thereof, in which
such Lender's principal executive office or its lending branch
is located;
(iii) change the basis of taxation of payments of
principal and interest due from the Company to such Lender
hereunder or under any Note to the extent it evidences any
LIBOR Portion (other than by a change in taxation of the
overall net income or gross receipts of such Lender or its
lending branches); or
(iv) impose on such Lender any penalty with respect to
the foregoing or any other condition regarding this Agreement,
any LIBOR Portion, or any Note to the extent it evidences any
LIBOR Portion;
and such Lender shall determine that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or
adding to a cost) to such Lender of creating or maintaining any
LIBOR Portion hereunder or to reduce the amount of principal or
interest received or receivable by such Lender, then the Company
shall pay on demand to the Agent for the account of such Lender
from time to time as specified by such Lender such additional
amounts as such Lender shall reasonably determine are sufficient to
compensate and indemnify it for such increased cost or reduced
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amount. If a Lender makes such a claim for compensation, it shall
provide to the Company (with a copy to the Agent) a certificate
setting forth in reasonable detail the computation of the increased
cost or reduced amount as a result of any event mentioned herein
and such certificate shall be conclusive if reasonably determined.
SECTION 2.8. FUNDING INDEMNITY. In the event any Lender
shall incur any loss, cost or expense (including, without
limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired or
contracted to be acquired by such Lender to fund or maintain its
part of any LIBOR Portion or the relending or reinvesting of such
deposits or other funds or amounts paid or prepaid to such Lender)
as a result of:
(i) any payment of a LIBOR Portion on a date other than
the last day of the then applicable Interest Period for any
reason, whether before or after the occurrence of a Default or
Event of Default, and whether or not such payment is required
by any provisions of this Agreement; or
(ii) any failure by any of the Company to create, borrow,
continue or effect by conversion a LIBOR Portion on the date
specified in a notice given pursuant to this Agreement;
then, upon the demand of such Lender, the Company shall pay on
demand to the Agent for the account of such Lender such amount as
will reimburse such Lender for such loss, cost or expense. If a
Lender requests such a reimbursement, it shall provide the Company
(with a copy to the Agent) with a certificate setting forth in
reasonable detail the computation of the loss, cost or expense
giving rise to the request for reimbursement and such certificate
shall be conclusive if reasonably determined.
SECTION 2.9. LENDING BRANCH. Each Lender may, at its
option, elect to make, fund or maintain its Loans hereunder at the
branches or offices specified on the signature pages hereof or on
any Assignment Agreement executed and delivered pursuant to Section
11.10 hereof or at such other of its branches or offices as such
Lender may from time to time elect.
SECTION 2.10. DISCRETION OF LENDERS AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary,
each Lender shall be entitled to fund and maintain its funding of
all or any part of its share of its Notes in any manner it sees
fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including determinations
under Sections 2.6, 2.7 and 2.8 hereof) shall be made as if each
such Lender had actually funded and maintained each LIBOR Portion
during each Interest Period applicable thereto through the purchase
of deposits in the offshore interbank market in the amount of its
share of such LIBOR Portion, having a maturity corresponding to
such Interest Period and bearing an interest rate equal to LIBOR
for such Interest Period.
SECTION 2.11. CAPITAL ADEQUACY. If any Lender shall
determine that any applicable law, rule or regulation regarding
capital adequacy instituted after the date hereof, or any change in
the interpretation or administration of any applicable law, rule or
regulation regarding capital adequacy by any governmental
authority, central bank or
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comparable agency charged with the interpretation or administration
thereof or compliance by such Lender (or its lending office) with
any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the
rate of return on such Lender's capital as a consequence of its
obligations hereunder or credit extended by it hereunder to a level
below that which such Lender could have achieved but for such law,
rule, regulation, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to
time, within 15 days after demand by such Lender, the Company shall
pay to the Agent for the account of such Lender such additional
amount or amounts as will compensate such Lender for such
reduction. Any Lender claiming compensation under this Section
shall accompany its demand for compensation with a certificate
(with a copy to the Agent) setting forth the additional amount or
amounts to be paid to it hereunder in reasonable detail, which
certificate shall be conclusive if reasonably determined. In
determining such amount, such Lender may use any reasonable
averaging and attribution methods.
SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND
NOTATIONS.
SECTION 3.1. COMMITMENT FEE. For the period from the date
hereof to but not including the Termination Date, the Company shall
pay to the Agent for the account of the Lenders in accordance with
their Percentages a commitment fee at the rate per annum equal to
.20% per annum on the average daily unused amount of the Revolving
Credit Commitments hereunder. Such fee shall be payable in arrears
on the last day of each March, June, September, and December in
each year (commencing with the first of such dates after the date
hereof) and on the Termination Date.
SECTION 3.2. LETTER OF CREDIT FEES. With respect to each
standby Letter of Credit, commencing on the date which is three
calendar months after the date of issuing the relevant Letter of
Credit and continuing on the same date each and every third
calendar month thereafter, the Company shall pay to the Agent a
letter of credit fee at the rate of 1.5% per annum applied to the
daily average face amount of the relevant standby Letter of Credit
outstanding during such period (of which amount the Agent shall
retain for its own account, as the issuing bank and not on account
of its interest therein as a Lender, .25% per annum with the
remaining 1.25% per annum fee to be remitted to the Lenders pro
rata in accordance with their Percentages). With respect to each
commercial Letter of Credit, on the date when any drawing is made
thereunder (or, if sooner, the expiry date of the relevant Letter
of Credit), the Company shall pay to the Agent a letter of credit
fee at the rate of .25% (minimum of $70) per annum applied to the
face amount of the drawing of the relevant commercial Letter of
Credit (or, if being paid on the expiry date of such Letter of
Credit, on the undrawn face amount thereof) (of which amount the
Agent shall retain for its own account, as the issuing bank and not
on account of its interest therein as a Lender, .05% per annum,
with the remaining .20% per annum fee to be remitted to the
Lenders pro rata in accordance with their Percentages). In
addition, the Company shall pay to the Agent for its own use and
benefit the Agent's standard amendment and other administrative
fees for each Letter of Credit, as such standard fees may be
established by the Agent from time to time.
SECTION 3.3. COMPUTATION OF INTEREST AND FEES. All interest
on the Notes, and all fees, charges and commissions due hereunder,
shall be computed on the basis of a year of
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360 days for the actual number of days elapsed.
SECTION 3.4. AGENTS FEES. The Company shall pay to the
Agent for its own use and benefit fees with respect to the
administration of the credit facilities described in this Agreement
as are agreed to between the Company and the Agent in that certain
fee letter dated January 31, 1997, or as otherwise agreed to by
them.
SECTION 3.5. VOLUNTARY PREPAYMENTS. The Company shall have
the privilege of prepaying the Revolving Credit Notes in whole or
in part (but if in part, then in a minimum amount of $100,000 or
such greater amount which is an integral multiple of $50,000) and
the Term Notes in whole or in part (but if in part, then in a
minimum amount of $100,000 or such greater amount which is an
integral multiple of $50,000) at any time upon 1 Business Day prior
notice to the Agent (such notice if received subsequent to 2:00
p.m. Chicago time on a given day to be treated as though received
at the opening of business on the next Business Day), which shall
promptly so notify the Lenders, by paying to the Agent for the
account of the Lenders the principal amount to be prepaid and (i)
if such a prepayment prepays the Term Notes relating to the same
Borrowing in full, accrued interest thereon to the date of
prepayment, (ii) if such a prepayment prepays the Revolving Credit
Notes in full and is accompanied by the termination in whole of the
Revolving Credit Commitments, accrued interest thereon to the date
of prepayment plus any commitment fee which has accrued and is
unpaid, and (iii) any amounts due to the Lenders under Section 2.8
hereof.
SECTION 3.6. COMMITMENT TERMINATIONS. (a) VOLUNTARY
TERMINATIONS. The Company shall have the privilege upon 1 Business
Day prior notice to the Agent (which shall promptly notify the
Lenders) to ratably terminate the Revolving Credit Commitments
and/or the Term Loan Commitments in whole or in part (but if in
part then in the amount of $5,000,000 or such greater amount which
is an integral multiple of $1,000,000). No partial terminations of
the Revolving Credit Commitments may be made below the L/C
Commitment then in effect, unless the L/C Commitment is
concurrently reduced by a like amount. Not later than the
termination date stated in such notice, there shall be made such
payments to the Agent as may be necessary to reduce the sum of the
aggregate outstanding principal amount of the relevant Loans to the
amount to which the relevant Commitments have been reduced,
together with (x) any amount due the Lenders under Section 2.8
hereof and (y) in the case of a termination in whole, all interest,
fees and other amounts due on the Obligations. The foregoing to
the contrary notwithstanding, (i) no termination of the Revolving
Credit Commitment may be effected hereunder if as a result thereof
the outstanding aggregate amount of L/C Obligations would exceed
the L/C Commitment as reduced by such termination and (ii) the
relevant Commitments may not be terminated below $10,000,000 except
concurrently with their termination in whole. No termination of
the Commitments may be reinstated.
(b) CHANGE IN CONTROL. After the occurrence of a Change in
Control, the Required Lenders may at any time, but in no event
later than 30 days after the date the Company notifies the Lenders
of such Change in Control, terminate the Commitments effective on
the Business Day after the day the Company receives notice of such
termination. Any Loans outstanding on the date the Commitments are
so terminated,
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together with all other Obligations owing hereunder, shall be due
and payable on such date.
SECTION 3.7. PLACE AND APPLICATION. All payments of
principal, interest, fees and any other Obligations shall be made
to the Agent at its office at 33 North LaSalle Street, Chicago,
Illinois (or at such other place as the Agent may specify) in
immediately available and freely transferable funds at the place of
payment. All such payments shall be made without set-off or
counterclaim and without reduction for, and free from, any and all
present or future taxes, levies, imposts, duties, fees, charges,
deductions, withholdings, restrictions or conditions of any nature
imposed by any government or political subdivision or taxing
authority thereof. Payments received by the Agent after 2:00 p.m.
Chicago time shall be deemed received as of the opening of business
on the next Business Day. Except as herein provided, all payments
shall be received by the Agent for the ratable account of the
Lenders and shall be promptly distributed by the Agent to the
Lenders in accordance with their Percentages. Unless the Company
otherwise directs, payments on any Loans shall be deemed first
applied to the applicable Base Rate Portion until payment in full
thereof, with any balance applied to the LIBOR Portions in the
order in which their Interest Periods expire. Any amount prepaid
on the Revolving Credit Notes may, subject to all of the terms and
conditions hereof, be borrowed, repaid and borrowed again. No
amounts prepaid on the Term Notes may be reborrowed, and any
partial prepayments (whether voluntary or mandatory) shall be
applied to the several installments of such Notes in the inverse
order of maturity. All payments (whether voluntary or required)
shall be accompanied by any amount due the Lenders under Section
2.8 hereof, but no acceptance of such a payment without requiring
payment of amounts due under Section 2.8 shall preclude a later
demand by the Lenders for any amount due them under Section 2.8 in
respect of such payment.
Anything contained herein to the contrary notwithstanding, all
payments and collections received in respect of the Obligations and
all proceeds of collateral or payments on guarantees received, in
each instance, by the Agent or any of the Lenders after the
occurrence of an Event of Default shall be remitted to the Agent
and distributed as follows:
(a) first, to the payment of any outstanding actual
costs and expenses incurred by the Agent in protecting,
preserving or enforcing rights under the Loan Documents, and
in any event all costs and expenses of a character which the
Company has agreed to pay under Section 11.5 hereof (such
funds to be retained by the Agent for its own account unless
the Agent has previously been reimbursed for such costs and
expenses by the Lenders, in which event such amounts shall be
remitted to the Lenders to reimburse them for payments
theretofore made to the Agent);
(b) second, to the payment of any outstanding interest
or other fees or amounts due under the Notes and the other
Loan Documents, in each case other than for principal or in
reimbursement or collateralization of L/C Obligations, ratably
as among the Agent and the Lenders in accord with the amount
of such interest and other fees or amounts owing each;
(c) third, to the payment of the principal of the Notes
and any unpaid
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Reimbursement Obligations and to the Agent to be held as
collateral security for any other L/C Obligations (until the
Agent is holding an amount of cash equal to the then
outstanding amount of all such L/C Obligations), the aggregate
amount paid to or held as collateral security for the Lenders
to be allocated pro rata as among the Lenders in accordance
with the then respective aggregate unpaid principal balances
of their Loans and interests in the Letters of Credit; and
(d) fourth, to the Company or whoever else may be
lawfully entitled thereto.
SECTION 3.8. NOTATIONS AND REQUESTS. All Borrowings made
against the Notes, the status of all amounts evidenced by the Notes
as constituting part of the applicable Base Rate Portion or LIBOR
Portion and the rates of interest and Interest Periods applicable
to such Portions shall be recorded by the Lenders on their books
or, at their option in any instance, endorsed on the reverse side
of the Notes and the unpaid principal balances and status, rates
and Interest Periods so recorded or endorsed by the Lenders shall
be prima facie evidence in any court or other proceeding brought to
enforce the Notes of the principal amount remaining unpaid thereon,
the status of such Borrowings and the interest rates and Interest
Periods applicable thereto. Prior to any negotiation of any Note,
the Lender holding such Note shall endorse thereon the status of
all amounts evidenced thereby as constituting part of the Base Rate
Portion or LIBOR Portion and the rates of interest and the Interest
Periods applicable thereto.
SECTION 4. THE GUARANTIES.
SECTION 4.1. GUARANTIES. The payment and performance of the
Obligations shall at all times be guaranteed by each Subsidiary,
whether now existing or hereafter formed or acquired, pursuant to a
guaranty agreement executed by such Subsidiary in form and
substance satisfactory to the Agent (individually a "GUARANTY" and
collectively the "GUARANTIES"); PROVIDED, HOWEVER, that, unless an
Event of Default exists and thereafter until requested by the Agent
or the Required Lenders, no Subsidiary organized outside of the
United States of America needs to execute and deliver any such
Guaranty or otherwise become bound as a guarantor of the
Obligations hereunder.
SECTION 4.2. FURTHER ASSURANCES. In the event the Company
or any Subsidiary forms or acquires any Subsidiary after the date
hereof, the Company shall cause such newly formed or acquired
Subsidiary to execute a Guaranty in accordance with Section 4.1
above, and the Company shall also deliver, or cause such Subsidiary
to deliver, at the Company's cost and expense, such other
instruments, documents, certificates, and opinions reasonably
required by the Agent in connection therewith.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Lenders as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION. The Company is
duly organized, validly existing and in good standing as a
corporation under the laws of the State of Illinois, has full and
adequate corporate power to own its Property and conduct its
business as now conducted, and is duly licensed or qualified and in
good standing in each jurisdiction in which the nature of the
business conducted by it or the nature of the Property owned or
leased by it requires such licensing or qualifying, except where
the failure to do
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so would not have a Material Adverse Effect.
SECTION 5.2. SUBSIDIARIES. Each Subsidiary is duly
organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated or organized, as the
case may be, has full and adequate power to own its Property and
conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the
nature of the business conducted by it or the nature of the
Property owned or leased by it requires such licensing or
qualifying, except where the failure to do so would not have a
Material Adverse Effect. Schedule 5.2 hereto identifies each
Subsidiary, the jurisdiction of its incorporation or organization,
as the case may be, the percentage of issued and outstanding shares
of each class of its capital stock or other equity interests owned
by the Company and the Subsidiaries and, if such percentage is not
100% (excluding directors' qualifying shares as required by law), a
description of each class of its authorized capital stock and other
equity interests and the number of shares of each class issued and
outstanding. All of the outstanding shares of capital stock and
other equity interests of each Subsidiary are validly issued and
outstanding and fully paid and nonassessable and all such shares
and other equity interests indicated on Schedule 5.2 as owned by
the Company or a Subsidiary are owned, beneficially and of record,
by the Company or such Subsidiary free and clear of all Liens.
There are no outstanding commitments or other obligations of any
Subsidiary to issue, and no options, warrants or other rights of
any Person to acquire, any shares of any class of capital stock or
other equity interests of any Subsidiary.
SECTION 5.3. CORPORATE AUTHORITY AND VALIDITY OF
OBLIGATIONS. The Company has full right and authority to enter
into this Agreement and the other Loan Documents executed by it, to
make the borrowings herein provided for, to issue its Notes in
evidence thereof, and to perform all of its obligations hereunder
and under the other Loan Documents executed by it. Each Subsidiary
has full right and authority to enter into the Loan Documents
executed by it, to guarantee the Obligations, and to perform all of
its obligations under the Loan Documents executed by it. The Loan
Documents delivered by the Company and by each of its Subsidiaries
have been duly authorized, executed and delivered by such Person
and constitute valid and binding obligations of such Person
enforceable in accordance with their terms except as enforceability
may be limited by bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law); and
this Agreement and the other Loan Documents do not, nor does the
performance or observance by the Company or any Subsidiary of any
of the matters and things herein or therein provided for,
contravene or constitute a default under any provision of law or
any judgment, injunction, order or decree binding upon the Company
or any Subsidiary or any provision of the charter, articles of
incorporation or by-laws of the Company or any Subsidiary or any
covenant, indenture or agreement of or affecting the Company or any
Subsidiary or any of its Property, or result in the creation or
imposition of any Lien on any Property of the Company or any
Subsidiary.
SECTION 5.4. USE OF PROCEEDS; MARGIN STOCK. The Company
shall use the
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proceeds of the Loans and other extensions of credit made available
hereunder for its general working capital purposes and for such
other legal and proper purposes as are consistent with all
applicable laws. Neither the Company nor any Subsidiary is engaged
in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System), and no part of
the proceeds of any Loan or any other extension of credit made
hereunder will be used to purchase or carry any such margin stock
or to extend credit to others for the purpose of purchasing or
carrying any such margin stock. Margin stock constitutes less than
25% of those assets of the Company and its Subsidiaries which are
the subject to any limitation on sale, pledge or other restriction
hereunder.
SECTION 5.5. FINANCIAL REPORTS. The consolidated balance
sheet of the Company and its Subsidiaries as at December 31, 1995,
and the related consolidated statements of income, shareholders
equity and cash flows of the Company and its Subsidiaries for the
fiscal year then ended, and accompanying notes thereto, which
financial statements are accompanied by the audit report of Arthur
Andersen, L.L.P., independent public accountants, and the unaudited
interim consolidated balance sheet of the Company and its
Subsidiaries as at September 30, 1996, and the related consolidated
statements of income, shareholders equity and cash flows of the
Company and its Subsidiaries for the 9 months then ended,
heretofore furnished to the Lenders, fairly present the financial
condition of the Company and its Subsidiaries as at said dates and
the results of their operations and cash flows for the periods then
ended in conformity with GAAP applied on a consistent basis.
Neither the Company nor any Subsidiary has contingent liabilities
which are material to it other than as indicated on such financial
statements or, with respect to future periods, on the financial
statements furnished pursuant to Section 7.5 hereof.
SECTION 5.6. NO MATERIAL ADVERSE CHANGE. Since September
30, 1996, there has been no change in the condition (financial or
otherwise) or business prospects of the Company or any Subsidiary,
except those occurring in the ordinary course of business, none of
which individually or in the aggregate constitute a Material
Adverse Effect.
SECTION 5.7. LITIGATION AND OTHER CONTROVERSIES. There is
no litigation or governmental proceeding or labor controversy
pending, nor to the knowledge of the Company threatened, against
the Company or any Subsidiary which, if adversely determined, is
reasonably likely to result in a Material Adverse Effect except as
disclosed prior to the date hereof in filings by the Company with
the Securities and Exchange Commission.
SECTION 5.8. TAXES. All tax returns required to be filed by
the Company or any Subsidiary in any jurisdiction have, in fact,
been filed or appropriate extensions therefor have been obtained,
and all taxes, assessments, fees and other governmental charges
upon the Company or any Subsidiary or upon any of their respective
Properties, income or franchises, which are shown to be due and
payable in such returns, have been paid as and when due. The
Company does not know of any proposed additional tax assessment
against the Company or any of its Subsidiaries for which adequate
provisions in accordance with GAAP have not been made on their
accounts. Adequate provisions in accordance with GAAP for taxes on
the books of the Company and each Subsidiary have been made for all
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open years, and for its current fiscal period.
SECTION 5.9. APPROVALS. No authorization, consent, license,
or exemption from, or filing or registration with, any court or
governmental department, agency or instrumentality, nor any
approval or consent of the stockholders of the Company or any other
Person, is or will be necessary to the valid execution, delivery or
performance by the Company of this Agreement or by the Company or
any Subsidiary of any other Loan Document, except for such
approvals of the Board of Directors of the Company and its
Subsidiaries which have been obtained and remain in full force and
effect.
SECTION 5.10. INVESTMENT COMPANY; PUBLIC UTILITY HOLDING
COMPANY. Neither the Company nor any Subsidiary is an "investment
company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended, or a "public utility holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 5.11. ERISA. The Company and each other member of
its Controlled Group has fulfilled its obligations under the
minimum funding standards of and is in compliance in all material
respects with ERISA and the Code to the extent applicable to it and
has not incurred any material liability to the PBGC or a Plan under
Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA. Neither the Company nor any
Subsidiary has any contingent liabilities with respect to any
post-retirement benefits under a Welfare Plan, other than liability
for continuation coverage described in article 6 of Title I of
ERISA.
SECTION 5.12. COMPLIANCE WITH LAWS. The Company and each of
its Subsidiaries are in compliance with the requirements of all
federal, state and local laws, rules and regulations applicable to
or pertaining to their Properties or business operations
(including, without limitation, the Occupational Safety and Health
Act of 1970, the Americans with Disabilities Act of 1990, laws and
regulations relating to the providing of health care services, and
laws and regulations establishing quality criteria and standards
for air, water, land and toxic or hazardous wastes and substances),
non-compliance with which is reasonably likely to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary
has received notice to the effect that its operations are not in
compliance with any of the requirements of applicable federal,
state or local environmental, health and safety statutes and
regulations or are the subject of any governmental investigation
evaluating whether any remedial action is needed to respond to a
release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action is reasonably
likely to result in a Material Adverse Effect.
SECTION 5.13. OTHER AGREEMENTS. Neither the Company nor any
Subsidiary is in default under the terms of any covenant, indenture
or agreement of or affecting the Company or any Subsidiary, or any
of its Property, which default, if uncured, is reasonably likely to
result in a Material Adverse Effect.
SECTION 5.14. NO DEFAULT. No Default or Event of Default has
occurred and is continuing.
SECTION 6. CONDITIONS PRECEDENT.
SECTION 6.1. ALL ADVANCES. The obligation of the Lenders to
make any Loan or
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other financial accommodation to the Company hereunder (including
the first such accommodation) shall be subject to the conditions
precedent that as of the time of the making of each such
accommodation:
(a) each of the representations and warranties set forth
herein and in the other Loan Documents shall be and remain
true and correct as of said time, except to the extent the
same expressly relate to an earlier date;
(b) no Default or Event of Default shall have occurred
Sand be continuing;
(c) after giving effect to such extension of credit, the
aggregate principal amount of all Revolving Loans and L/C
Obligations outstanding under this Agreement shall not exceed
the Revolving Credit Commitments then in effect;
(d) in the case of any Borrowing of Term Loans, the
Agent shall have received for each of the Lenders a duly
executed and completed Term Note for such Lender in the amount
of its Term Loan;
(e) in the case of the issuance of any Letter of Credit,
the Agent shall have received a properly completed Application
therefor and, in the case of an extension or increase in the
amount of the Letter of Credit, the Agent shall have received
a written request therefor, in a form reasonably acceptable to
the Agent; and
(f) such extension of credit shall not violate any
order, judgment or decree of any court or other authority or
any provision of law or regulation applicable to the Agent or
any Lender (including, without limitation, Regulation U of the
Board of Governors of the Federal Reserve System) as then in
effect.
The Company's request for any Loan or Letter of Credit shall
constitute its warranty as to the facts specified in subsections
(a) through (e), both inclusive, above.
SECTION 6.2. INITIAL ADVANCE. At or prior to the time of
the initial Loans or other financial accommodation hereunder, the
following conditions precedent shall also have been satisfied:
(a) the Agent shall have received the following for the
account of the Lenders (each to be properly executed and
completed) and the same shall have been approved as to form
and substance by the Agent:
(i) the Revolving Credit Notes;
(ii) the Guaranties;
(iii) copies (executed or certified as may be
appropriate) of resolutions of the Board of Directors of
the Company and each Subsidiary authorizing the
execution, delivery and performance of the Loan Documents
to which it is a party and all other documents relating
thereto;
(iv) an incumbency certificate containing the name,
title and genuine signature of the Company's Authorized
Representatives and each authorized signatory of each
Subsidiary;
(v) a good standing certificate for the Company and
each Subsidiary, dated as of a date no earlier than 30
days prior to the date hereof, from the appropriate
governmental offices in the state of its incorporation
and in each state in which it is qualified to do business
as a foreign corporation;
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(vi) articles of incorporation and by-laws for the
Company and each Subsidiary certified by such Person's
corporate Secretary or other appropriate officer
acceptable to the Agent; and
(vii) a pay-off letter from each lender to the
Company and its Subsidiaries whose debt is being
satisfied out of the initial Borrowing hereunder, each
pay-off letter to be in form and substance reasonably
satisfactory to the Agent (without limiting the
foregoing, each such pay-off letter shall contain an
undertaking of the relevant lender to execute and deliver
to the Agent all necessary UCC termination statements and
other lien release documents necessary to release all
liens and security interests filed in favor of such
lender against the property of the Company and its
Subsidiaries).
(b) all legal matters incident to the transactions
contemplated hereby shall be acceptable to the Lenders and
their counsel, and the Agent shall have received for the
account of the Lenders the favorable written opinion of
counsel to the Company and its Subsidiaries, in the form of
Exhibit E hereto or in such other form as is reasonably
acceptable to the Agent and its counsel;
(c) the Agent shall have received for itself and for the
Lenders the initial fees, if any, called for hereby;
(d) the Company shall have delivered to each of the
Lenders a Compliance Certificate substantially in the form
attached hereto as Exhibit D showing compliance with the
financial covenants set forth in Sections 7.7, 7.8 and 7.9
hereto as of December 31, 1996, and a pro forma Compliance
Certificate substantially in the form attached hereto as
Exhibit D showing compliance with the financial covenants set
forth in Sections 7.7, 7.8 and 7.9 hereof after giving effect
to the Creative Concepts Acquisition; and
(e) the Agent shall have received for the account of the
Lenders such other agreements, instruments, documents,
certificates and opinions as the Agent may reasonably request.
SECTION 7. COVENANTS.
The Company agrees that, so long as any credit is available to
or in use by the Company hereunder, except to the extent compliance
in any case or cases is waived in writing by the Required Lenders:
SECTION 7.1. MAINTENANCE OF BUSINESS. The Company shall,
and shall cause each Subsidiary to, preserve and maintain its
existence, except as otherwise provided in Section 7.14(c) hereof.
The Company shall, and shall cause each Subsidiary to, preserve and
keep in force and effect all licenses, permits, franchises,
approvals, patents, trademarks, trade names, trade styles,
copyrights, and other proprietary rights reasonably necessary to
the proper conduct of its business.
SECTION 7.2. MAINTENANCE OF PROPERTIES. The Company shall,
and shall cause each Subsidiary to, maintain, preserve and keep its
property, plant and equipment in good repair, working order and
condition (ordinary wear and tear excepted).
SECTION 7.3. TAXES AND ASSESSMENTs. The Company shall duly
pay and
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discharge, and shall cause each Subsidiary to duly pay and
discharge, all taxes, rates, assessments, fees and governmental
charges upon or against it or its Properties, in each case before
the same become delinquent and before penalties accrue thereon,
unless and to the extent that the same are being contested in good
faith and by appropriate proceedings which prevent enforcement of
the matter under contest and adequate reserves are provided
therefor.
SECTION 7.4. INSURANCE. The Company shall insure and keep
insured, and shall cause each Subsidiary to insure and keep
insured, with good and responsible insurance companies, all
insurable Property owned by it which is of a character usually
insured by Persons similarly situated and operating like Properties
against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating
like Properties; and the Company shall insure, and shall cause each
Subsidiary to insure, such other hazards and risks (including
employers' and public liability risks) with good and responsible
insurance companies as and to the extent usually insured by Persons
similarly situated and conducting similar businesses. The Company
shall upon request furnish to the Agent and the Lenders a
certificate setting forth in summary form the nature and extent of
the insurance maintained pursuant to this Section.
SECTION 7.5. FINANCIAL REPORTS. The Company shall, and
shall cause each Subsidiary to, maintain a standard system of
accounting in accordance with GAAP and shall furnish to the Agent,
each Lender and each of their duly authorized representatives such
information respecting the business and financial condition of the
Company and its Subsidiaries as the Agent or such Lender may
reasonably request; and without any request, shall furnish to the
Agent and the Lenders:
(a) as soon as available, and in any event within 45
days after the close of each of the first three fiscal
quarters of each fiscal year of the Company, a copy of the
consolidated balance sheet of the Company and its Subsidiaries
as of the last day of such period and the consolidated
statements of income, shareholders equity and cash flows of
the Company and its Subsidiaries for the fiscal quarter and
for the fiscal year-to-date period then ended, each in
reasonable detail showing in comparative form the figures for
the corresponding date and period in the previous fiscal year,
prepared by the Company in accordance with GAAP (subject to
year-end audited adjustments) and certified to by the
Company's chief financial officer, or another officer of the
Company acceptable to the Agent;
(b) as soon as available, and in any event within 90
days after the close of each fiscal year of the Company, a
copy of the consolidated balance sheet of the Company and its
Subsidiaries as of the last day of the period then ended and
the consolidated statements of income, shareholders equity and
cash flows of the Company and its Subsidiaries for the period
then ended, and accompanying notes thereto, each in reasonable
detail showing in comparative form the figures for the
previous fiscal year, accompanied by an unqualified opinion
thereon of Arthur Andersen, L.L.P. or another firm of
independent public accountants of recognized national standing
selected by the Company and reasonably satisfactory to the
Required Lenders, to the effect that the consolidated
financial statements have been
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prepared in accordance with GAAP and present fairly in
accordance with GAAP the consolidated financial condition of
the Company and its Subsidiaries as of the close of such
fiscal year and the results of their operations and cash flows
for the fiscal year then ended and that an examination of such
accounts in connection with such financial statements has been
made in accordance with generally accepted auditing standards
and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were
considered necessary in the circumstances;
(c) promptly after the sending or filing thereof, copies
of each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to its stockholders, and
copies of each regular, periodic or special report,
registration statement or prospectus filed by the Company or
any of its Subsidiaries with any securities exchange or the
Securities Exchange Commission or any successor agency;
(d) as soon as available, and in any event within 60
days after the end of each fiscal year of the Company, a copy
of the Company's consolidated annual budget for the then
current fiscal year, such budget to show the Company's
projected consolidated revenues and expenses on a
quarter-by-quarter basis, such budget to be in reasonable
detail prepared by the Company and in form reasonably
satisfactory to the Agent; and
(e) promptly after knowledge thereof shall have come to
the attention of any responsible officer of the Company,
written notice of any threatened or pending litigation or
governmental proceeding or labor controversy against the
Company or against any Subsidiary which, if adversely
determined, is reasonably likely to result in a Material
Adverse Effect or of the occurrence of any Default or Event of
Default hereunder.
Each of the financial statements furnished to the Lenders pursuant
to subsections (a) and (b) of this Section 7.5 shall be accompanied
by a written certificate in the form attached hereto as Exhibit D
signed by the chief financial officer of the Company, or another
officer of the Company acceptable to the Agent, to the effect that
to the best of such officer's knowledge and belief no Default or
Event of Default has occurred during the period covered by such
statements or, if any such Default or Event of Default has occurred
during such period, setting forth a description of such Default or
Event of Default and specifying the action, if any, taken by the
Company or any Subsidiary to remedy the same. Such certificate
shall also set forth the calculations supporting such statements in
respect of Sections 7.7, 7.8, 7.9 and 7.10 of this Agreement.
SECTION 7.6. INSPECTION. The Company shall, and shall cause
each of its Subsidiaries to, permit the Agent, each Lender and each
of their duly authorized representatives and agents to visit and
inspect any of its Properties, corporate books and financial
records, to examine and make copies of its books of accounts and
other financial records, and to discuss its affairs, finances and
accounts with, and to be advised as to the same by its officers at
such reasonable times and intervals as the Agent or any such Lender
may designate provided, however, that in each case the Company
receives not less than 24
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hours prior notice and that such inspections only occur during
normal business hours.
SECTION 7.7. CURRENT RATIO. The Company shall at all times
maintain a Current Ratio of not less than 1.5 to 1.0.
SECTION 7.8. TANGIBLE NET WORTH. The Company shall, at all
times, maintain Tangible Net Worth of not less than the sum of (a)
$30,000,000 plus (b) 50% of Net Income for each fiscal year of the
Company ending after the date hereof (commencing with the fiscal
year ending December 31, 1996) for which such Net Income is a
positive amount (I.E., there shall be no reduction to the amount of
Tangible Net Worth required to be maintained hereunder for any
fiscal year in which Net Income is less than zero).
SECTION 7.9. LEVERAGE RATIO. The Company shall, at all
times, maintain a ratio of Total Liabilities to Tangible Net Worth
of not more than 2.5 to 1.0.
SECTION 7.10. CASH FLOW COVERAGE RATIO. As of the last day
of each fiscal quarter of the Company, the Company shall maintain a
ratio of Adjusted EBITDA for the four fiscal quarters of the
Company then ended to Fixed Charges for the same four fiscal
quarters then ended of not less than 1.2 to 1.0.
SECTION 7.11. INDEBTEDNESS FOR BORROWED MONEY. The Company
shall not, nor shall it permit any Subsidiary to, issue, incur,
assume, create or have outstanding any Indebtedness for Borrowed
Money; PROVIDED, HOWEVER, that the foregoing shall not restrict nor
operate to prevent:
(a) the Obligations of the Company owing to the Agent
and the Lenders hereunder;
(b) purchase money indebtedness and Capitalized Lease
Obligations incurred in the ordinary course of business in an
aggregate amount not to exceed $2,000,000 at any one time
outstanding
(c) obligations of the Company arising out of interest
rate hedging agreements entered into with financial
institutions in the ordinary course of business;
(d) guaranties expressly permitted by Section 7.13
hereof;
(e) indebtedness from time to time owing by any
Subsidiary to the Borrower or to any other Subsidiary arising
in the ordinary course of business;
(f) indebtedness of up to $7,000,000 in the aggregate to
finance the purchase and/or construction of the Company's
intended Detroit-area Creative Concepts facility; and
(g) other unsecured indebtedness of the Company and its
Subsidiaries in an aggregate amount not to exceed $500,000 at
any one time outstanding.
SECTION 7.12. LIENS. The Company shall not, nor shall it
permit any Subsidiary to, create, incur or permit to exist any Lien
of any kind on any Property owned by the Company or any Subsidiary;
PROVIDED, HOWEVER, that the foregoing shall not apply to nor
operate to prevent:
(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social
security obligations, taxes, assessments, statutory
obligations or other similar charges, good faith cash deposits
in connection with tenders, contracts or leases to which the
Company or any Subsidiary is a party or other cash deposits
required to be made in the ordinary
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course of business, provided in each case that the obligation
is not for borrowed money and that the obligation secured is
not overdue or, if overdue, is being contested in good faith
by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves have been
established therefor;
(b) mechanics', workmen's, materialmen's, landlords',
carriers', or other similar Liens arising in the ordinary
course of business with respect to obligations which are not
due or which are being contested in good faith by appropriate
proceedings which prevent enforcement of the matter under
contest;
(c) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal
proceeding, provided that the aggregate amount of liabilities
of the Company and their Subsidiaries secured by a pledge of
assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of
$1,000,000 at any one time outstanding;
(d) Liens on property of the Company or of any
Subsidiary created solely for the purpose of securing
indebtedness permitted by Section 7.11(b) hereof, representing
or incurred to finance, refinance or refund the purchase price
of Property, provided that no such Lien shall extend to or
cover other Property of the Company or such Subsidiary other
than the respective Property so acquired, and the principal
amount of indebtedness secured by any such Lien shall at no
time exceed the original purchase price of such Property; and
(e) Liens on the Detroit-area real property purchased
and/or developed by the Company securing indebtedness
permitted by Section 7.11(f) above.
SECTION 7.13. INVESTMENTS, ACQUISITIONS, LOANS, ADVANCES AND
GUARANTIES. The Company shall not, nor shall it permit any
Subsidiary to, directly or indirectly, make, retain or have
outstanding any investments (whether through purchase of stock or
obligations or otherwise) in, or loans or advances (other than for
travel advances and other similar cash advances made to employees
in the ordinary course of business) to, any other Person, or
acquire all or any substantial part of the assets or business of
any other Person or division thereof, or be or become liable as
endorser, guarantor, surety or otherwise for any debt, obligation
or undertaking of any other Person, or otherwise agree to provide
funds for payment of the obligations of another, or supply funds
thereto or invest therein or otherwise assure a creditor of another
against loss, or apply for or become liable to the issuer of a
letter of credit which supports an obligation of another, or
subordinate any claim or demand it may have to the claim or demand
of any other Person; PROVIDED, HOWEVER, that the foregoing shall
not apply to nor operate to prevent:
(a) investments in direct obligations of the United
States of America or of any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America, provided that any such
obligations shall mature within one year of the date of
issuance thereof;
(b) investments in commercial paper rated at least P-1
by Moody's Investors Services, Inc. and at least A-1 by
Standard & Poor's Ratings Group, a division of The
McGraw-Hills Companies, Inc. maturing within 270 days of the
date of issuance thereof;
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(c) investments in certificates of deposit issued by any
United States commercial bank having capital and surplus of
not less than $100,000,000 which have a maturity of one year
or less;
(d) endorsement of items for deposit or collection of
commercial paper received in the ordinary course of business;
(e) the Company's investments from time to time in its
Subsidiaries;
(f) intercompany advances made from time to time between
the Company and one or more Subsidiaries or between
Subsidiaries in the ordinary course of business;
(g) one or more acquisitions by the Company of all or
any substantial part of the assets and business of, or all or
any substantial part of the equity interest in, a Person in
the business of providing marketing or promotional services
and/or merchandise including, but not limited to,
telemarketing, event planning, licensing, sports marketing and
advertising (a "PERMITTED LINE OF BUSINESS") if each of the
following are met (i) no Default or Event of Default has
occurred and is continuing or would occur as a result of such
transaction, (ii) the Board of Directors or other governing
body of such Person whose assets or Voting Stock is being so
acquired has approved the terms of such acquisition, (iii) the
Company has given the Agent prior written notice of the
proposed transaction, (iv) if the Company or any Subsidiary,
in the aggregate, incur Indebtedness for Borrowed Money of
more than $10,000,000 in connection with any such acquisition
or more than $30,000,000 during any 12-month period for all
acquisitions occurring during such period, the Company shall
have obtained the prior written consent of the Required
Lenders prior to consummating any such acquisition (the
Lenders hereby acknowledging their consent to the Creative
Concepts Acquisition closed on January 3, 1997, and provided
the other conditions of this Section 7.13(g) are satisfied),
and (v) if such transaction results in a new Subsidiary, the
Company shall cause such new Subsidiary to execute and deliver
to the Agent (with sufficient number of copies for each
Lender) a Guaranty, together with such other instruments,
documents, certificates and opinions reasonably requested by
the Agent, each of which to be in form and substance
satisfactory to the Agent, and Schedule 5.2 of this Agreement
shall from and after such date be deemed amended to include
reference to such Subsidiary;
(h) Guaranties executed by one or more Subsidiaries in
favor of the Agent and the Lenders; and
(i) other investments, loans and advances in addition to
these otherwise permitted by this Section in an aggregate
amount not to exceed $2,000,000 at any one time outstanding.
In determining the amount of investments, acquisitions, loans,
advances and guaranties permitted under this Section, investments
and acquisitions shall always be taken at the original cost thereof
(regardless of any subsequent appreciation or depreciation
therein), loans and advances shall be taken at the principal amount
thereof then remaining unpaid, and guaranties shall be taken at the
amount of the obligations guaranteed thereby.
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SECTION 7.14. MERGERS, CONSOLIDATIONS AND SALES. The Company
shall not, nor shall it permit any of its Subsidiaries to, be a
party to any merger or consolidation, or sell, transfer, lease or
otherwise dispose of all or any substantial part of its Property,
including any disposition of Property as part of a sale and
leaseback transaction, or in any event sell or discount (with or
without recourse) any of its notes or accounts receivable;
PROVIDED, HOWEVER, that this Section shall not apply to nor operate
to prevent:
(a) the sale or lease of inventory in the ordinary
course of business;
(b) the sale, transfer, lease, or other disposition of
Property of the Company or any Subsidiary to one another in
the ordinary course of its business; and
(c) a merger of any Subsidiary with and into the Company
or any Wholly-Owned Subsidiary; provided that the Company or
such Wholly-Owned Subsidiary survives such merger and, in the
case of any merger involving the Company, the Company is the
corporation surviving the merger.
The term "SUBSTANTIAL" as used herein shall mean the sale,
transfer, lease or other disposition of Property of the Company or
of any Subsidiary aggregating, for the Company and its Subsidiaries
during any fiscal year, 15% or more of the consolidated total
assets of the Company and its Subsidiaries. In the event of any
merger permitted by Section 7.14(c) above, the Company shall give
the Agent and the Lender's prior written notice of any such event
and, immediately after giving effect to any such merger, Schedule
5.2 of this Agreement shall be deemed amended excluding reference
to any such Subsidiary merged out of existence.
SECTION 7.15. DIVIDENDS AND CERTAIN OTHER RESTRICTED
PAYMENTS. The Company shall not during any fiscal year (i) declare
or pay any dividends on or make any other distributions in respect
of any class or series of its capital stock (other than dividends
payable solely in its capital stock) or (ii) directly or indirectly
purchase, redeem or otherwise acquire or retire any of its capital
stock, except that the Company may declare and pay dividends on,
and purchase, redeem, or otherwise acquire or retire, its capital
stock so long as no Default or Event of Default exists prior to or
would result after giving effect to any such action.
SECTION 7.16. ERISA. The Company shall, and shall cause each
Subsidiary to, promptly pay and discharge all obligations and
liabilities arising under ERISA of a character which if unpaid or
unperformed might result in the imposition of a Lien against any of
its Properties. The Company shall, and shall cause each Subsidiary
to, promptly notify the Agent of (i) the occurrence of any
reportable event (as defined in ERISA) with respect to a Plan, (ii)
receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor, (iii)
its intention to terminate or withdraw from any Plan, and (iv) the
occurrence of any event with respect to any Plan which would result
in the incurrence by the Company or any Subsidiary of any material
liability, fine or penalty, or any material increase in the
contingent liability of the Company or any Subsidiary with respect
to any post-retirement Welfare Plan benefit.
SECTION 7.17. COMPLIANCE WITH LAWS. The Company shall, and
shall cause each Subsidiary to, comply in all respects with the
requirements of all federal, state and local
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laws, rules, regulations, ordinances and orders applicable to or
pertaining to its Properties or business operations, non-compliance
with which is reasonably likely to result in a Material Adverse
Effect.
SECTION 7.18. CHANGE IN THE NATURE OF BUSINESS. The Company
shall not, nor shall it permit any Subsidiary to, engage in any
business or activity if as a result the general nature of the
business of the Company or any Subsidiary would be changed in any
material respect from the general nature of the business engaged in
by it as of the date of this Agreement or as of the date such
Person becomes a Subsidiary hereunder.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
SECTION 8.1. EVENTS OF DEFAULT. Any one or more of the
following shall constitute an "EVENT OF DEFAULT" hereunder:
(a) default for a period of 5 days in the payment when
due of all or any part of the principal of or interest on any
Note (whether at the stated maturity thereof or at any other
time provided for in this Agreement) or of any Reimbursement
Obligation or of any fee or other Obligation payable hereunder
or under any other Loan Document;
(b) default in the observance or performance of any
covenant set forth in Sections 7.5, 7.7, 7.8, 7.9, 7.10, 7.11,
7.12, 7.13, 7.14, or 7.15 hereof;
(c) default in the observance or performance of any
other provision hereof or of any other Loan Document which is
not remedied within 30 days after written notice thereof is
given to the Company by the Agent (provided that the Company
shall have an additional 30 days to cure any such default
before the same becomes an "EVENT OF DEFAULT" hereunder if
such default is reasonably susceptible to cure within the
additional 30-day period but only so long as the Company
diligently and in good faith works to cure such default during
such additional 30-day period);
(d) any material representation or warranty made herein
or in any other Loan Document or in any certificate furnished
to the Agent or the Lenders pursuant hereto or thereto or in
connection with any transaction contemplated hereby or thereby
proves untrue in any material respect as of the date of the
issuance or making thereof;
(e) any event occurs or condition exists (other than
those described in subsections (a) through (d) above) which is
specified as an event of default under any of the other Loan
Documents and any applicable notice and cure period has
expired, or any of the Loan Documents shall for any reason not
be or shall cease to be in full force and effect, or any of
the Loan Documents is declared to be null and void, or any
Subsidiary takes any action for the purpose of terminating,
repudiating or rescinding any Loan Document executed by it or
any of its obligations thereunder;
(f) default shall occur under any Indebtedness for
Borrowed Money issued, assumed or guaranteed by the Company or
any Subsidiary aggregating, for the Company and its
Subsidiaries, in excess of $1,000,000, or under any indenture,
agreement or other instrument under which the same may be
issued, and such default shall continue for a period of time
sufficient to permit the acceleration of the
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maturity of any such Indebtedness for Borrowed Money (whether
or not such maturity is in fact accelerated), or any such
Indebtedness for Borrowed Money shall not be paid when due
(whether by demand, lapse of time, acceleration or otherwise);
(g) any judgment or judgments, writ or writs or warrant
or warrants of attachment, or any similar process or processes
shall be entered or filed against the Company or any
Subsidiary, or against any of its Property, aggregating, for
the Company and its Subsidiaries, in excess of $1,000,000, and
which remains undischarged, unvacated, unbonded or unstayed
for a period of 60 days;
(h) the Company or any member of its Controlled Group
shall fail to pay when due an amount or amounts aggregating in
excess $1,000,000 which it shall have become liable to pay to
the PBGC or to a Plan under Title IV of ERISA; or notice of
intent to terminate a Plan or Plans having aggregate Unfunded
Vested Liabilities in excess of $1,000,000 (collectively, a
"MATERIAL PLAN") shall be filed under Title IV of ERISA by the
Company or any other member of its Controlled Group, any plan
administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer
any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any
member of its Controlled Group to enforce Section 515 or
4219(c)(5) of ERISA and such proceeding shall not have been
dismissed within 60 days thereafter; or a condition shall
exist by reason of which the PBGC would be entitled to obtain
a decree adjudicating that any Material Plan must be
terminated;
(i) the Company or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United
States Bankruptcy Code, as amended, (ii) not pay, or admit in
writing its inability to pay, its debts generally as they
become due, (iii) make an assignment for the benefit of
creditors, (iv) apply for, seek, consent to, or acquiesce in,
the appointment of a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any substantial part
of its Property, (v) institute any proceeding seeking to have
entered against it an order for relief under the United States
Bankruptcy Code, as amended, to adjudicate it insolvent, or
seeking dissolution, winding up, liquidation, reorganization,
arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer
or other pleading denying the material allegations of any such
proceeding filed against it, (vi) take any corporate action in
furtherance of any matter described in parts (i) through (v)
above, or (vii) fail to contest in good faith any appointment
or proceeding described in Section 8.1(j) hereof; or
(j) a custodian, receiver, trustee, examiner, liquidator
or similar official shall be appointed for the Company or any
Subsidiary or any substantial part of any of its Property, or
a proceeding described in Section 8.1(i)(v) shall be
instituted against the Company or any Subsidiary, and such
appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 60 days.
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SECTION 8.2. NON-BANKRUPTCY REMEDIES. When any Event of
Default described in subsections 8.1(a) to 8.1(h), both inclusive,
has occurred and is continuing, the Agent shall, upon request of
the Required Lenders, by notice to the Company, take any or all of
the following actions:
(a) terminate the obligations of the Lenders to extend
any further credit hereunder on the date (which may be the
date thereof) stated in such notice;
(b) declare the principal of and the accrued interest on
the Notes to be forthwith due and payable and thereupon the
Notes, including both principal and interest, and all fees,
charges and other Obligations payable hereunder and under the
other Loan Documents, shall be and become immediately due and
payable without further demand, presentment, protest or notice
of any kind; and
(c) enforce any and all rights and remedies available to
it under the Loan Documents or applicable law.
SECTION 8.3. BANKRUPTCY REMEDIES. When any Event of Default
described in subsection 8.1(i) or 8.1(j) has occurred and is
continuing, then the Notes, including both principal and interest,
and all fees, charges and other Obligations payable hereunder and
under the other Loan Documents, shall immediately become due and
payable without presentment, demand, protest or notice of any kind,
and the obligations of the Lenders to extend further credit
pursuant to any of the terms hereof shall immediately terminate.
In addition, the Agent may exercise any and all remedies available
to it under the Loan Documents or applicable law.
SECTION 8.4. COLLATERAL FOR UNDRAWN LETTERS OF CREDIT. If
and when (x) any Event of Default, other than an Event of Default
described in subsections (i) or (j) of Section 8.1, has occurred
and is continuing, the Company shall, upon demand of the Agent, and
(y) any Event of Default described in subsections (i) or (j) of
Section 8.1 has occurred or any Letter of Credit is outstanding on
the Termination Date (whether or not any Event of Default has
occurred), the Company shall, without notice or demand from the
Agent, immediately pay to the Agent the full amount of each Letter
of Credit, the Company agreeing to immediately make each such
payment and acknowledging and agreeing that the Agent and the
Lenders would not have an adequate remedy at law for failure of the
Company to honor any such demand and that the Agent shall have the
right to require the Company to specifically perform such
undertaking whether or not any draws have been made under the
Letters of Credit.
SECTION 9. DEFINITIONS; INTERPRETATIONS.
SECTION 9.1. DEFINITIONS; The following terms when
used herein have the following meaning:
"ADJUSTED EBITDA" means, with reference to any period, the
difference of (a) Net Income for such period plus the sum of all
amounts deducted in arriving at such Net Income amount in respect
of (i) Interest Expense for such period, (ii) federal, state and
local income taxes for such period, and (iii) depreciation of fixed
assets and amortization of intangible assets for such period MINUS
(b) net capital expenditures for such period (i.e., capital
expenditures incurred during such period computed on a consolidated
basis for the Company and its Subsidiaries less (i) Indebtedness
for Borrowed Money incurred to acquire
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such assets and (ii) capital expenditures acquired with the
proceeds of insurance as a result of a casualty to its property,
plant or equipment and applied to replace or restore such assets).
"ADJUSTED LIBOR RATE" means a rate per annum determined by the
Agent pursuant to the following formula:
Adjusted LIBOR Rate = LIBOR
-------------------------
100%-Reserve Percentage
"RESERVE PERCENTAGE" means, for the purpose of computing the
Adjusted LIBOR Rate, the maximum rate of all reserve requirements
(including, without limitation, any marginal emergency,
supplemental or other special reserves) imposed by the Board of
Governors of the Federal Reserve System (or any successor) under
Regulation D on Eurocurrency liabilities (as such term is defined
in Regulation D) for the applicable Interest Period as of the first
day of such Interest Period, but subject to any amendments to such
reserve requirement by such Board or its successor, and taking into
account any transitional adjustments thereto becoming effective
during such Interest Period. For purposes of this definition,
LIBOR Portions shall be deemed to be Eurocurrency liabilities as
defined in Regulation D without benefit of or credit for
prorations, exemptions, or offsets under Regulation D. "LIBOR"
means, for each Interest Period, the rate of interest per annum
(rounded upwards, if necessary, to nearest 1/100 of 1%) at which
deposits in U.S. dollars in immediately available funds are being
offered to prime banks in the London interbank market at 11:00 a.m.
(London, England time) 2 Business Days before the beginning of such
Interest Period for a period equal to such Interest Period and in
an amount equal or comparable to the principal amount of the
applicable LIBOR Portion, as determined by the Agent by reference
to Bloomberg Financial Market's terminal screen entitled "OFFICIAL
BBA LIBOR FIXINGS" or such other information vendor selected by the
Agent for determining British Bankers' Association Interest
Settlement Rates for U.S. Dollar deposits. Each determination of
LIBOR made by the Agent shall be conclusive and binding on the
Company and the Lenders absent manifest error.
"AFFILIATE" means any Person directly or indirectly
controlling or controlled by, or under direct or indirect common
control with, another Person. A Person shall be deemed to control
another Person for the purposes of this definition if such Person
possesses, directly or indirectly, the power to direct, or cause
the direction of, the management and policies of the other Person,
whether through the ownership of voting securities, common
directors, trustees or officers, by contract or otherwise.
"AGENT" means American National Bank and Trust Company of
Chicago, and any successor thereto appointed pursuant to Section
10.1 hereof.
"AGREEMENT" means this Credit Agreement, as the same may be
amended, modified or restated from time to time in accordance with
the terms hereof.
"APPLICABLE MARGIN" means, with respect to LIBOR Portions,
.375% per annum until the first Pricing Date, and thereafter from
one Pricing Date to the next the Applicable Margin with respect to
LIBOR Portions shall mean a rate per annum determined in accordance
with the following schedule:
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FUNDED DEBT/EBITDA RATIO APPLICABLE MARGIN
FOR SUCH PRICING DATE SHALL BE
Greater than 2.5 to 1.0 1.00%
Equal to or less than 2.5 to 1.0, but .80%
greater than 2.0 to 1.0
Equal to or less than 2.0 to 1.0, but .60%
greater than 1.0 to 1.0
Equal to or less than 1.0 to 1.0 .375%
For purposes hereof, the term "PRICING DATE" means, for any fiscal
quarter of the Company ended after the date hereof, 15 days after
the date the Agent is in receipt of the Company's most recent
financial statements for the fiscal quarter then ended, pursuant to
Section 7.5(a) or (b) hereof. The Applicable Margin established
on a Pricing Date shall remain in effect until the next Pricing
Date. If the Company has not delivered its financial statements by
the date such financial statements (and, in the case of the
year-end financial statements, audit report) are required to be
delivered under Section 7.5(a) and (b) hereof, until such financial
statements and audit report are delivered, the Applicable Margin
for LIBOR Portions shall be 1.00%. If the Company subsequently
delivers such financial statements before the next Pricing Date,
the Applicable Margin established by such late delivered financial
statements shall take effect from the date of delivery until the
next Pricing Date. In all other circumstances, the Applicable
Margin established by such financial statements shall be in effect
from the Pricing Date that occurs immediately after the end of the
Company's fiscal quarter covered by such financial statements until
the next Pricing Date. Each determination of the Applicable Margin
made by the Agent in accordance with the foregoing shall be
conclusive and binding on the Company and the Lenders if reasonably
determined.
"APPLICATION" is defined in Section 1.3 hereof.
"AUTHORIZED REPRESENTATIVE" means those persons shown on the
list of individuals provided by the Company pursuant to Section 6.2
hereof or on any update of any such list provided by the Company to
the Agent, or any further or different individuals so named by an
Authorized Representative of the Company in a written notice to the
Agent.
"BASE RATE" means a fluctuating interest rate per annum equal
at all times to the greater of (i) the rate of interest announced
by the Agent from time to time as its commercial base rate (also
commonly referred to as its "prime rate") as in effect on such day
(it being acknowledged and agreed that such rate may not be the
Agent's best or lowest rate), with any change in such rate
resulting from a change in said commercial base rate to be
effective as of the date of the relevant change in said commercial
base rate; and (ii) the sum of (x) the rate determined by the Agent
to be the average (rounded upwards, if necessary, to the next
higher 1/100 of 1% of the rates per annum quoted to the Agent at
approximately 10:00 a.m. Chicago time (or as soon thereafter as is
practicable) on such day
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(or, if such day is not a Business Day, on the immediately preceding Business
Day) by two or more Federal funds brokers selected by the Agent for the sale
to the Agent at face value of Federal funds in the secondary market in an amount
equal or comparable to the principal amount owed to the Agent for which such
rate is being determined, plus (y) 1/2 of 1%.
"BASE RATE PORTIONS" is defined in Section 2.1(a) hereof.
"BORROWING" means the total of Loans of a single type made to
the Company by all the Lenders on a single date, and if such Loans
are to be part of a LIBOR Portion, for a single Interest Period.
Borrowings of Loans are made and maintained ratably from each of
the Lenders according to their Percentages of the relevant
Commitment.
"BUSINESS DAY" shall mean any day (other than a Saturday or
Sunday) on which banks are not authorized or required to close in
Chicago, Illinois and, when used with respect to LIBOR Portions, a
day on which banks are also dealing in United States Dollar
deposits in London, England.
"CAPITAL LEASE" means any lease of Property (whether real or
personal) which in accordance with GAAP is required to be
capitalized on the balance sheet of the lessee.
"CAPITALIZED LEASE OBLIGATION" means the amount of the
liability shown on the balance sheet of any Person in respect of a
Capital Lease determined in accordance with GAAP.
"CHANGE OF CONTROL" means any one of the following events:
(i) any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities
Exchange Act of 1934), directly or indirectly, of securities of the
Company (or other securities convertible into such securities)
representing 49% or more of the combined voting power of all
securities of the Company entitled to vote in the election of
directors, other than securities having such power only be reason
of the happening of a contingency; or (ii) during any period of up
to 24 consecutive months, commencing before or after the date of
this Agreement, individuals who at the beginning of such 24-month
period were directors of the Company shall cease for any reason to
constitute a majority of the board of directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended,
and any successor statute thereto.
"COMMITMENTS" means and includes the Revolving Credit
Commitments, the L/C Commitment, and the Term Loan Commitments.
"COMPANY" is defined in the introductory paragraph of this
Agreement.
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company
or any Subsidiary, are treated as a single employer under Section
414 of the Code.
"CREATIVE CONCEPTS ACQUISITION" means the acquisition by the
Company of 100% of the capital stock of Creative Concepts in
Advertising, Inc. for a purchase price of approximately 2,750,000
shares of the capital stock of the Company.
"CURRENT RATIO" means, at any time the same is to be
determined, the ratio of consolidated current assets of the Company
and its Subsidiaries to consolidated current
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liabilities of the Company and its Subsidiaries, each as determined
in accordance with GAAP.
"DEFAULT" means any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both,
constitute an Event of Default.
"EBITDA" means, with reference to any period, the difference
of (a) Net Income for such period plus the sum of all amounts
deducted in arriving at such Net Income amount in respect of (i)
Interest Expense for such period, (ii) federal, state and local
income taxes for such period, and (iii) depreciation of fixed
assets and amortization of intangible assets for such period.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto.
"EVENT OF DEFAULT" means any event or condition specified as
such in Section 8.1 hereof.
"FEDERAL FUNDS RATE" means the fluctuating interest rate per
annum described in part (x) of clause (ii) of the definition of
Base Rate.
"FIXED CHARGES" means, with reference to any period, the sum
of (i) the aggregate amount of payments of principal due within 12
calendar months on and after the last day of such period in respect
of any and all Indebtedness for Borrowed Money of the Company and
its Subsidiaries, plus (ii) Interest Expense for the same period,
plus (iii) federal, state and local income taxes of the Company and
its Subsidiaries accrued during such period, plus (iv) payments
made in respect of dividends, distribution, purchases and/or
redemptions of the Company's capital stock during such period
"FUNDED DEBT/EBITDA RATIO" means, as of the last day of the
most recently completed fiscal quarter of the Company, the ratio of
Total Funded Debt as of the last day of such fiscal quarter to
EBITDA for the four fiscal quarters then ended.
"GAAP" means generally accepted accounting principles as in
effect from time to time, applied by the Company and its
Subsidiaries on a basis consistent with the preparation of the
Company's most recent financial statements furnished to the Lenders
pursuant to Section 5.5 hereof.
"INDEBTEDNESS FOR BORROWED MONEY" shall mean for the Company
and its Subsidiaries the sum (without duplication) of (i) all
indebtedness of the Company and each of its Subsidiaries for
borrowed money, whether current or funded, or secured or unsecured,
(ii) all indebtedness for the deferred purchase price of Property
or services, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
Property acquired by the Company or any of its Subsidiaries (even
though the rights and remedies of the seller or lender under such
agreement in the event of a default are limited to repossession or
sale of such Property), (iv) all indebtedness secured by a purchase
money mortgage or other Lien to secure all or part of the purchase
price of Property subject to such mortgage or Lien, (v) all
obligations under leases which shall have been or must be, in
accordance with GAAP, recorded as Capital Leases in respect of
which the Company or any of its Subsidiaries is liable as lessee,
(vi) any liability in respect of banker's acceptances or letters of
credit, (vii) any indebtedness, whether or not assumed, secured by
Liens on Property acquired by the Company or any of its
Subsidiaries at the
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time of acquisition thereof and (viii) all indebtedness referred to in clause
(i), (ii), (iii), (iv), (v), (vi) or (vii) above which is directly or indirectly
guaranteed by the Company or any of its Subsidiaries or which any of the
foregoing have agreed (contingently or otherwise) to purchase or otherwise
acquire or in respect of which any of them have otherwise assured a creditor
against loss, it being understood that the term "Indebtedness for Borrowed
Money" shall not include trade payables arising in the ordinary course of
business.
"INTEREST EXPENSE" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense) of the
Company and its Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
"INTEREST PERIOD" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such LIBOR Portion and ending 1, 2, 3 or 6 months thereafter as
selected by the Company in its notice as provided herein; PROVIDED that, all of
the foregoing provisions relating to Interest Periods are subject to the
following:
(i) if any Interest Period would otherwise end on a day which is not
a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the final maturity date of
the relevant Notes;
(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect thereto
the Company will be unable to make a principal payment scheduled to be made
during such Interest Period without paying part of a LIBOR Portion on a
date other than the last day of the Interest Period applicable thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, PROVIDED, HOWEVER, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"L/C COMMITMENT" means $7,500,000, as reduced pursuant to Section 3.6
hereof.
"L/C OBLIGATIONS" means the aggregate undrawn face amounts of all
outstanding Letters of Credit and all unpaid Reimbursement Obligations.
"LENDERS" means American National Bank and Trust Company of Chicago, Harris
Trust and Savings Bank, Comerica Bank and all other lenders becoming parties
hereto pursuant to Section 11.10 hereof.
"LETTER OF CREDIT" is defined in Section 1.3 hereof.
"LIBOR PORTIONS" is defined in Section 2.1(a) hereof.
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"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind or nature in respect of any Property, including the
interest of a vendor or lessor under any conditional sale, Capital Lease or
other title retention arrangement.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Applications, the
Guaranties, and each other instrument or document to be delivered hereunder or
thereunder or otherwise in connection therewith.
"LOANS" means and includes Revolving Loans and the Term Loans.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations or
prospects of the Company and its Subsidiaries taken as a whole, (ii) the ability
of the Company or any Subsidiary to perform its obligations under the Loan
Documents, or (iii) the validity or enforceability of any of the Loan Documents
or the rights or remedies of the Agent or the Lenders thereunder.
"NET INCOME" means, with reference to any period, the net income (or net
loss) of the Company and its Subsidiaries for such period computed on a
consolidated basis in accordance with GAAP.
"NOTES" means and includes the Revolving Credit Notes and the Term Notes.
"OBLIGATIONS" means all obligations of the Company to pay principal and
interest on the Loans, all Reimbursement Obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Company or any Subsidiary arising under or in relation to any
Loan Document, in each case whether now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, and howsoever evidenced,
held or acquired.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"PERCENTAGE" means, for each Lender, the percentage of the applicable
Commitments represented by such Lender's Commitment or, if the Commitments have
been terminated, the percentage held by such Lender (including through
participation interests in L/C Obligations) of the aggregate principal amount of
all outstanding Obligations.
"PERSON" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof.
"PLAN" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
either (i) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group, or (ii) is maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which a member of the Controlled Group is then making
or accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"PORTION" is defined in Section 2.1(a) hereof.
"PROPERTY" means, as to any Person, all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent balance sheet of such Person and its subsidiaries under GAAP.
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"REIMBURSEMENT OBLIGATION" is defined in Section 1.3 hereof.
"REQUIRED LENDERS" means, at any time, Lenders whose Commitments aggregate
51% or more of the total Commitments or, if at the time no Commitments are
outstanding, Lenders holding 51% or more of the aggregate outstanding principal
balance of the Notes and the credit risk with respect to the Letters of Credit.
"REVOLVING CREDIT COMMITMENTS" is defined in Section 1.1 hereof.
"REVOLVING CREDIT NOTES" is defined in Section 1.2 hereof.
"REVOLVING LOANS" is defined in Section 1.2 hereof.
"SUBSIDIARY" means, as to any particular parent corporation or
organization, any other corporation or organization more than 50% of the
outstanding Voting Stock of which is at the time directly or indirectly owned by
such parent corporation or organization or by any one or more other entities
which are themselves subsidiaries of such parent corporation or organization.
The term "SUBSIDIARY" shall mean, when used with reference to the Company, a
subsidiary of, respectively, the Company or any of its direct or indirect
Subsidiaries.
"TANGIBLE NET WORTH" means, at any time the same is to be determined, total
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock, but excluding minority
interests in Subsidiaries) which would appear on a consolidated balance sheet of
the Company and its Subsidiaries prepared on a consolidated basis in accordance
with GAAP, minus the sum of (i) all assets which would be classified as
intangible assets under GAAP, including, without limitation, goodwill, patents,
trademarks, trade names, copyrights, franchises and deferred charges (including,
without limitation, unamortized debt discount and expense, organization costs
and deferred research and development expense) and similar assets, (ii) the
write-up of assets above cost, and (iii) the aggregate book value of all sample
inventory.
"TERM CREDIT TERMINATION DATE" means January 31, 1999, or such earlier date
on which the Term Loan Commitments are terminated in whole pursuant to
Sections 3.6, 8.2 or 8.3 hereof.
"TERM LOAN COMMITMENTS" is defined in Section 1.4 hereof.
"TERM LOANS" is defined in Section 1.4 hereof.
"TERM NOTES" is defined in Section 1.4 hereof.
"TERMINATION DATE" means January 31, 1999, or such earlier date on which
the Revolving Credit Commitments are terminated in whole pursuant to
Sections 3.6, 8.2 or 8.3 hereof, or such later date to which the Revolving
Credit Commitments are extended pursuant to Section 11.11 hereof.
"TOTAL FUNDED DEBT" means, at any time the same is to be determined, the
difference between (a) the aggregate of all Indebtedness for Borrowed Money of
the Company and its Subsidiaries at such time, including all Indebtedness for
Borrowed Money of any other Person which is directly or indirectly guaranteed by
the Company or any of its Subsidiaries or which the Company or any of its
Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise
acquire or in respect of which the Company or any of its Subsidiaries has
otherwise assured a creditor against loss minus (b) investments of the type
referred to in Section 7.13 (a)-(c) hereof maintained by the Company or any
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Subsidiary with the Agent or any
Lender which are unrestricted and freely available (other than restrictions in
the form of early withdrawal penalties for time deposits and other similar
instruments) and which are free and clear of any Liens whatsoever (other than
unasserted rights of offset of the relevant financial institution).
"TOTAL LIABILITIES" means, at any time the same is to be determined, the
aggregate of all indebtedness, obligations, liabilities, reserves and any other
items which would be listed as a liability on a balance sheet of the Company and
its Subsidiaries determined on a consolidated basis in accordance with GAAP.
"UNFUNDED VESTED LIABILITIES" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"U.S. DOLLARS" AND "$" each means the lawful currency of the United States
of America.
"VOTING STOCK" of any Person means capital stock or other equity interests
of any class or classes (however designated) having ordinary power for the
election of directors or other similar governing body of such Person, other than
stock or other equity interests having such power only by reason of the
happening of a contingency.
"WELFARE PLAN" means a "welfare plan" as defined in Section 3(1) of ERISA.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more wholly-owned subsidiaries of the Company within the meaning of this
definition.
SECTION 9.2. INTERPRETATION The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The
words "HEREOF", "HEREIN", and "HEREUNDER" and words of like import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All references to time of day herein
are references to Chicago, Illinois time unless otherwise specifically provided.
Where the character or amount of any asset or liability or item of income or
expense is required to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this Agreement, it shall
be done in accordance with GAAP except where such principles are inconsistent
with the specific provisions of this Agreement.
SECTION 10. THE AGENT
SECTION 10.1. APPOINTMENT AND AUTHORIZATION. Each Lender hereby
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers hereunder and under the other Loan Documents as are
designated to the Agent by the terms hereof and thereof together with such
powers as are reasonably incidental thereto. The Lenders expressly agree that
the Agent is not acting as a fiduciary of the Lenders in respect of the Loan
Documents, the Company or otherwise, and nothing herein or in any of the other
Loan Documents shall result in any duties or obligations on the Agent or any of
the
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Lenders except as expressly set forth herein. The Agent may resign at any time
by sending 20 days prior written notice to the Company and the Lenders. In the
event of any such resignation, the Required Lenders may appoint a new agent
after consultation with the Company which shall succeed to all the rights,
powers and duties of the Agent hereunder and under the other Loan Documents.
Any resigning Agent shall be entitled to the benefit of all the protective
provisions hereof with respect to its acts as an agent hereunder, but no
successor Agent shall in any event be liable or responsible for any actions of
its predecessor. If the Agent resigns and no successor is appointed, the rights
and obligations of such Agent shall be automatically assumed by the Required
Lenders and the Company shall be directed to make all payments due each Lender
hereunder directly to such Lender.
SECTION 10.2. RIGHTS AS A LENDER. The Agent has and reserves all of the
rights, powers and duties hereunder and under the other Loan Documents as any
Lender may have and may exercise the same as though it was not the Agent. The
terms "LENDER" and "LENDERS" as used herein and in all other Loan Documents
shall, the context otherwise expressly indicates, include the Agent in its
individual capacity as Lender.
SECTION 10.3. STANDARD OF CARE. The Lenders acknowledge that they have
received and approved copies of the Loan Documents and such other information
and documents concerning the transactions contemplated and financed hereby as
they have requested to receive and/or review. The Agent makes no
representations or warranties of any kind or character to the Lenders with
respect to the validity, enforceability, genuineness, perfection, value, worth
or collectibility hereof or of the Notes or any of the other Obligations or of
the Loan Documents or of any other documents called for hereby or thereby.
Neither the Agent nor any director, officer, employee, agent or representative
thereof (including any security trustee therefor) shall in any event be liable
for any clerical errors or errors in judgment, inadvertence or oversight, or for
action taken or omitted to be taken by it or them hereunder or under the Loan
Documents or in connection herewith or therewith except for its or their own
gross negligence or willful misconduct. The Agent shall not incur any liability
to the Lenders under or in respect of this Agreement or any other Loan Documents
by acting upon any notice, certificate, warranty, instruction or statement (oral
or written) of anyone (including anyone in good faith believed by it to be
authorized to act on behalf of the Company), unless it has actual knowledge of
the untruthfulness of same. The Agent may execute any of its duties hereunder
by or through representatives, employees, agents, and attorneys-in-fact and
shall not be answerable to the Lenders for the default or misconduct of any such
representatives, employees, agents or attorneys-in-fact selected with reasonable
care. The Agent shall be entitled to advice of counsel concerning all matters
pertaining to the agency hereby created and its duties hereunder, and shall
incur no liability to the Lenders and be fully protected in acting upon the
advice of such counsel. The Agent shall be entitled to assume that no Default
or Event of Default exists unless notified to the contrary by a Lender. The
Agent shall in all events be fully protected in acting or failing to act in
accord with the instructions of the Required Lenders. The Agent shall in all
cases be fully justified in failing or refusing to act hereunder unless it shall
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by the Agent by reason of taking or
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continuing to take any such action. The Agent may treat the owner of any Note
as the holder thereof until written notice of transfer shall have been filed
with the Agent signed by such owner in form satisfactory to the Agent. Each
Lender acknowledges that it has independently and without reliance on the Agent
or any other Lender and based upon such information, investigations and
inquiries as it deems appropriate made its own credit analysis and decision to
extend credit to the Company. It shall be the responsibility of each Lender to
keep itself informed as to the creditworthiness of the Company and the Agent
shall have no liability to any Lender with respect thereto.
SECTION 10.4. COSTS AND EXPENSES. Each Lender agrees to reimburse the
Agent for all costs and expenses (including, without limitation, reasonable
attorneys' fees) suffered or incurred by the Agent or any security trustee in
performing its duties hereunder and under the other Loan Documents, or in the
exercise of any right or power imposed or conferred upon the Agent hereby or
thereby, to the extent that the Agent is not promptly reimbursed for same by the
Company after making request of the Company for payment thereof, all such costs
and expenses to be borne by the Lenders ratably in accordance with their
Percentages. If any Lender fails to reimburse the Agent for its share of any
such costs and expenses, such costs and expenses shall be paid pro rata by the
remaining Lenders, but without in any manner releasing the defaulting Lender
from its liability hereunder.
SECTION 10.5. INDEMNITY. The Lenders shall ratably indemnify and hold the
Agent, and its directors, officers, employees, agents, representatives or
attorneys-in-fact (including as such any security trustee therefor), harmless
from and against any liabilities, losses, costs or expenses suffered or incurred
by it hereunder or under the other Loan Documents or in connection with the
transactions contemplated hereby or thereby, regardless of when asserted or
arising, except to the extent it is promptly reimbursed for the same by the
Company and except to the extent that any event giving rise to a claim was
caused by the gross negligence or willful misconduct of the party seeking to be
indemnified. If any Lender defaults in its obligations hereunder, its share of
the obligations shall be paid pro rata by the remaining Lenders, but without in
any manner releasing the defaulting Lender from its liability hereunder.
SECTION 11. MISCELLANEOUS.
SECTION 11.1. WITHHOLDING TAXES. (a) PAYMENTS FREE OF WITHHOLDING.
Except as otherwise required by law and subject to Section 11.1(b) hereof, each
payment by the Company under this Agreement or the other Loan Documents shall be
made without withholding for or on account of any present or future taxes (other
than overall net income taxes on the recipient) imposed by or within the
jurisdiction in which the Company is domiciled, any jurisdiction from which the
Company makes any payment, or (in each case) any political subdivision or taxing
authority thereof or therein. If any such withholding is so required, the
Company shall make the withholding, pay the amount withheld to the appropriate
governmental authority before penalties attach thereto or interest accrues
thereon and forthwith pay such additional amount as may be necessary to ensure
that the net amount actually received by each Lender and the Agent free and
clear of such taxes (including such taxes on such additional amount) is equal to
the amount which that Lender or the Agent (as the case may be) would have
received had such withholding not been
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made. If the Agent or any Lender pays any amount in respect of any such taxes,
penalties or interest, the Company shall reimburse the Agent or that Lender for
that payment on demand in the currency in which such payment was made. If the
Company pays any such taxes, penalties or interest, it shall deliver official
tax receipts evidencing that payment or certified copies thereof to the Lender
or Agent on whose account such withholding was made (with a copy to the Agent if
not the recipient of the original) on or before the thirtieth day after payment.
(b) U.S. WITHHOLDING TAX EXEMPTIONS. Each Lender that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Company and the Agent on or before the earlier of the date the
initial Borrowing is made hereunder and 30 days after the date hereof, two duly
completed and signed copies of either Form 1001 (relating to such Lender and
entitling it to a complete exemption from withholding under the Code on all
amounts to be received by such Lender, including fees, pursuant to the Loan
Documents and the Obligations) or Form 4224 (relating to all amounts to be
received by such Lender, including fees, pursuant to the Loan Documents and the
Obligations) of the United States Internal Revenue Service. Thereafter and from
time to time, each Lender shall submit to the Company and the Agent such
additional duly completed and signed copies of one or the other of such Forms
(or such successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may be (i) requested by the Company in a
written notice, directly or through the Agent, to such Lender and (ii) required
under then-current United States law or regulations to avoid or reduce United
States withholding taxes on payments in respect of all amounts to be received by
such Lender, including fees, pursuant to the Loan Documents or the Obligations.
(c) INABILITY OF LENDER TO SUBMIT FORMS. If any Lender determines, as a
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Company or Agent any form or certificate that such Lender is obligated to submit
pursuant to subsection (b) of this Section 11.1 or that such Lender is required
to withdraw or cancel any such form or certificate previously submitted or any
such form or certificate otherwise becomes ineffective or inaccurate, such
Lender shall promptly notify the Company and the Agent of such fact and the
Lender shall to that extent not be obligated to provide any such form or
certificate and will be entitled to withdraw or cancel any affected form or
certificate, as applicable.
SECTION 11.2. NON-BUSINESS DAYS. If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable. In the case of any payment of principal falling due on a
day which is not a Business Day, interest on such principal amount shall
continue to accrue during such extension at the rate per annum then in effect,
which accrued amount shall be due and payable on the next scheduled date for the
payment of interest.
SECTION 11.3. NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the
part of the Agent or any Lender in the exercise of any power or right shall
operate as a waiver thereof or as an acquiescence in any default, nor shall any
single or partial exercise of any
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<PAGE>
right preclude any other or further exercise thereof or the exercise of any
other power or right. The rights and remedies hereunder of the Agent and the
Lenders are cumulative to, and not exclusive of, any rights or remedies which
any of them would otherwise have.
SECTION 11.4. WAIVERS, MODIFICATIONS AND AMENDMENTS. Any provision hereof
or of the other Loan Documents may be amended, modified, waived or released and
any Default or Event of Default and its consequences may be rescinded and
annulled upon the written consent of the Company and the Required Lenders;
PROVIDED, HOWEVER, that without the written consent of each Lender no such
amendment, modification or waiver shall increase the amount or extend the terms
of such Lender's Commitments or reduce the amount of any principal of or
interest rate applicable to, or extend the maturity of, any Obligation owed to
it or reduce the amount of fees or other amounts to which it is entitled
hereunder or release any guaranty of any Obligations or change this Section 11.4
or change the definition of "REQUIRED LENDERS" or change the number of Lenders
required to take any action hereunder or under the other Loan Documents. No
amendment, modification or waiver of the Agent's protective provisions shall be
effective without the prior written consent of the Agent.
SECTION 11.5. COSTS AND EXPENSES. The Company agrees to pay on demand all
actual and reasonable costs and expenses of the Agent in connection with the
negotiation, preparation, execution, delivery of the Loan Documents and in
connection with any consents hereunder or thereunder and any waivers or
amendments hereto or thereto, including the reasonable fees and expenses of
counsel for the Agent with respect to all of the foregoing, and all costs and
expenses (including reasonable attorneys' fees) incurred by the Agent, the
Lenders or any other holders of the Obligations in connection with a Default or
Event of Default or the enforcement of the Loan Documents, and all costs, fees
and taxes of the types enumerated above incurred in supplementing (and recording
or filing supplements to) the Loan Documents in connection with assignments
contemplated by Section 11.10 hereof if counsel to the Agent reasonably believes
such supplements to be appropriate or desirable. The Company agrees to
indemnify and save the Lenders, the Agent and any security trustee for the Agent
or the Lenders harmless from any and all liabilities, losses, costs and expenses
incurred by the Lenders or the Agent in connection with any action, suit or
proceeding brought against the Agent, any security trustee or any Lender by any
Person which arises out of the transactions contemplated or financed by any of
the Loan Documents or out of any action or inaction by the Agent, any security
trustee or any Lender thereunder, including without limitation those caused by
the negligence of any party but except for such thereof as is caused by the
gross negligence or willful misconduct of the party indemnified. The provisions
of this Section 11.5 and the protective provisions of Section 2 hereof shall
survive payment of the Obligations.
SECTION 11.6. DOCUMENTARY TAXES. The Company agrees that it will pay any
documentary, stamp or similar taxes payable in respect to any Loan Document,
including interest and penalties, in the event any such taxes are assessed,
irrespective of when such assessment is made and whether or not any credit to it
is then in use or available.
SECTION 11.7. SURVIVAL OF REPRESENTATIONS. All representations and
warranties made herein and in the other Loan Documents and in certificates given
pursuant hereto or
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<PAGE>
thereto shall survive the execution and delivery of this Agreement and the other
Loan Documents, and shall continue in full force and effect with respect to the
date as of which they were made as long as any credit is in use or available
hereunder.
SECTION 11.8. NOTICES. Except as otherwise specified herein, all notices
hereunder shall be in writing (including, without limitation, notice by
telecopy) and shall be given to the relevant party at its address or telecopier
number set forth below, in the case of the Company, or on the appropriate
signature page hereof, in the case of the Lenders and the Agent, or such other
address or telecopier number as such party may hereafter specify by notice to
the Agent and the Company given by United States certified or registered mail,
by telecopy or by other telecommunication device capable of creating a written
record of such notice and its receipt. Notices hereunder to the Company shall
be addressed to:
HA-LO Industries, Inc.
5980 West Touhy Avenue
Niles, Illinois 60714
Attention Mr. Greg Kilrea
Telephone (847) 647-4785
Telecopy: (847) 647-4970
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section; PROVIDED that any notice given pursuant
to Section 1 or Section 2 hereof shall be effective only upon receipt.
SECTION 11.9. PARTICIPATIONS. Any Lender may grant participations in its
extensions of credit hereunder to any other bank or lending institution (a
"PARTICIPANT"), provided that (i) no Participant shall thereby acquire any
direct rights under this Agreement, (ii) no Lender shall agree with a
Participant not to exercise any of its rights hereunder without the consent of
such Participant except for rights which under the terms hereof may only be
exercised by all Lenders, and (iii) no sale of a participation in extensions of
credit shall in any manner relieve the selling Lender of its obligations
hereunder.
SECTION 11.10. ASSIGNMENT AGREEMENTS. Each Lender may, from time to time
upon at least 5 Business Days' notice to the Agent, assign to other banks or
lending institutions all or part of its rights and obligations under this
Agreement (including, without limitation, the indebtedness evidenced by the
Notes then owned by such assigning Lender, together with an equivalent
proportion of its obligation to make loans and advances and participate in
Letters of Credit hereunder) pursuant to an Assignment Agreement in the form
attached hereto as Exhibit F (the "ASSIGNMENT
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<PAGE>
AGREEMENTS"); PROVIDED, HOWEVER, that (i) each such assignment shall be of a
constant, and not a varying, percentage of the assigning Lender's rights and
obligations under this Agreement and the assignment shall cover the same
percentage of such Lender's Commitments, Loans, Notes and interests in Letters
of Credit; (ii) unless the Agent otherwise consents, the aggregate amount of the
Commitments, Loans, Notes and interests in the Letters of Credit of the
assigning Lender being assigned pursuant to each such assignment (determined as
of the effective date of the relevant Assignment Agreement) shall in no event be
less than $5,000,000 and shall be an integral multiple of $1,000,000 and, unless
the assigning Lender shall have assigned all of its Commitments, Loans, Notes
and interests in Letters of Credit, the aggregate amount of Commitments, Loans,
Notes, and interests in Letters of Credit retained by the assigning Lender shall
in no event be less than $5,000,000; (iii) the Agent and, prior to the existence
of an Event of Default, the Company must each consent, which consent shall not
be unreasonably withheld and shall be evidenced by execution of a counterpart of
the relevant Assignment Agreement in the space provided thereon for such
acceptance, to each such assignment to a party which was not an original
signatory of this Agreement and (iv) the assigning Lender must pay to the Agent
a processing and recordation fee of $3,000 and any reasonable out-of-pocket
attorney's fees incurred by the Agent in connection with such Assignment
Agreement. Upon the execution of each Assignment Agreement by the assigning
Lender thereunder, the assignee lender thereunder, the Agent and, so long as no
Event of Default exists, the Company and payment to such assigning Lender by
such assignee lender of the purchase price for the portion of the indebtedness
of the Company being acquired by it, (i) such assignee lender shall thereupon
become a "LENDER" for all purposes of this Agreement with Commitments in the
amount set forth in such Assignment Agreement and with all the rights, powers
and obligations afforded a Lender hereunder, (ii) such assigning Lender shall
have no further liability for funding the portion of its Commitments assumed by
such other Lender and (iii) the address for notices to such assignee Lender
shall be as specified in the Assignment Agreement executed by it. Concurrently
with the execution and delivery of such Assignment Agreement, the Company shall
execute and deliver Notes to the assignee Lender in the respective amounts of
its Commitments and new Notes to the assigning Lender in the respective amounts
of its Commitments after giving effect to the reduction occasioned by such
assignment, all such Notes to constitute "NOTES" for all purposes of this
Agreement and the other Loan Documents. Upon the delivery of such new Notes,
the assigning Lender agrees to return to the Company such Lender's prior Notes
marked "CANCELLED" or words of like import.
SECTION 11.11. EXTENSION OF THE REVOLVING CREDIT COMMITMENTS. The Company
shall have the option to request extensions to
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<PAGE>
the Termination Date pursuant to this Section 11.11. No less than 90 days prior
to, but no more than 150 days prior to, January 31, 1998 (and, if the
Termination Date has been extended pursuant to this Section 11.11, January 31st
of each year thereafter), the Company may advise the Agent in writing of the
Company's desire to extend the Termination Date for an additional 12 months and
the Agent shall promptly notify the Lenders of each such request. If the
Company makes any such request, each Lender agrees to notify the Company and the
Agent within 60 days of such request stating whether such Lender is declining or
consenting to any such request, or consenting to such request subject to
specified terms and conditions. In the event that a Lender fails to so notify
the Agent and the Company during such period, such Lender shall be deemed to
have refused the requested extension. In the event that each Lender is
agreeable to such extension (it being understood that the Lenders may accept or
decline such a request in their sole discretion and on such terms as they may
elect), the Company and the Lenders shall enter into such documents as the Agent
may reasonably deem necessary or appropriate to reflect such extension, and all
actual out-of-pocket costs and expenses incurred by the Agent in connection
therewith (including reasonable attorneys' fees) shall be paid by the Company.
SECTION 11.12. LENDER'S OBLIGATIONS SEVERAL. The obligations of the
Lenders hereunder are several and not joint. Nothing contained in this
Agreement and no action taken by the Lenders pursuant hereto shall be deemed to
constitute the Lenders a partnership, association, joint venture or other
entity.
SECTION 11.13. HEADINGS. Section headings used in this Agreement are for
convenience of reference only and are not a part of this Agreement for any other
purpose.
SECTION 11.14. SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is unenforceable or prohibited in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such unenforceability or
prohibition without invalidating the remaining provisions hereof or affecting
the validity or enforceability of such provision in any other jurisdiction. All
rights, remedies and powers provided in this Agreement and the other Loan
Documents may be exercised only to the extent that the exercise thereof does not
violate any applicable mandatory provisions of law, and all the provisions of
this Agreement and other Loan Documents are intended to be subject to all
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render this Agreement or
the other Loan Documents invalid or unenforceable.
SECTION 11.15. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
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<PAGE>
SECTION 11.16. BINDING NATURE AND GOVERNING LAW. This Agreement shall be
binding upon the Company and its successors and assigns, and shall inure to the
benefit of the Agent and the Lenders and the benefit of their successors and
assigns, including any subsequent holder of an interest of the Obligations.
This Agreement and the rights and duties of the parties hereto shall be
construed and determined in accordance with, and shall be governed by, the
internal laws of the State of Illinois without regard to principles of conflicts
of law. The Company may not assign its rights hereunder without the written
consent of the Agent and the Lenders.
SECTION 11.17. ENTIRE UNDERSTANDING. This Agreement, together with the
other Loan Documents, constitute the entire understanding of the parties with
respect to the subject matter hereof and any prior agreements, whether written
or oral, with respect thereto are superseded hereby.
SECTION 11.18. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. The
Company hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Northern District of Illinois and of any Illinois State
court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. THE COMPANY, THE AGENT, AND EACH LENDER HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth.
Dated as of this 31st day of January, 1997..c4 Signature Page;
HA-LO INDUSTRIES, INC.
By
Name
--------------------------------
Title
-------------------------------
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<PAGE>
Accepted and Agreed to as of the day and year last above written.
Each of the Lenders hereby agrees with each other Lender that if it should
receive or obtain any payment (whether by voluntary payment, by the exercise of
rights of set-off or banker's lien, by counterclaim or cross action, or by the
enforcement of any rights under the Agreement or the other Loan Documents or
otherwise) in respect of the Obligations, in a greater amount than such Lender
would have received had such payment been made to the Agent and been distributed
among the Lenders as contemplated by Section 3.7 hereof, then in that event the
Lender receiving such disproportionate payment shall purchase for cash without
recourse from the other Lenders an interest in the Obligations owed to such
Lenders in such amount as shall result in a distribution of such payment as
contemplated by Section 3.7 hereof. In the event any payment made to a Lender
and shared with the other Lenders pursuant to the provisions hereof is ever
recovered from such Lender, the Lenders receiving a portion of such payment
hereunder shall restore the same to the payor Lender, but without interest. In
the event any amount paid to the Agent under the Applications shall ever be
recovered from the Agent, each Lender shall reimburse the Agent for its pro rata
share of the amount so recovered.
Amount and Percentage of Commitments:
Revolving Credit Term Loan AMERICAN NATIONAL BANK AND TRUST
Commitment Commitment COMPANY OF CHICAGO, individually and
$22,500,000 $10,000,000 as agent
By
Name
------------------------------
Title:
------------------------------
Address:
33 North LaSalle Street
15th Floor, Corporate Finance Division
Chicago, Illinois 60690
Attention: Jeff Armstrong
Telephone: (312) 661-6951
Telecopy: (312) 661-6890
-47-
<PAGE>
Revolving Credit Term Loan HARRIS TRUST AND SAVINGS BANK
Commitment Commitment
$15,576,923 $6,923,077
By
Name
------------------------------
Title:
------------------------------
Address:
111 West Monroe Street, 2E
P.O. Box 755
Chicago, Illinois 60690
Attention: Mr. Ray Whitacre
Telephone: (312) 461-3436
Telecopy: (312) 765-8348
Revolving Credit Term Loan COMERICA BANK
Commitment Commitment
$6,923,077 $3,076,923
By
Name
------------------------------
Title:
------------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Attention:
-----------------------------
Telephone:
-----------------------------
Telecopy:
-----------------------------
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<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
Chicago, Illinois
$___________________ _________________, 19__
On the Termination Date, for value received, the undersigned, HA-LO
INDUSTRIES, INC., an Illinois corporation (the "COMPANY") hereby promises to pay
to the order of ________________________________________________________ (the
"LENDER"), at the principal office of American National Bank and Trust Company
of Chicago in Chicago, Illinois, the principal sum of (i)
__________________________________________ Dollars ($_________), or (ii) such
lesser amount as may at the time of the maturity hereof, whether by acceleration
or otherwise, be the aggregate unpaid principal amount of all Revolving Loans
owing from the Company to the Lender under the Credit Agreement hereinafter
mentioned.
This Note evidences Revolving Loans constituting part of a "BASE RATE
PORTION" and "LIBOR PORTIONS" as such terms are defined in that certain Credit
Agreement dated as of January 31, 1997, among the Company, American National
Bank and Trust Company of Chicago, individually and as Agent, and the other
Lenders which are now or may from time to time hereafter become parties thereto
(said Credit Agreement, as the same may from time to time be modified, amended
or restated being referred to herein as the "CREDIT AGREEMENT") made and to be
made to the Company by the Lender under the Credit Agreement, and the Company
hereby promises to pay interest at the office specified above on each Revolving
Loan evidenced hereby at the rates and times specified therefor in the Credit
Agreement.
Each Revolving Loan made under the Credit Agreement by the Lender to the
Company against this Note, any repayment of principal hereon, the status of each
such loan from time to time as part of the Base Rate Portion or a LIBOR Portion,
in the case of any LIBOR Portion, and the interest rates and Interest Periods
applicable thereto shall be endorsed by the holder hereof on the reverse side of
this Note or recorded on the books and records of the holder hereof (provided
that such entries shall be endorsed on the reverse side hereof prior to any
negotiation hereof). The Company agrees that in any action or proceeding
instituted to collect or enforce collection of this Note, the entries so
endorsed on the reverse side hereof or recorded on the books and records of the
Lender shall be prima facie evidence of the unpaid balance of this Note, the
status of each loan from time to time as part of a Base Rate Portion or a LIBOR
Portion and, in the case of any LIBOR Portion, the interest rates and Interest
Periods applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary prepayments
may be made hereon, and certain prepayments are required to be made hereon, all
in the events, on the terms and with the effects provided in the Credit
Agreement. All capitalized terms used herein without definition shall have the
same meanings herein as such terms have in the Credit Agreement.
<PAGE>
The Company hereby promises to pay all actual out-of-pocket costs and
expenses (including reasonable attorneys' fees) suffered or incurred by the
holder hereof in collecting this Note or enforcing any rights in any collateral
therefor. The Company hereby waives presentment for payment and demand. THIS
NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS
OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
HA-LO INDUSTRIES, INC.
By
Name
-------------------------------
Title
-------------------------------
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<PAGE>
EXHIBIT B
NOTICE OF PAYMENT REQUEST
[Date]
[Name of Lender]
[Address]
Attention:
Reference is made to the Credit Agreement, dated as of January_31, 1997,
among HA-LO Industries, Inc., the Lenders named therein, and American National
Bank and Trust Company of Chicago, as Agent (the "CREDIT AGREEMENT").
Capitalized terms used herein and not defined herein have the meanings assigned
to them in the Credit Agreement. [THE COMPANY HAS FAILED TO PAY A REIMBURSEMENT
OBLIGATION IN THE AMOUNT OF $__________. YOUR PERCENTAGE OF THE UNPAID
REIMBURSEMENT OBLIGATION IS $___________] OR [AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO HAS BEEN REQUIRED TO RETURN A PAYMENT BY THE COMPANY OF A
REIMBURSEMENT OBLIGATION IN THE AMOUNT OF $__________. YOUR PERCENTAGE OF THE
RETURNED REIMBURSEMENT OBLIGATIONS IS $____________].
Very truly yours,
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Agent
By
Name
-------------------------------
Title
-------------------------------
<PAGE>
EXHIBIT C
TERM NOTE
Chicago, Illinois
$___________________ _________________, 19__
For Value Received, the undersigned, HA-LO INDUSTRIES, INC., an Illinois
corporation (the "COMPANY") hereby promises to pay to the order of
__________________________________________ (the "LENDER"), at the principal
office of American National Bank and Trust Company of Chicago in Chicago,
Illinois, the principal sum of ______________________________________________
Dollars ($_________), in consecutive principal installments commencing on
____________, 199___ and continuing on the ____ day of each ____________,
___________, _____________ and ________ occurring thereafter to and including
____________, 200_, with the first _______ principal installments each to be in
an amount equal to 1/20th of the original principal amount of this Note, with
the final installment in the amount of all principal not sooner paid due on
_______________, 200_, of the final maturity hereof.
This Note evidence a Term Loan constituting part of a "BASE RATE PORTION"
and "LIBOR PORTIONS" as such terms are defined in that certain Credit Agreement
dated as of January 31, 1997, among the Company, American National Bank and
Trust Company of Chicago, individually and as Agent, and the other Lenders which
are now or may from time to time hereafter become parties thereto (said Credit
Agreement, as the same may from time to time be modified, amended or restated
being referred to herein as the "CREDIT AGREEMENT") made to the Company by the
Lender under the Credit Agreement, and the Company hereby promises to pay
interest at the office specified above on the Term Loan evidenced hereby at the
rates and times specified therefor in the Credit Agreement.
The Term Loan made under the Credit Agreement by the Lender to the Company
against this Note, any repayment of principal hereon, the status of such loan
from time to time as part of the Base Rate Portion or a LIBOR Portion, in the
case of any LIBOR Portion, and the interest rates and Interest Periods
applicable thereto shall be endorsed by the holder hereof on the reverse side of
this Note or recorded on the books and records of the holder hereof (provided
that such entries shall be endorsed on the reverse side hereof prior to any
negotiation hereof). The Company agrees that in any action or proceeding
instituted to collect or enforce collection of this Note, the entries so
endorsed on the reverse side hereof or recorded on the books and records of the
Lender shall be prima facie evidence of the unpaid balance of this Note, the
status of such loan from time to time as part of a Base Rate Portion or a LIBOR
Portion and, in the case of any LIBOR Portion, the interest rates and Interest
Periods applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary prepayments
may be made hereon, and certain prepayments are required to be made hereon, all
in the events, on the terms and with the effects provided in the Credit
Agreement. All capitalized terms used herein without definition shall have the
<PAGE>
same meanings herein as such terms have in the Credit Agreement.
The Company hereby promises to pay all actual out-of-pocket costs and
expenses (including reasonable attorneys' fees) suffered or incurred by the
holder hereof in collecting this Note or enforcing any rights in any collateral
therefor. The Company hereby waives presentment for payment and demand. THIS
NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS
OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
HA-LO INDUSTRIES, INC.
By
Name
-------------------------------
Title
-------------------------------
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<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
To: American National Bank and Trust
Company of Chicago, as Agent under, and
the Lenders party to, the Credit Agreement
described below
This Compliance Certificate is furnished to the Agent and the Lenders
pursuant to that certain Credit Agreement dated as of January 31, 1997, by and
among HA-LO Industries, Inc. and you (the "CREDIT AGREEMENT"). Unless otherwise
defined herein, the terms used in this Compliance Certificate have the meanings
ascribed thereto in the Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _________________________________ of the
Company;
2. I have reviewed the terms of the Credit Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Company and its Subsidiaries during the
accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or the occurrence of any event
which constitutes a Default or Event of Default during or at the end of the
accounting period covered by the attached financial statements or as of the date
of this Certificate, except as set forth below;
4. The financial statements required by Section 7.5 of the Credit
Agreement and being furnished to you concurrently with this Certificate are
true, correct and complete in all material respects as of the date and for the
periods
<PAGE>
covered thereby; and
5. The Schedule I hereto sets forth financial data and computations
evidencing the Company's compliance with certain covenants of the Credit
Agreement, all of which data and computations are, to the best of my knowledge,
true, complete and correct and have been made in accordance with the relevant
Sections of the Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this _________ day of
__________________ 19___.
HA-LO INDUSTRIES, INC.
----------------------------------------
------------------- , ------------------
(Print or Type Name) (Title)
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<PAGE>
SCHEDULE I
COMPLIANCE CALCULATIONS
FOR JANUARY 31, 1997 CREDIT AGREEMENT
CALCULATIONS AS OF _____________, ____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. CURRENT RATIO (SECTION 7.7)
1. Consolidated current assets $___________
2. Consolidated current liabilities $___________
3. Ratio of line A1 to A2 _____: 1.0
4. Line A3 ratio must not be less than 1.5: 1.0
5. The Company is in compliance (circle yes or no) yes/no
B. TANGIBLE NET WORTH (SECTION 7.10)
1. Stockholders Equity $___________
2. Sum of:
(i) intangible assets $___________
(ii) write-up of assets $___________
(iii) sample inventory $___________
3. Line B1 minus B2 $___________
(Tangible Net Worth)
4. Line B3 must not be less than $___________
5. The Company is in compliance (circle yes or no) yes/no
C. LEVERAGE RATIO (SECTION 7.9)
1. Total Liabilities $___________
2. Tangible Net Worth (Line B3 above) $___________
3. Ratio of Line C1 to Line C2 ___: 1.0
4. Line C3 Ratio must not be more than 2.5: 1.0
5. The Company is in compliance (circle yes or no) yes/no
D. CASH FLOW COVERAGE RATIO (SECTION 7.10)
<PAGE>
1. Net Income for past 4 quarters $________
2. Interest Expense for past 4 quarters $________
3. Depreciation and Amortization Expense for past 4
quarters $________
4. Federal, state and local income tax expense for past
4 quarters $________
5. Sum of Lines D1, D2, D3 and D4 $________
6. Net Capital Expenditures $________
7. Line D5 minus D6 ("ADJUSTED EBITDA") $________
8. Principal Payments due over next 4 quarters $________
9. Interest Expense for past 4 quarters $________
10. Federal, state and local income tax expense for past
4 quarters $________
11. Dividends, Redemptions, etc. made during past 4
quarters $________
12. Sum of Lines D8, D9, D10 and D11 ("FIXED CHANGES") $________
13. Ratio of Line D7 to Line D12 ______:1.0
14. Line D13 ratio must not to be less than 1.2:1.0
15. The Company is in compliance (circle yes or no) Yes/No
-2-
<PAGE>
EXHIBIT E
OPINION OF COUNSEL
<PAGE>
EXHIBIT F
ASSIGNMENT AND ACCEPTANCE
Dated _____________,_19_____
Reference is made to the Credit Agreement dated as of January_31, 1997 (the
"CREDIT AGREEMENT") among HA-LO Industries, Inc., an Illinois corporation (the
"COMPANY"), the Lenders (as defined in the Credit Agreement) and American
National Bank and Trust Company of Chicago, as Agent for the Lenders (the
"AGENT"). Terms defined in the Credit Agreement are used herein with the same
meaning.
_____________________________________________________ (the "ASSIGNOR") and
_________________________ (the "ASSIGNEE") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a _______% interest in
and to all of the Assignor's rights and obligations under the Credit Agreement
as of the Effective Date (as defined below), including, without limitation, such
percentage interest in the Assignor's Commitments as in effect on the Effective
Date and the Loans, if any, owing to the Assignor on the Effective Date and the
Assignor's Percentage of any outstanding L/C Obligations, if any.
2. The Assignor (i) represents and warrants that as of the date hereof
(A) its Revolving Credit Commitment is $____________, and its Term Loan
Commitment is $____________, (B) the aggregate outstanding principal amount of
Loans made by it under the Credit Agreement that have not been repaid is
$____________ ($____________ Revolving Loans and $___________ Term Loans) and a
description of the interest rates and interest periods for such Loans is
<PAGE>
attached as Schedule 1 hereto, and (C) the aggregate principal amount of
Assignor's outstanding L/C Obligations is $___________; (ii) represents and
warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any adverse
claim, lien, or encumbrance of any kind; (iii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; and (iv) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company or any
Subsidiary or the performance or observance by the Company or any Subsidiary of
any of their respective obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered to the Lenders pursuant to in Section 7.5(a) and (b) thereof and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and
-2-
<PAGE>
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Agent, the Assignor or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement;
(iii) appoints and authorizes the Agent to take such action as Agent on its
behalf and to exercise such powers under the Credit Agreement as are delegated
to the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Credit Agreement are
required to be performed by it as a Lender; and (v) specifies as its lending
offices (and address for notices) the offices set forth beneath its name on the
signature pages hereof.
4. As consideration for the assignment and sale contemplated in Section 1
hereof, the Assignee shall pay to the Assignor on the date hereof in Federal
funds an amount equal to $_______________(1). It is understood that commitment
and/or Letter of Credit fees accrued to the
- --------------------
(1) Amount should combine principal together with accrued interest and breakage
compensation, if any, to be paid by the Assignee, net of any portion of any
upfront fee to be paid by Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula
rather than as a fixed sum.
-3-
<PAGE>
date hereof with respect to the interest assigned hereby are for the account of
the Assignor and such fees accruing from and including the date hereof are for
the account of the Assignee. Each of the Assignor and the Assignee hereby
agrees that if it receives any amount under the Credit Agreement which is for
the account of the other party hereto, it shall receive the same for the account
of such other party to the extent of such other party's interest therein and
shall promptly pay the same to such other party.
5. The effective date for this Assignment and Acceptance shall be
_____________, ____ (the "EFFECTIVE DATE"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Company for its
acceptance on behalf of the Company and to the Agent for acceptance and
recording by the Agent.
6. Upon such acceptance and recording, as of the Effective Date, (i) the
Assignee shall be a party to the Credit Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
7. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments under the Credit Agreement in respect of the
-4-
<PAGE>
interest assigned hereby (including, without limitation, all payments of
principal, interest and commitment fees with respect thereto) to the Assignee.
The Assignor and Assignee shall make all appropriate adjustments in payments
under the Credit Agreement for periods prior to the Effective Date directly
between themselves.
8. In accordance with Section 11.10 of the Credit Agreement, the Assignor
and the Assignee request and direct that the Agent prepare and cause the Company
to execute and deliver to the Assignee Notes payable to the Assignee in the
amount of its Commitments and new Notes to the Assignor in the amount of its
Commitments after giving effect to the assignment hereunder.
9. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of Illinois.
[ASSIGNOR LENDER]
By
Name
-----------------------------------
Title
----------------------------------
[ASSIGNEE LENDER]
By
Name
-----------------------------------
Title
----------------------------------
Lending Office (and
address for notices):
Accepted and consented this
____ day of ___________,19__
HA-LO INDUSTRIES, INC.
By
------------------------------------
Name
----------------------------------
-5-
<PAGE>
Title
---------------------------------
Accepted and consented to by the Agent this
_______ day of ___________, 19__
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, AS AGENT
By
------------------------------------
Name
----------------------------------
Title
---------------------------------
-6-
<PAGE>
SCHEDULE I
Type of Last day of
Principal Amount Loan Interest Rate Interest Period
- ---------------- ---- ------------- ---------------
<PAGE>
SCHEDULE 5.2
SUBSIDIARIES
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP
Fletcher, Barnhardt & White,
Inc. Illinois 100%
HA-LO Sports, Inc. Illinois 100%
Market U.S.A., Inc. Illinois 100%
Creative Concepts in
Advertising, Inc. Michigan 100%
<PAGE>
GUARANTY AGREEMENT
This Guaranty Agreement (the "GUARANTY") dated as of this 31st day of
January, 1997, by the parties who have executed this Guaranty (such parties,
along with any other parties who execute and deliver to the Agent hereinafter
identified and defined an agreement in the form attached hereto as Exhibit A,
being herein referred to collectively as the "GUARANTORS" and individually as a
"GUARANTOR").
WITNESSETH:
WHEREAS, the Guarantors are subsidiaries of Ha-Lo Industries, Inc., an
Illinois corporation (the "COMPANY"); and
WHEREAS, the Company, American National Bank and Trust Company of Chicago
("ANB"), individually and as agent (ANB acting as such agent and any successor
or successors to ANB in such capacity being hereinafter referred to as the
"AGENT"), Harris Trust and Savings Bank ("HTSB") and Comerica Bank ("Comerica")
have entered into a Credit Agreement dated as of even date herewith (such Credit
Agreement as the same may hereafter be amended or modified from time to time,
including amendments and restatements thereof in its entirety, being hereinafter
referred to as the "CREDIT AGREEMENT") pursuant to which ANB, HTSB, Comerica and
such other lenders from time to time parties thereto (ANB, HTSB, Comerica and
such other lenders being hereinafter referred to collectively as the "LENDERS"
and individually as a "LENDER") have extended various credit facilities to the
Company (the Agent and the Lenders being hereinafter referred to collectively as
the "GUARANTEED CREDITORS" and individually as a "GUARANTEED CREDITOR"); and
WHEREAS, the Company provides each of the Guarantors with substantial
financial, management, administrative, and technical support; and
WHEREAS, as a condition to extending the credit facilities to the Company
under the Credit Agreement, the Lenders have required, among other things, that
the Guarantors execute and deliver this Guaranty; and
WHEREAS, each Guarantor will benefit, directly and indirectly, from credit
and other financial accommodations extended and to be extended by the Lenders to
the Company; and
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances made
or to be made, or credit accommodations given or to be given, to the Company by
the Lenders from time to time, each Guarantor hereby makes the following
representations and warranties to, and hereby covenants and agrees with, the
Guaranteed Creditors as follows:
SECTION 1. All capitalized terms used herein without definition shall
have the same meanings herein as such terms have in the Credit Agreement.
SECTION 2. Each Guarantor hereby jointly and severally guarantees to
the Guaranteed Creditors, the due and punctual payment when due of (i) any and
all indebtedness, obligations and liabilities owing to the Guaranteed Creditors,
and any of them individually, by the Company under or in connection with or
evidenced by (x) the Credit Agreement or (y) all notes issued by the Company
under the Credit Agreement and any and all notes issued in extension or renewal
thereof or in substitution or replacement therefor (collectively, the "NOTES"),
in each case whether now existing or hereafter arising (and
-1-
<PAGE>
whether arising before or after the filing of a petition in bankruptcy), due or
to become due, direct or indirect, absolute or contingent, and howsoever
evidenced, held or acquired, (ii) the obligations of the Company to reimburse
the Guaranteed Creditors, and any of them individually, for the amount of all
drawings on all letters of credit (the "LETTERS OF CREDIT") issued for the
account of the Company pursuant to the Credit Agreement, and all other
obligations, whether now existing or hereafter arising (and whether arising
before or after the filing of a petition in bankruptcy), of the Company under
any and all applications for such Letters of Credit (each an "APPLICATION"; the
Notes, the Letters of Credit, the Credit Agreement, the Applications, and any
guaranty or other instrument or agreement executed by another subsidiary or
affiliate of the Company in connection therewith being hereinafter collectively
referred to as the "CREDIT DOCUMENTS"), and (iii) any and all expenses and
charges, legal or otherwise, suffered or incurred by the Guaranteed Creditors,
and any of them individually, in collecting or enforcing any of such
indebtedness, obligations and liabilities or in realizing on or protecting or
preserving any security therefor. The indebtedness, obligations and liabilities
described in the immediately preceding clauses (i), (ii), and (iii) are
hereinafter referred to as the "INDEBTEDNESS HEREBY GUARANTEED". In case of
failure by the Company punctually to pay any indebtedness hereby guaranteed,
each Guarantor hereby jointly and severally agrees to make such payment or to
cause such payment to be made punctually as and when the same shall become due
and payable, whether at stated maturity, by acceleration or otherwise, and as if
such payment were made by the Company. Notwithstanding anything contained in
this Guaranty to the contrary, the right of recovery against any Guarantor under
this Guaranty shall not exceed $1 less than the amount which would render such
Guarantor's Obligations under this Guaranty void or voidable under applicable
law, including, without limitation, fraudulent conveyance law.
SECTION 3. Each Guarantor further jointly and severally agrees to pay
all actual out-of-pocket expenses, legal and/or otherwise (including court costs
and reasonable attorneys' fees), paid or incurred by any Guaranteed Creditor in
enforcing or endeavoring to collect or enforce the indebtedness hereby
guaranteed or the Guarantors' obligations hereunder, or any part thereof, and in
protecting, defending or enforcing this Guaranty and the Guarantors' obligations
hereunder in any litigation, bankruptcy or insolvency proceedings or otherwise.
SECTION 4. Each Guarantor agrees that upon demand, such Guarantor will
then pay to the Agent for the benefit of the Guaranteed Creditors the full
amount of the indebtedness hereby guaranteed then due whether or not any one or
more of the other Guarantors shall then or thereafter pay any amount whatsoever
in respect to their obligations hereunder.
SECTION 5. Each of the Guarantors agrees that such Guarantor will not
exercise or enforce any right of exoneration, contribution, reimbursement,
recourse or subrogation available to such Guarantor against any person liable
for payment of the indebtedness hereby guaranteed, or as to any security
therefor, unless and until the full amount owing to the Guaranteed Creditors of
the indebtedness hereby guaranteed has been fully paid and satisfied and each of
the commitments by the Guaranteed Creditors to extend any indebtedness hereby
guaranteed shall have expired or otherwise terminated. The payment by any
Guarantor of any amount or amounts to the Guaranteed Creditors pursuant hereto
shall not in any way entitle any such Guarantor, either at law, in equity or
otherwise, to any
-2-
<PAGE>
right, title or interest (whether by way of subrogation or otherwise) in and to
the indebtedness hereby guaranteed or any part thereof or any collateral
security therefor or any other rights or remedies in any way relating thereto or
in and to any amounts theretofor, then or thereafter paid or applicable to the
payment thereof howsoever such payment may be made and from whatsoever source
such payment may be derived unless and until all of the indebtedness hereby
guaranteed and all costs and expenses suffered or incurred by the Guaranteed
Creditors in enforcing this Guaranty have been paid and satisfied in full and
each of the commitments by the Guaranteed Creditors to extend any indebtedness
hereby guaranteed shall have expired or otherwise terminated; and, unless and
until such payment in full and termination, any payments made by any Guarantor
hereunder and any other payments from whatsoever source derived on account of or
applicable to the indebtedness hereby guaranteed or any part thereof shall be
held and taken to be merely payments in gross to the Guaranteed Creditors
reducing pro tanto the indebtedness hereby guaranteed.
SECTION 6. To the extent permitted by the Credit Agreement, each
Guaranteed Creditor may, without any notice whatsoever to any of the Guarantors,
sell, assign, or transfer all of the indebtedness hereby guaranteed, or any part
thereof, or grant participations therein, and in that event each and every
immediate and successive assignee, transferee, or holder of all or any part of
the indebtedness hereby guaranteed, shall have the right through the Agent
pursuant to Section 18 hereof to enforce this Guaranty, by suit or otherwise,
for the benefit of such assignee, transferee, or holder as fully as if such
assignee, transferee, or holder were herein by name specifically given such
rights, powers and benefits; but each Guaranteed Creditor through the Agent
pursuant to Section 18 hereof shall have an unimpaired right to enforce this
Guaranty for its own benefit, as to so much of the indebtedness hereby
guaranteed that it has not sold, assigned or transferred.
SECTION 7. This Guaranty is a continuing, absolute and unconditional
Guaranty, and shall remain in full force and effect until written notice of its
discontinuance executed by the Company and all the Guarantors shall be actually
received by the Guaranteed Creditors, and also until any and all of the
indebtedness hereby guaranteed which was created or existing before receipt of
such notice shall be fully paid and satisfied and each of the commitments by the
Guaranteed Creditors to extend any indebtedness hereby guaranteed shall have
expired or otherwise terminated. The dissolution of any Guarantor shall not
terminate this Guaranty as to such Guarantor until notice of such dissolution
shall have been actually received by the Guaranteed Creditors, nor until all of
the indebtedness hereby guaranteed, created or existing or committed to be
extended in each case before receipt of such notice shall be fully paid and
satisfied. The Guaranteed Creditors may at any time or from time to time
release any Guarantor from its obligations hereunder or effect any compromise
with any Guarantor and no such release or compromise shall in any manner impair
or otherwise affect the obligations hereunder of the other Guarantors. No
release, compromise, or discharge of any one or more of the Guarantors shall
release, compromise or discharge the obligations of the other Guarantors
hereunder.
SECTION 8. In case of the dissolution, liquidation or insolvency
(howsoever evidenced) of, or the institution of bankruptcy or receivership
proceedings against the Company or any Guarantor, all of the indebtedness hereby
guaranteed which is then existing shall, at the
-3-
<PAGE>
option of the Lenders in accordance with the terms of the Credit Agreement,
immediately become due or accrued and payable from the Guarantors. All payments
received from the Company or on account of the indebtedness hereby guaranteed
from whatsoever source, shall be taken and applied as payment in gross, and this
Guaranty shall apply to and secure any ultimate balance that shall remain owing
to the Guaranteed Creditors.
SECTION 9. The liability hereunder shall in no way be affected or
impaired by (and the Guaranteed Creditors are hereby expressly authorized to
make from time to time, without notice to any of the Guarantors), any sale,
pledge, surrender, compromise, settlement, release, renewal, extension,
indulgence, alteration, substitution, exchange, change in, modification or other
disposition of any of the indebtedness hereby guaranteed, either express or
implied, or of any Credit Document or any other contract or contracts evidencing
any thereof, or of any security or collateral therefor or any guaranty thereof.
The liability hereunder shall in no way be affected or impaired by any
acceptance by the Guaranteed Creditors of any security for or other guarantors
upon any of the indebtedness hereby guaranteed, or by any failure, neglect or
omission on the part of the Guaranteed Creditors to realize upon or protect any
of the indebtedness hereby guaranteed, or any collateral or security therefor,
or to exercise any lien upon or right of appropriation of any moneys, credits or
property of the Company or any Guarantor, possessed by any of the Guaranteed
Creditors, toward the liquidation of the indebtedness hereby guaranteed, or by
any application of payments or credits thereon. The Guaranteed Creditors shall
have the exclusive right to determine how, when and what application of payments
and credits, if any, shall be made on said indebtedness hereby guaranteed, or
any part of same. In order to hold any Guarantor liable hereunder, there shall
be no obligation on the part of the Guaranteed Creditors, at any time, to resort
for payment to the Company or to any other Guarantor, or to any other person,
its property or estate, or resort to any collateral, security, property, liens
or other rights or remedies whatsoever, and the Guaranteed Creditors shall have
the right to enforce this Guaranty against any Guarantor irrespective of whether
or not other proceedings or steps are pending seeking resort to or realization
upon or from any of the foregoing.
SECTION 10. In the event the Guaranteed Creditors shall at any time in
their discretion permit a substitution of Guarantors hereunder or a party shall
wish to become Guarantor hereunder, such substituted or additional Guarantor
shall, upon executing an agreement in the form attached hereto as Exhibit A,
become a party hereto and be bound by all the terms and conditions hereof to the
same extent as though such Guarantor had originally executed this Guaranty and
in the case of a substitution, in lieu of the Guarantor being replaced. No such
substitution shall be effective absent the written consent of the Guaranteed
Creditors nor shall it in any manner affect the obligations of the other
Guarantors hereunder.
SECTION 11. All diligence in collection or protection, and all
presentment, demand, protest and/or notice, as to any and everyone, whether or
not the Company or the Guarantors or others, of dishonor and of default and of
non-payment and of the creation and existence of any and all of said
indebtedness hereby guaranteed, and of any security and collateral therefor, and
of the acceptance of this Guaranty, and of any and all extensions of credit and
indulgence hereunder, are expressly waived.
-4-
<PAGE>
SECTION 12. No act of commission or omission of any kind, or at any
time, upon the part of the Guaranteed Creditors in respect to any matter
whatsoever, shall in any way affect or impair this Guaranty.
SECTION 13. The Guarantors waive, to the extent permitted by applicable
law, any and all defenses, claims and discharges of the Company, or any other
obligor, pertaining to the indebtedness hereby guaranteed, except the defense of
discharge by payment in full. Without limiting the generality of the foregoing,
to the extent permitted by applicable law, the Guarantors will not assert, plead
or enforce against the Guaranteed Creditors any defense of waiver, release,
discharge in bankruptcy, statute of limitations, res judicata, statue of frauds,
anti-deficiency statute, fraud, incapacity, minority, usury, illegality or
unenforceability which may be available to the Company or any other person
liable in respect of any of the indebtedness hereby guaranteed, or any set-off
available against the Guaranteed Creditors to the Company or any such other
person, whether or not on account of a related transaction. The Guarantors
agree that the Guarantors shall be and remain jointly and severally liable for
any deficiency remaining after foreclosure or other realization on any lien or
security interest securing the indebtedness hereby guaranteed, whether or not
the liability of the Company or any other obligor for such deficiency is
discharged pursuant to statute or judicial decision.
SECTION 14. If any payment applied by the Guaranteed Creditors to the
indebtedness hereby guaranteed is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Company or any other obligor),
the indebtedness hereby guaranteed to which such payment was applied shall for
the purposes of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such of the indebtedness hereby guaranteed as fully as if such application had
never been made.
SECTION 15. The liability of the Guarantors under this Guaranty is in
addition to and shall be cumulative with all other liabilities of the Guarantors
to the Guaranteed Creditors as a guarantor of the indebtedness hereby
guaranteed, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
SECTION 16. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions and
applications hereof, and to this end the provisions of this Guaranty are
declared to be severable. Without limiting the generality of the foregoing, any
invalidity or unenforceability against any Guarantor of any provision or
application of the Guaranty shall not affect the validity or enforceability of
the provisions or application of this Guaranty as against the other Guarantors.
SECTION 17. Any demand for payment on this Guaranty or any other notice
required or desired to be given hereunder to any Guarantor shall be in writing
(including, without limitation, notice by telecopy) and shall be given to the
relevant party at its address or telecopier number set forth on the appropriate
signature page hereof, or such other address or telecopier number as such party
may hereafter specify by notice to the Agent given by United States certified or
registered mail, by telecopy or by other telecommunication device
-5-
<PAGE>
capable of creating a written record of such notice and its receipt. Each such
notice, request or other communication shall be effective (i) if given by
telecopier, when such telecopy is transmitted to the telecopier number specified
in this Section and a confirmation of such telecopy has been received by the
sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section.
SECTION 18. No Lender shall have the right to institute any suit, action
or proceeding in equity or at law in connection with this Guaranty for the
enforcement of any remedy under or upon this Guaranty; it being understood and
intended that no one or more of the Lenders shall have any right in any manner
whatsoever to enforce any right hereunder, and that all proceedings at law or in
equity shall be instituted, had and maintained by the Agent in the manner herein
provided and for the benefit of the Lenders.
SECTION 19. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED ACCORDING
TO THE LAW OF THE STATE OF ILLINOIS (without regard to principles of conflicts
of laws) in which state it shall be performed by the Guarantors and may not be
waived, amended, released or otherwise changed except by a writing signed by the
Agent. This Guaranty and every part thereof shall be effective upon delivery to
the Agent, without further act, condition or acceptance by the Guaranteed
Creditors, shall be binding upon the Guarantors and upon the legal
representatives, successors and assigns of the Guarantors, and shall inure to
the benefit of the Guaranteed Creditors, their successors, legal representatives
and assigns. The Guarantors waive notice of the Guaranteed Creditors'
acceptance hereof. This Guaranty may be executed in counterparts, and by
different parties hereto on separate counterparts signature pages, each of which
shall be an original, but all together to be one and the same instrument.
SECTION 20. Each Guarantor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Northern District of
Illinois and of any Illinois State court sitting in the City of Chicago for
purposes of all legal proceedings arising out of or relating to this Guaranty,
the other Credit Documents or the transactions contemplated hereby or thereby.
Each Guarantor irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such court has been brought in an inconvenient forum. EACH GUARANTOR
AND EACH GUARANTEED CREDITOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTY OR ANY OTHER CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
[SIGNATURE PAGES TO FOLLOW]
-6-
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be executed
and delivered as of the date first above written.
"GUARANTORS"
FLETCHER, BARNHARDT & WHITE, INC.
By
Its
---------------------------------
Address:
5980 West Touhy Avenue
Niles, Illinois 60714
Attention Mr. Greg Kilrea
Telephone (847) 647-4785
Telecopy (847) 647-4970
HA-LO SPORTS, INC.
By
Its
---------------------------------
Address:
5980 West Touhy Avenue
Niles, Illinois 60714
Attention Mr. Greg Kilrea
Telephone (847) 647-4785
Telecopy (847) 647-4970
-7-
<PAGE>
MARKET U.S.A., INC.
By
Its
---------------------------------
Address:
5980 West Touhy Avenue
Niles, Illinois 60714
Attention Mr. Greg Kilrea
Telephone (847) 647-4785
Telecopy (847) 647-4970
CREATIVE CONCEPTS IN ADVERTISING, INC.
By
Its
---------------------------------
Address:
5980 West Touhy Avenue
Niles, Illinois 60714
Attention Mr. Greg Kilrea
Telephone (847) 647-4785
Telecopy (847) 647-4970
Accepted and agreed to in Chicago, Illinois as of the date first above
written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Agent
By
Its
---------------------------------
Address:
33 North LaSalle Street, 15th Floor
Corporate Finance Division
Chicago, Illinois 60690
Attention Jeff Armstrong
Telephone (312) 661-6951
Telecopy (312) 661-6890
-8-
<PAGE>
EXHIBIT A
TO
GUARANTY AGREEMENT
ASSUMPTION AND SUPPLEMENT TO GUARANTY AGREEMENT
This Assumption and Supplement to Guaranty Agreement (the "AGREEMENT") is
dated as of this _____ day of ____________, 199___, made by [NEW GUARANTOR], a
___________ corporation (the "NEW GUARANTOR");
WITNESSETH THAT:
WHEREAS, certain parties have executed and delivered to the Guaranteed
Creditors that certain Guaranty Agreement dated as of January 31, 1997, or
supplements thereto (such Guaranty Agreement, as the same may from time to time
be modified or amended, including supplements thereto which add or substitute
parties as Guarantors thereunder, being hereinafter referred to as the
"GUARANTY") pursuant to which such parties (the "EXISTING GUARANTORS") have
guaranteed to the Guaranteed Creditors the full and prompt payment of, among
other things, any and all indebtedness, obligations and liabilities of HA-LO
Industries, Inc. (the "COMPANY") arising under or relating to the Credit
Agreement and the other Credit Documents described therein; and
WHEREAS, the Company provides the New Guarantor with substantial financial,
managerial, administrative, technical and design support and the New Guarantor
will benefit, directly and indirectly, from credit and other financial
accommodations extended and to be extended by the Lenders to the Company;
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances made
or to be made, or credit accommodations given or to be given, to the Company by
the Lenders from time to time, the New Guarantor hereby agrees as follows:
1. The New Guarantor acknowledges and agrees that it shall become a
"Guarantor" party to the Guaranty effective upon the date the New Guarantor's
execution of this Agreement and the delivery of this Agreement to the Agent on
behalf of the Guaranteed Creditors, and that upon such execution and delivery,
all references in the Guaranty to the terms "Guarantor" or "Guarantors" shall be
deemed to include the New Guarantor.
2. The New Guarantor hereby assumes and becomes liable (jointly and
severally with all the other Guarantors) for the indebtedness hereby guaranteed
(as defined in the Guaranty) and agrees to pay and otherwise perform all of the
<PAGE>
obligations of a Guarantor under the Guaranty according to, and otherwise on and
subject to, the terms and conditions of the Guaranty to the same extent and with
the same force and effect as if the New Guarantor had originally been one of the
Existing Guarantors under the Guaranty and had originally executed the same as
such an Existing Guarantor.
3. All capitalized terms used in this Agreement without definition shall
have the same meaning herein as such terms have in the Guaranty, except that any
reference to the term "Guarantor" or "Guarantors" and any provision of the
Guaranty providing meaning to such term shall be deemed a reference to the
Existing Guarantors and the New Guarantor. Except as specifically modified
hereby, all of the terms and conditions of the Guaranty shall stand and remain
unchanged and in full force and effect.
4. The New Guarantor agrees to execute and deliver such further
instruments and documents and do such further acts and things as the Agent or
the Guaranteed Creditors may deem necessary or proper to carry out more
effectively the purposes of this Agreement.
5. No reference to this Agreement need be made in the Guaranty or in any
other document or instrument making reference to the Guaranty, any reference to
the Guaranty in any of such to be deemed a reference to the Guaranty as modified
hereby.
6. This Agreement shall be governed by and construed in accordance with
the State of Illinois (without regard to principles of conflicts of law) in
which
-2-
<PAGE>
state it shall be performed by the New Guarantor.
[NEW GUARANTOR]
By
Its
---------------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Attention
------------------------------
Telephone
------------------------------
Telecopy
-------------------------------
Acknowledged and agreed to in Chicago, Illinois as of the date first above
written.
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO, as Agent
By
Its
---------------------------------
-3-
<PAGE>
TO OUR SHAREHOLDERS:
We are pleased to conclude another year of growth and
achievement. Your company continues to consolidate the
promotional products industry while enhancing its other
marketing services. By means of internal growth and
acquisitions we intend to extend our integrated marketing
formula around the world.
Sales of $255 million in 1996 were the highest in the 25
year history of the company and earnings increased 101% to
$9.4 million. In each of our four years as a public
company, HA-LO has achieved record sales and earnings. We
have come a long way since 1993 when we reported sales of
$36 million and earnings of $224,000. We continue to focus
on developing operating efficiencies as we grow the
business. Additionally, our shareholders received this
year a 3 for 2 stock split in the second quarter and a 25%
stock dividend in the fourth quarter.
This past year brought us two key acquisitions. Creative
Concepts in Advertising, the third largest company in the
promotional products industry, allows HA-LO to extend its
expertise from a national to an international client base.
This acquisition, which closed in January 1997, represents
HA-LO's fourth acquisition in the last three years of one
of the 25 largest promotional products companies. We also
expanded our service capabilities during 1996 by acquiring
Market USA, a leading provider of outbound telemarketing
services in the United States and Canada. Not only will
this acquisition allow HA-LO to capitalize on the current
trend toward outsourcing of telemarketing services, but it
will also provide HA-LO a greater opportunity to provide
integrated marketing solutions to its existing and
prospective clients.
One of our strategies to differentiate HA-LO is to develop
exclusive product arrangements. We are excited by our new
exclusive agreement with Champion Products Inc., a
division of Sara Lee Corporation. Champion is the premier
authentic athletic brand in sports apparel and approached
HA-LO to capitalize on the growing demand for corporate
logoed apparel. Having exclusive access to products like
Champion provides our company with a significant
competitive advantage.
The promotional products industry continues to demonstrate
double-digit revenue growth, outstripping other forms of
advertising. This expanding recognition of the
effectiveness of promotional products in today's marketing
reality will help fuel your company's exciting vision for
years to come.
In 1997 we celebrate our 25th year anniversary. As I
reflect on the growth of the company, I want to take this
opportunity to acknowledge the dedication and
professionalism of everyone in the HA-LO family. I would
also like to thank our shareholders for the confidence you
have expressed in us through your investment and look
forward to sharing our progress and continued success with
you.
Sincerely,
Lou Weisbach
Chairman, President and
Chief Executive Officer
March 24, 1997
<PAGE>
1996 HIGHLIGHTS
- Net income per share increased 61% to $.53 in 1996 from
$.33 per share in 1995.
- Sales increased 21% in 1996 and reached an all-time
high of $255 million.
- Reached agreement to acquire the third largest
promotional products distributor in the industry. This
acquisition was closed in January, 1997.
- Expanded the Company's service capabilities through the
acquisition of a leading telemarketing company.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (a):
Net Sales............................... $ 254,888 $ 211,266 $ 145,821 $ 104,954 $ 99,755
Net Income.............................. $ 9,369 $ 5,380 $ 5,344 $ 2,705 $ 4,870
Pro forma Net Income (b)................ N/A $ 4,673 $ 3,924 $ 1,867 $ 3,007
Net Income Per Share, Fully Diluted
(c).................................... $ 0.53 $ 0.33 $ 0.32 $ 0.16 $ 0.31
Weighted Average Shares Out-standing,
Fully Diluted (c)...................... 17,581 14,091 12,188 12,030 9,622
BALANCE SHEET DATA
(END OF YEAR) (a),(d):
Working Capital......................... $ 42,485 $ 30,582 $ 19,456 $ 10,887 $ 7,838
Total Assets............................ $ 87,634 $ 79,340 $ 56,007 $ 39,251 $ 26,955
Long-term Debt.......................... $ 2,902 $ 836 $ 12,591 $ 6,158 $ 671
Shareholders' Equity.................... $ 57,247 $ 44,783 $ 17,389 $ 13,032 $ 10,615
</TABLE>
(a)In September, 1996 the Company acquired two affiliated
telemarketing companies and in December, 1995 the
Company acquired a distributor of promotional products.
These acquisitions were accounted for as
pooling-of-interests. Accordingly, the financial
statements for all periods presented have been restated
to include the results of these acquisitions.
(b)The Company elected to be treated as an S Corporation
for Federal income tax purposes through the initial
public offering completed on November 4, 1992.
Accordingly, the Company was not subject to Federal
income taxes for such periods. Additionally, the
acquisitions that were completed in September 1996 and
December 1995 and accounted for as pooling-of-interests
also had elected to be treated as S Corporations. Pro
forma net income and net income per share amounts
include an unaudited provision for Federal and state
taxes at an effective rate of 38% in 1992, and 40%
thereafter.
(c)All years presented were retroactively adjusted to
reflect shares issued in connection with the
acquisitions discussed in note (a). Additionally, all
share and per share data have been restated to reflect
the three-for-two stock split and 25% stock dividend
completed in 1996.
(d)Excludes dividends of $3,612,000, $5,238,000,
$1,276,000, $651,000, and $2,426,000 declared by the
acquired companies in 1996, 1995, 1994, 1993, and 1992,
respectively, prior to their acquisition by the
Company.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the years indicated the
percent of net sales represented by each line item
presented below from the Company's Statements of Income.
All periods presented have been restated to include the
results of acquisitions accounted for as
pooling-of-interests.
<TABLE>
<CAPTION>
PERCENT OF NET SALES
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales.......................................................... 100.0% 100.0% 100.0%
Cost of Sales...................................................... 71.6% 71.9% 70.3%
----- ----- -----
Gross Profit....................................................... 28.4% 28.1% 29.7%
Selling Expenses................................................... 11.9% 12.2% 13.1%
General and Administrative Expenses................................ 10.5% 11.7% 11.6%
----- ----- -----
Operating Income................................................. 6.0% 4.2% 5.0%
Other Income (Expenses), Net....................................... 0.1% (0.6)% (0.5)%
----- ----- -----
Income Before Income Taxes......................................... 6.1% 3.6% 4.5%
Provision for Income Taxes......................................... 2.5% 1.1% 0.8%
----- ----- -----
Net Income......................................................... 3.6% 2.5% 3.7%
----- ----- -----
----- ----- -----
Pro forma Net Income............................................... 2.2% 2.7%
----- -----
----- -----
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995.
Net sales increased 20.6% to $254.9 million in 1996
compared to 1995 net sales of $211.3 million. Virtually
all of the $43.6 million increase was attributable to
internal growth.
Gross profit for 1996 was $72.4 million (28.4% of net
sales), representing an increase of $13 million from 1995
gross profit of $59.4 million (28.1% of net sales). This
increase is the result of the Company's sales growth.
Gross profit as a percentage of net sales increased
slightly in 1996 due to the Company's continued focus on
profitable growth.
Selling expenses as a percentage of net sales decreased to
11.9% in 1996 ($30.3 million) compared to 12.2% in 1995
($25.8 million). The $4.5 million increase relates
primarily to commission expense resulting from the
Company's sales growth. The .3% decrease as a percentage
of net sales is primarily the result of increased sales to
a significant customer which are not subject to the
payment of the Company's standard commissions.
General and administrative expenses as a percentage of net
sales decreased to 10.5% in 1996 from 11.7% in 1995. This
decrease is reflective of the Company's continued focus on
increasing net sales without adding proportionate overhead
expenses. Total general and administrative expenses
increased to $26.9 million in 1996 from $24.6 million in
1995. This increase relates primarily to increased
personnel and facilities costs necessary to support the
sales growth achieved in 1996. Included in 1996 and 1995
results are non recurring charges of $1.7 million and $1.8
million related to the acquisitions of Market USA, Inc.
and Marusa Marketing, Inc. (together MUSA) and
Fletcher-Barnhardt & White, Inc. (FBW), respectively.
Net interest income in 1996 was approximately $.4 million
compared to net interest expense of $1.2 million in 1995.
The difference is the result of proceeds from the
Company's public offering in November, 1995 which were
used primarily to reduce debt. Remaining proceeds were
invested primarily in short term U.S. Government
securities.
4
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994.
Net sales increased 44.9% to $211.3 million in 1995
compared to 1994 sales of $145.8 million. Of the $65.5
million increase in sales, approximately $16 million
related to acquisitions completed in 1995 and the
remainder was due to internal growth.
Gross profit for 1995 was $59.4 million (28.1% of net
sales), representing an increase of $16.1 million from
1994 gross profit of $43.3 million (29.7% of net sales).
This increase is the result of the Company's sales growth.
The decrease in gross profit as a percentage of net sales
is the result of increased sales to a significant
customer, which are lower margin than the Company's other
sales.
Selling expenses increased to $25.8 million (12.2% of net
sales) in 1995 compared to $19.1 million (13.1% of net
sales) in 1994. The $6.7 million increase relates
primarily to commission expense resulting from the
Company's sales growth. The .9% decrease as a percentage
of net sales is primarily the result of increased sales to
a significant customer which are not subject to payment of
the Company's standard commissions.
General and administrative expenses as a percentage of
sales remained constant in 1995 (11.7%) compared to 1994
(11.6%). Total general and administrative expenses
increased to $24.6 million in 1995 from $16.9 million in
1994. The most significant factors in the $7.7 million
increase relates to the $1.8 million non recurring charge
in 1995 related to the FBW acquisition and a full year of
overhead expenses related to acquisitions completed in
1994. Additionally, increased personnel and facilities
costs were necessary to support the Company's sales
growth.
Net interest expense in 1995 was approximately $1.2
million compared to $.8 million in 1994. The increase
relates to higher debt levels required primarily to fund
the Company's acquisition activity and working capital
needs.
LIQUIDITY AND CAPITAL RESOURCES
In November, 1995, the Company completed a public offering
of its common stock and received proceeds of approximately
$24.5 million. The majority of the proceeds were used to
pay off the Company's debt. To a lesser extent, a portion
of the proceeds were used to complete acquisitions and
fund capital expenditures.
Throughout 1996, the Company had a revolving credit
facility with a bank providing for borrowings of up to $16
million. Interest on the facility was either the bank's
prime rate or the London Interbank Offered Rate (LIBOR)
plus 1.5%. In January, 1997, the Company entered into a
new credit facility with three participating banks
providing for borrowings of up to $65 million. The new
agreement, which is a three year commitment, provides for
a revolving line of credit of up to $45 million and an
acquisition facility of up to $20 million. Interest on the
new facility is either the bank's prime rate less .25% or
LIBOR plus .375%-1%, based on a defined ratio.
The Company's current ratio, an indication of liquidity,
increased to 2.65 to 1 at December 31, 1996 compared to
1.98 to 1 at December 31, 1995. Working capital for the
same periods increased to $42.5 million from $30.6
million. A majority of the $11.9 million increase in
working capital is attributable to the overall sales
growth of the Company in 1996 compared to 1995.
Capital expenditures, excluding acquisitions, were
approximately $5.0 million in 1996 compared to $2.6
million in 1995. The increase between years relates
primarily to expenditures for updating the Company's
computer systems and investments to upgrade telemarketing
call centers with state of the art technology.
Overall, the Company believes that availability from its
credit facility and cash flows from operations will be
sufficient to satisfy its cash needs for the foreseeable
future.
INFLATION
Management does not believe that inflation had a
significant impact on the Company's results of operations
for the years presented.
5
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES......................................... $ 254,887,550 $ 211,265,658 $ 145,821,206
COST OF SALES..................................... 182,442,369 151,858,537 102,473,334
-------------- -------------- --------------
Gross profit.................................. 72,445,181 59,407,121 43,347,872
SELLING EXPENSES.................................. 30,338,182 25,776,848 19,124,057
GENERAL AND ADMINISTRATIVE EXPENSES............... 26,869,824 24,627,623 16,884,118
-------------- -------------- --------------
Income from operations........................ 15,237,175 9,002,650 7,339,697
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense................................ (224,236) (1,309,402) (871,099)
Interest income................................. 604,839 95,365 71,378
-------------- -------------- --------------
Total other income (expense), net............. 380,603 (1,214,037) (799,721)
-------------- -------------- --------------
Income before income taxes.................... 15,617,778 7,788,613 6,539,976
PROVISION FOR INCOME TAXES........................ 6,248,279 2,408,541 1,195,712
-------------- -------------- --------------
NET INCOME FOR THE YEAR........................... $ 9,369,499 $ 5,380,072 $ 5,344,264
-------------- -------------- --------------
-------------- -------------- --------------
PRO FORMA INCOME DATA (unaudited):
Net income as reported.......................... $ 5,380,072 $ 5,344,264
Pro forma adjustment to income taxes............ 706,844 1,420,012
-------------- --------------
PRO FORMA NET INCOME.............................. $ 4,673,228 $ 3,924,252
-------------- --------------
-------------- --------------
NET INCOME PER SHARE
(unaudited pro forma for 1995 and 1994)
Primary....................................... $ 0.54 $ 0.34 $ 0.32
Fully diluted................................. $ 0.53 $ 0.33 $ 0.32
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary....................................... 17,364,198 13,577,749 12,188,184
Fully diluted................................. 17,580,741 14,090,516 12,188,184
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
ASSETS 1996 1995
- --------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents............................................... $ 3,862,958 $ 2,264,594
Short-term investments............................................. 2,908,370 3,549,717
Receivables-
Trade............................................................ 49,357,356 44,518,900
Corporate fulfillment program.................................... 2,380,537 3,665,877
Advances due from salesmen....................................... 813,561 1,166,462
Inventories........................................................ 5,776,350 5,494,974
Prepaid expenses and deposits...................................... 3,116,050 1,225,793
------------- -------------
Total current assets........................................... 68,215,182 61,886,317
------------- -------------
PROPERTY AND EQUIPMENT, net.......................................... 9,682,494 7,674,505
------------- -------------
OTHER ASSETS:
Intangible assets, net............................................. 6,743,690 7,887,243
Samples............................................................ 1,216,429 1,026,588
Other.............................................................. 1,776,207 865,592
------------- -------------
Total other assets............................................. 9,736,326 9,779,423
------------- -------------
$ 87,634,002 $ 79,340,245
------------- -------------
------------- -------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Book overdraft..................................................... $ 1,218,122 $ 2,161,161
Accounts payable................................................... 13,277,100 16,269,312
Accrued expenses-
Commissions and wages............................................ 6,684,616 6,334,419
Other............................................................ 3,492,029 5,473,669
Due to related parties............................................. -- 123,910
Deferred taxes-current............................................. 1,058,087 941,996
------------- -------------
Total current liabilities...................................... 25,729,954 31,304,467
------------- -------------
LONG-TERM DEBT....................................................... 2,901,785 836,336
------------- -------------
DEFERRED LIABILITIES................................................. 1,755,335 2,416,689
------------- -------------
COMMITMENTS AND CONTINGENCIES........................................
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000 shares authorized and
none issued....................................................... -- --
Common stock, no par value; 25,000,000 shares authorized and
16,756,109 and 16,181,863 issued and outstanding in 1996 and 1995,
respectively...................................................... 47,535,271 42,737,806
Unearned compensation-restricted stock............................. (794,375) (1,000,000)
Deferred marketing costs........................................... (1,448,000) (1,448,000)
Cumulative translation adjustment.................................. 33,904 22,249
Retained earnings.................................................. 11,920,128 4,470,698
------------- -------------
Total shareholders' equity..................................... 57,246,928 44,782,753
------------- -------------
$ 87,634,002 $ 79,340,245
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
7
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
SHARES RETAINED
ISSUED AMOUNT OTHER EARNINGS
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993................................... 12,091,895 $ 8,485,764 $ 5,198 $ 4,542,240
Transfer of S Corporation retained earnings................ -- 7,476,546 -- (7,476,546)
Dividends paid by acquired companies....................... -- (392,000) -- (884,416)
Stock bonus in connection with acquisition of business..... 13,022 31,251 -- --
Issuance of contingent shares for acquisition of
business.................................................. 93,750 262,500 -- --
Translation adjustment..................................... -- -- (5,452) --
Net income for the year.................................... -- -- -- 5,344,264
------------ ------------- ------------ -------------
BALANCE, December 31, 1994................................... 12,198,667 15,864,061 (254) 1,525,542
Dividends paid by acquired companies....................... -- (2,802,648) -- (2,434,916)
Issuance of shares in connection with acquisitions......... 227,484 852,068 -- --
Issuance of stock warrants................................. -- 1,448,000 (1,448,000) --
Issuance of restricted stock............................... 300,000 1,200,000 (1,200,000) --
Amortization of unearned compensation...................... -- -- 200,000 --
Recognition of tax benefits from stock options and
restricted stock.......................................... -- 495,466 -- --
Exercise of stock options.................................. 80,852 214,529 -- --
Issuance of shares for cash................................ 3,374,860 25,466,330 -- --
Translation adjustment..................................... -- -- 22,503 --
Net income for the year.................................... -- -- -- 5,380,072
------------ ------------- ------------ -------------
BALANCE, December 31, 1995................................... 16,181,863 42,737,806 (2,425,751) 4,470,698
Dividends paid by acquired companies....................... -- (1,691,579) -- (1,920,069)
Stock bonus in connection with acquisition of business..... 5,435 62,500 -- --
Issuance of shares in connection with acquisitions......... 429 9,866 -- --
Issuance of restricted stock............................... 1,562 34,375 (34,375) --
Amortization of unearned compensation...................... -- -- 240,000 --
Recognition of tax benefits from stock options and
restricted stock.......................................... -- 5,243,790 -- --
Exercise of stock options and warrants..................... 614,305 2,000,013 -- --
Repurchase of common stock................................. (47,485) (861,500) -- --
Translation adjustment..................................... -- -- 11,655 --
Net income for the year.................................... -- -- -- 9,369,499
------------ ------------- ------------ -------------
BALANCE, December 31, 1996................................... 16,756,109 $ 47,535,271 $ (2,208,471) $ 11,920,128
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
---------------
<S> <C>
BALANCE, December 31, 1993................................... $ 13,033,202
Transfer of S Corporation retained earnings................ --
Dividends paid by acquired companies....................... (1,276,416)
Stock bonus in connection with acquisition of business..... 31,251
Issuance of contingent shares for acquisition of
business.................................................. 262,500
Translation adjustment..................................... (5,452)
Net income for the year.................................... 5,344,264
---------------
BALANCE, December 31, 1994................................... 17,389,349
Dividends paid by acquired companies....................... (5,237,564)
Issuance of shares in connection with acquisitions......... 852,068
Issuance of stock warrants................................. --
Issuance of restricted stock............................... --
Amortization of unearned compensation...................... 200,000
Recognition of tax benefits from stock options and
restricted stock.......................................... 495,466
Exercise of stock options.................................. 214,529
Issuance of shares for cash................................ 25,466,330
Translation adjustment..................................... 22,503
Net income for the year.................................... 5,380,072
---------------
BALANCE, December 31, 1995................................... 44,782,753
Dividends paid by acquired companies....................... (3,611,648)
Stock bonus in connection with acquisition of business..... 62,500
Issuance of shares in connection with acquisitions......... 9,866
Issuance of restricted stock............................... --
Amortization of unearned compensation...................... 240,000
Recognition of tax benefits from stock options and
restricted stock.......................................... 5,243,790
Exercise of stock options and warrants..................... 2,000,013
Repurchase of common stock................................. (861,500)
Translation adjustment..................................... 11,655
Net income for the year.................................... 9,369,499
---------------
BALANCE, December 31, 1996................................... $ 57,246,928
---------------
---------------
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year................................... $9,369,499 $ 5,380,072 $ 5,344,264
Adjustments to reconcile net income to net cash provided
by (used for) operating activities-
Depreciation and amortization........................... 3,885,328 3,005,295 1,869,168
Deferred taxes.......................................... (541,953) (858,652) (286,000)
Increase in cash surrender value........................ (14,837) -- (106,531)
Loss on lease buyout.................................... -- 2,772 --
Increase in deferred liabilities-other.................. 30,040 192,054 268,805
Stock issued in connection with bonus................... -- -- 31,251
Changes in assets and liabilities, net of effects of
acquired companies-
Receivables............................................. (2,908,203) (10,221,876) (10,858,233)
Inventories............................................. (252,944) (1,033,105) (2,055,271)
Prepaid expenses and deposits........................... (1,933,217) 365,130 (224,632)
Accounts payable and accrued expenses................... 1,080,495 6,858,817 3,192,222
---------- ----------- -----------
Net cash provided by (used for) operating
activities......................................... 8,714,208 3,690,507 (2,824,957)
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (4,950,703) (2,598,519) (1,988,113)
Purchases of samples...................................... (518,924) (543,236) (280,957)
(Increase) decrease in short-term investments............. 641,347 (3,549,717) --
(Increase) decrease in other assets....................... (181,864) 10,402 40,910
Decrease in deferred liabilities.......................... (628,802) (570,777) (497,541)
Cash paid for acquisitions................................ (9,988) (1,845,890) (844,756)
---------- ----------- -----------
Net cash used for investing activities.............. (5,648,934) (9,097,737) (3,570,457)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and notes payable.............. -- (5,504,197) (1,973,057)
Net borrowings (payments) under line of credit............ 2,023,693 (10,724,252) 7,825,540
Advances to (repayments from) related party............... (123,910) 157,839 (67,622)
Policy loan proceeds...................................... -- -- 1,030,747
Decrease (increase) in book overdraft..................... (943,039) 1,357,257 803,904
Cash dividends paid by acquired entities.................. (3,573,822) (5,237,564) (1,412,147)
Net proceeds from issuance of common stock................ 2,000,013 25,680,859 --
Repurchase of common stock................................ (861,500) -- --
---------- ----------- -----------
Net cash provided by (used for) financing
activities......................................... (1,478,565) 5,729,942 6,207,365
---------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS................................................ 11,655 22,503 (5,452)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............. 1,598,364 345,215 (193,501)
CASH AND EQUIVALENTS, beginning of year..................... 2,264,594 1,919,379 2,112,880
---------- ----------- -----------
CASH AND EQUIVALENTS, end of year........................... $3,862,958 $ 2,264,594 $ 1,919,379
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE BUSINESS
HA-LO Industries, Inc. and Subsidiaries (the "Company") is
engaged in the business of providing integrated marketing
and promotions solutions to corporate clients primarily in
the United States. The Company's core business is the
distribution of promotional products. These products are
provided by more than 2,500 vendors and marketed by the
Company's national network of sales representatives. In
addition, the Company provides telemarketing and customer
management services for clients primarily in the financial
services, insurance and telecommunications industries. The
Company also provides sports marketing, event planning and
advertising agency services to its clientele.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements
include the accounts of HA-LO Industries, Inc. and its
subsidiaries. All intercompany transactions and accounts
have been eliminated. The financial statements are
prepared on the accrual basis of accounting. The principal
accounting policies of the Company follow.
B. REVENUE RECOGNITION
The majority of the Company's revenues are derived
from the distribution of promotional products. Revenues
from such services are recognized when merchandise is
shipped to customers. The Company's telemarketing revenues
are recognized as services are performed.
C. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are
depreciated for financial reporting purposes over the
estimated useful lives on a straight-line basis as
follows:
<TABLE>
<CAPTION>
Buildings..................................................... 15-39 years
<S> <C>
Furniture, fixtures and equipment............................. 5-10 years
Computer and telephone equipment.............................. 5-7 years
Vehicles...................................................... 5 years
Life of
Leasehold improvements........................................ lease
-----------
-----------
</TABLE>
Property and equipment at December 31 are composed of the
following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land............................................................. $ 136,000 $ 136,000
Buildings........................................................ 349,000 654,000
Furniture, fixtures and equipment................................ 5,754,000 4,743,000
Computer and telephone equipment................................. 9,625,000 6,706,000
Vehicles......................................................... 50,000 95,000
Leasehold improvements........................................... 594,000 472,000
------------- -------------
16,508,000 12,806,000
Less - Accumulated depreciation.................................. 6,826,000 5,131,000
------------- -------------
Property and equipment, net.......................................... $ 9,682,000 $ 7,675,000
------------- -------------
------------- -------------
</TABLE>
D. INTANGIBLES
Intangible assets consist primarily of the cost of
purchased businesses in excess of the fair value of net
assets acquired and are amortized on a straight-line basis
over periods ranging from seven to fifteen years. The
Company regularly reviews the performance of acquired
businesses to evaluate the realizability of the underlying
goodwill. Amortization
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
expense in 1996, 1995 and 1994 was approximately
$1,284,000 $1,129,000, and $543,000, respectively.
Accumulated amortization of goodwill as of December 31,
1996 and 1995 was $3,016,000 and $1,796,000, respectively.
E. INVENTORIES
Inventories are valued at the lower of first-in,
first-out (FIFO) cost or market.
F. SAMPLES
Samples are an integral part of the Company's core
business and are used to generate sales growth. The
Company's policy is to capitalize purchased samples and
amortize them on a straight-line basis over a six-year
useful life. Amortization expense in 1996, 1995 and 1994
was approximately $329,000, $304,000 and $189,000,
respectively.
G. SIGNIFICANT CUSTOMERS
Approximately 15% and 14% of net sales in 1996 and
1995, were from one customer. In 1994, another customer
accounted for approximately 11% of net sales. As of
December 31, 1996 approximately $9.5 million of the
Company's accounts receivable was from a significant
customer substantially all of which was collected during
the first two months of 1997.
H. STATEMENTS OF CASH FLOWS
The Company considers investments purchased with an
original maturity of three months or less to be cash
equivalents. Supplemental cash flow information includes
the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the year for interest................... $ 224,000 $ 1,300,000 $ 879,000
Cash paid during the year for income taxes............... $ 1,616,000 $ 1,846,000 $ 1,223,000
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES--
Recognition of common shares issued in connection with
acquisitions............................................ $ 10,000 $ 852,000 $ 263,000
Recognition of tax benefits from exercise of stock
options and restricted stock............................ $ 5,244,000 $ 495,000 --
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
I. SHORT-TERM INVESTMENTS
The Company classifies investments purchased with an
original maturity of three to twelve months as short-term
investments. Such investments, which are held-to-maturity,
relate primarily to tax exempt securities and are carried
at cost plus accrued interest.
J. FOREIGN CURRENCY TRANSLATION
One of the Company's wholly-owned telemarketing
subsidiaries has operations in Canada. Revenues and
expenses are translated at average rates in effect at the
time of the underlying transaction, with gains or losses
included in income. Assets and liabilities of this entity
are translated at year-end exchange rates with gains and
losses resulting from such translation included in
shareholders' equity.
K. 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, the
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.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
L. NEW ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting For The
Impairment of Long-Lived Assets and For Long-Lived Assets
To Be Disposed Of". Adoption of this statement did not
have a material impact on the financial statements.
M. RECLASSIFICATION
Certain amounts in previously issued financial
statements have been reclassified to conform to 1996
classifications.
NOTE 3. RECEIVABLES:
The Company provides services to customers in diversified
industries and grants unsecured trade credit to customers
in the normal course of business. Receivables in the
accompanying consolidated balance sheets are net of
reserves for doubtful accounts of approximately $429,000
as of December 31, 1996 and $904,000 as of December 31,
1995. The Company also makes advances to its sales
representatives, which are applied against commissions to
be earned.
NOTE 4. INCOME TAXES:
The Company's provision for income taxes consists of the
following amounts:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current provision........................................ $ 6,790,000 $ 3,268,000 $ 1,482,000
Deferred benefit......................................... (542,000) (859,000) (286,000)
------------ ------------ ------------
Total provision........................................ $ 6,248,000 $ 2,409,000 $ 1,196,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company's effective tax rate is reconciled to the
Federal statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate....................................................... 34.0% 34.0% 34.0%
State income taxes (net of Federal benefit).................................. 5.0 5.0 4.3
Non-taxable S Corporation earnings (Note 9).................................. -- (9.0) (21.7)
Other........................................................................ 1.0 1.0 1.7
--- --- ---------
Effective tax rate......................................................... 40.0% 31.0% 18.3%
--- --- ---------
--- --- ---------
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes result from temporary differences in
the recognition of revenue and expense items for income
tax and financial reporting purposes and are summarized as
follows:
<TABLE>
<CAPTION>
(ASSET)/LIABILITY
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Deferred taxes -current
Guaranteed sales, net of related commissions.......................... $ 260,000 $ 411,000
Credits due........................................................... 913,000 545,000
Advanced commissions.................................................. 136,000 78,000
Non-deductible reserves............................................... (291,000) (242,000)
Other................................................................. 40,000 150,000
------------ -----------
Total deferred taxes -current....................................... 1,058,000 942,000
------------ -----------
Deferred taxes -long-term
Samples............................................................... 487,000 400,000
Acquisition costs..................................................... (669,000) (256,000)
Depreciation and amortization......................................... (336,000) (215,000)
Deferred costs........................................................ (327,000) (107,000)
Other................................................................. (1,000) (10,000)
------------ -----------
Total deferred taxes -non-current................................... (846,000) (188,000)
------------ -----------
Total deferred tax liability........................................ $ 212,000 $ 754,000
------------ -----------
------------ -----------
</TABLE>
Non-current deferred taxes are included in other assets on
the accompanying consolidated balance sheets.
NOTE 5. PRO FORMA NET INCOME PER SHARE (UNAUDITED):
The unaudited pro forma income data in the consolidated
statements of income for 1995 and 1994 provide information
as if the companies acquired (see Note 9) had been C
Corporations for income tax purposes. Pro forma net income
per share is based on the weighted average number of
shares of common stock outstanding, including shares
issued in connection with the above mentioned
acquisitions.
NOTE 6. DEBT:
Throughout 1996, the Company had a $16 million credit
facility with a bank bearing interest at either prime or
the London Interbank Offered Rate ("LIBOR") plus 1.5%.
Subsequent to year end, the Company refinanced the credit
facility described above. The new agreement provides for
an unsecured credit facility totaling $65 million,
consisting of a $45 million revolving line of credit (the
"Revolver") and a $20 million term acquisition loan (the
"Term"). The Revolver matures on January 31, 1999 and Term
borrowings mature on the sooner of five years from the
date of borrowing or June 30, 2003. The facility bears
interest at either prime less .25% or LIBOR plus between
.375% and 1% based on a defined
ratio. The agreement contains certain financial covenants
which the Company must meet, including minimum tangible
net worth, maximum leverage, and minimum cash flow
coverages.
The accompanying balance sheets give effect to the
refinancing as if it occurred prior to year end.
Outstanding debt as of December 31, 1996 and 1995 was
$2,901,785 and $836,336. As of December 31, 1996, the
prime rate was 8.25% and LIBOR was 5.5%.
NOTE 7. RELATED-PARTY TRANSACTIONS:
A member of the Board of Directors renders acquisition
consulting services to the Company pursuant to an
agreement. The director's compensation is strictly
contingent upon
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the successful completion of an acquisition. During 1996,
the director earned cash compensation of approximately
$307,000 and was granted 129,909 options exercisable at
fair market value at the date of grant. During 1995, the
director earned cash compensation of approximately
$850,000 and was granted 46,419 options exercisable at
fair market value at the date of grant. During 1994, the
director earned cash compensation of approximately
$154,000 and was granted 14,344 options.
NOTE 8. COMMITMENTS AND CONTINGENCIES:
The Company leases facilities from unrelated parties under
operating leases expiring at various dates through April,
2007. Rent expense charged for these facilities totaled
approximately $2,207,000, $2,263,000 and $1,590,000 for
1996, 1995 and 1994, respectively.
The future aggregate annual minimum lease rentals at
December 31, 1996, are as follows:
<TABLE>
<S> <C>
Year ending December 31-
1997............................................................. $2,459,000
1998............................................................. 2,239,000
1999............................................................. 2,225,000
2000............................................................. 1,953,000
2001............................................................. 1,761,000
thereafter....................................................... 3,271,000
----------
$13,908,000
----------
----------
</TABLE>
At December 31, 1996, the Company has approximately
$1,494,000 in outstanding letters of credit issued in the
ordinary course of business.
The Internal Revenue Service (the "IRS") has commenced and
is currently engaged in a field audit examination of the
Company'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 the Company's position that its independent
sales representatives have properly been treated as
independent contractors for federal employment tax
purposes. To date, the IRS has proposed adjustments to
increase the Company's federal withholding, federal
unemployment and social security tax liabilities for 1993
and 1994, and similar proposed adjustments are possible
for subsequent periods. However, the Company believes its
characterization of its sales representatives as
independent contractors is proper and is evaluating its
various alternatives, including appeal. This process could
take several years to resolve. Nonetheless, management
does not believe an unfavorable outcome would have a
material effect on the financial position of the Company.
NOTE 9. BUSINESS COMBINATIONS:
During 1996, the Company acquired two companies. One of
the companies was accounted for under the purchase method
of accounting and was not material to the Company's
consolidated financial statements.
The second acquisition was completed on September 30, 1996
and was accounted for as a pooling-of-interests. The
Company issued 3,187,500 shares of its common stock in
exchange for all the outstanding shares of Market USA,
Inc. and its affiliate, Marusa Marketing, Inc. (together
"MUSA"), two telemarketing companies. Accordingly, the
consolidated financial statements for all periods
presented have been restated to include the results of
MUSA.
During 1995, the Company acquired three companies. Two of
the three acquisitions were accounted for under the
purchase method of accounting and were not material to the
Company's consolidated financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The third acquisition was completed on December 28, 1995
and was accounted for as a pooling-of-interests. The
Company issued 751,596 shares of its common stock in
exchange for all operating assets of Fletcher-Barnhardt &
White (FBW), a distributor of promotional products.
Accordingly the consolidated financial statements for all
periods presented have been restated to include the
results of FBW.
During 1994, the Company acquired two companies. These
acquisitions were not material to the Company's
consolidated financial statements.
NOTE 10. CAPITAL STOCK AND EARNINGS PER SHARE:
On May 2, 1996, the Company's Board of Directors declared
a 3-for-2 stock split on the Company's common stock in the
form of a 50 percent stock dividend effective on June 3,
1996 to holders of record on May 17, 1996. In addition, on
November 7, 1996, the Company's Board of Directors
declared a 25 percent stock dividend payable on December
11, 1996 to holders of record on November 21, 1996. All
share and per share data, including stock option, warrant
and stock plan information, have been retroactively
adjusted to give effect to the stock split and the stock
dividend.
In November, 1995, the Company sold, through a public
offering, 3,093,750 shares of its common stock. The
Company realized net proceeds of approximately $24.5
million from this offering.
In connection with the MUSA and FBW acquisitions (Note 9)
and the termination of both predecessor companies' S
Corporation status, the Company was required to transfer
undistributed retained earnings to common stock. Dividends
of the predecessor companies paid subsequently are shown
as a reduction to retained earnings to the extent of their
net income, with the remainder reducing common stock.
Earnings per share are computed on the basis of the
weighted average number of common and common equivalent
shares outstanding during each year. The following table
reconciles the number of common shares shown as
outstanding in the consolidated balance sheets and the
number of common shares used in computing fully diluted
earnings per share.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Common shares outstanding per balance sheets........................... 16,756,109 16,181,863
Effect of shares issuable under stock options after applying the
"treasury stock" method............................................... 1,326,163 926,541
Effect of using weighted average common shares outstanding during the
year.................................................................. (421,954) (2,866,078)
Other.................................................................. (79,577) (151,810)
------------ ------------
Common shares used in computing fully diluted earnings per share....... 17,580,741 14,090,516
------------ ------------
------------ ------------
</TABLE>
In January 1995, the Company issued 300,000 shares of
restricted common stock to a sales representative in lieu
of cash commission payments on sales to a significant
customer. These shares were issued under the stock plan
described in Note 13 and have been included as a component
of shareholders' equity. The Company expects these shares
to be earned ratably through 1999.
NOTE 11. UNAUDITED SUPPLEMENTARY EARNINGS PER SHARE:
The net proceeds from the public offering discussed in
Note 10 were used to repay substantially all of the
Company's outstanding bank debt. Assuming the debt
retirement occurred on January 1, 1995, the unaudited
supplementary pro forma primary earnings per share would
have been $.45 for the year ended December 31, 1995. This
per share
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
amount reflects the reduction of interest expense of
approximately $1,302,000 ($781,000 after tax). Weighted
average shares used in computing the per share amount were
increased by 1,800,000 to approximate the number of shares
sold in the offering to retire the debt.
NOTE 12. STOCK WARRANTS:
In January, 1995, the Company signed a multi-year
exclusive agreement to provide premium promotional
products to Montgomery Ward & Co., Inc. The initial term
of the agreement was five years, but was extended through
2004 in December, 1995. In connection with the initial
term of the agreement, Merchant Partners Limited
Partnership (Merchant Partners), an entity of which
Montgomery Ward is a limited partner, was granted warrants
to purchase 749,434 shares of the Company's common stock
at fair market value on the date of grant. These warrants
vest at the end of nine years but can be accelerated to
five years if minimum purchase levels are achieved. The
Company also issued 374,806 warrants to Merchant Partners
in connection with the extension of the agreement. These
warrants also have an exercise price at the fair market
value on the date of grant and expire January 11, 2011.
These warrants have been accounted for under the
provisions of Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock Based
Compensation", which requires warrants issued to
non-employees be recorded at fair market value.
Accordingly, the value of these warrants has been recorded
as a deferred marketing cost and included as a component
of shareholders' equity. This cost will be charged against
income over the five year term of the extension, beginning
in January, 2000.
NOTE 13. STOCK OPTIONS:
The Company has a stock plan (the Plan) which provides for
reservation and issuance of options to purchase shares of
the Company's common stock, restricted stock, stock
appreciation rights and phantom stock awards. The number
of options, shares or rights to be granted or issued and
the terms thereof are at the discretion of the
Compensation Committee of the Company's Board of
Directors. Pursuant to the Plan, as amended, 3,889,881
shares of the Company's common stock have been reserved.
At December 31, 1996, there were 207,863 shares available
for future grant under the Plan. The exercise price for
incentive stock options and non-qualified stock options
granted under the Plan may not be less than 100% and 85%,
respectively, of the fair market value of the common stock
at the date of grant. Options issued under the Plan
generally vest 50% annually, commencing upon completion of
one year of employment subsequent to the date of grant.
All options granted under the plan expire ten years from
the date of grant.
The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Financial
Accounting Standards Board (FASB) Statement No. 123
"Accounting for Stock Based Compensation" ("SFAS 123") was
issued by the FASB in 1995. As permitted, the Company will
continue its current method of accounting for stock-based
compensation while complying with the new disclosure
requirements of SFAS 123. Accordingly, no compensation
cost has been recognized for its fixed stock option plan.
Had compensation cost for awards under the Plan and
warrants issued discussed in Note 12 been determined
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
based on the fair value at their grant dates consistent
with the method of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net income
As reported........................................................ $ 9,369,499 $ 4,673,228
Pro forma.......................................................... $ 7,027,931 $ 4,169,940
Primary earnings per share
As reported........................................................ $ 0.54 $ 0.34
Pro forma.......................................................... $ 0.40 $ 0.31
Fully diluted earnings per share
As reported........................................................ $ 0.53 $ 0.33
Pro forma.......................................................... $ 0.40 $ 0.30
</TABLE>
Because the method of accounting prescribed in SFAS 123
has not been applied to options granted prior to January
1, 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option-pricing model
with the following assumptions; risk free interest rates
between 5.2% and 6.2% in 1996 and between 5.9% and 6.9% in
1995; zero dividend yield for both years; expected lives
of 5 years for both years; and volatility of 30 percent
for both years.
A summary of the status of the Company's fixed stock
option plan and warrants issued as of December 31, 1996,
1995, and 1994, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1996
-------------------------- 1995 1994
WEIGHTED ---------------------------- ----------------------------
AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- --------------- --------- ----------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING OF YEAR............ 2,497,405 $ 5.47 1,058,717 $ 3.02 692,490 $ 2.81
GRANTED:
Price equal to fair
value..................... 1,152,464 $ 16.53 1,523,372 $ 7.01 386,129 $ 3.37
Price in excess of fair
value..................... 500,938 $ 33.57 2,813 $ 5.53 1,875 $ 3.87
EXERCISED.................... (614,302) $ 3.26 (78,982) $ 2.65 -- --
CANCELLED.................... (34,965) $ 10.52 (8,515) $ 2.72 (21,777) $ 2.63
--------- --------- ---------
END OF YEAR.................. 3,501,540 $ 13.47 2,497,405 $ 5.47 1,058,717 $ 3.02
EXERCISABLE AS OF 12/31...... 1,174,396 1,194,580 594,585
Weighted average fair value
of options and warrants
granted:
Price equal to fair value.... $ 6.12 $ 3.18
Price in excess of fair
value....................... $ 7.88 $ 2.00
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about fixed
stock options and warrants outstanding at December 31,
1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE NUMBER REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES 12/31/96 CONTRACTUAL LIFE PRICE 12/31/96 PRICE
- ----------------------- ------------ ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$2.20 - $3.53 466,414 7.28 $ 3.18 459,568 $ 3.17
$3.56 - $3.56 700,785 8.03 $ 3.56 326,107 $ 3.56
$5.23 - $13.33 778,141 10.77 $ 10.97 244,751 $ 9.27
$13.60 - $15.33 691,270 9.10 $ 14.13 1,875 $ 13.67
$18.00 - $30.60 364,930 9.66 $ 22.13 142,095 $ 22.83
$33.60 - $33.60 500,000 9.89 $ 33.60 -- $ --
------------ ----- ------ ----------- ------
$2.20 - $33.60 3,501,540 9.19 $ 13.47 1,174,396 $ 6.95
</TABLE>
NOTE 14. BUSINESS SEGMENT INFORMATION:
Segment information by industry for the years ended
December 31, 1996, 1995, and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN 000'S)
<S> <C> <C> <C>
REVENUES:
Promotional Products........................................... $ 205,764 $ 172,866 $ 110,396
Telemarketing.................................................. 49,123 38,399 35,425
---------- ---------- ----------
Total Consolidated........................................... $ 254,887 $ 211,265 $ 145,821
---------- ---------- ----------
---------- ---------- ----------
OPERATING INCOME(1):
Promotional Products........................................... $ 10,275 $ 6,239 $ 3,201
Telemarketing.................................................. 4,962 2,763 4,139
---------- ---------- ----------
Total Consolidated........................................... $ 15,237 $ 9,002 $ 7,340
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS(2):
Promotional Products........................................... $ 58,207 $ 54,258 $ 36,953
Telemarketing.................................................. 11,019 9,276 9,034
---------- ---------- ----------
Total Consolidated........................................... $ 69,226 $ 63,534 $ 45,987
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(1)Promotional Products operating income includes
corporate overhead expenses for all periods and
non-recurring charges related to acquisitions in 1996
and 1995.
(2)Consists primarily of receivables and property and
equipment. Cash and other assets are considered to be
corporate assets and are therefore not included.
NOTE 15. SUBSEQUENT EVENTS:
In January, 1997, the Company completed the acquisition of
a Detroit-based distributor of promotional products with
operations in the United States, Europe and Canada. The
purchase price was 2,835,632 shares of the Company's
common stock. The acquisition will be accounted for as a
pooling of interests.
In February, 1997, the Company's shareholders approved an
amendment to the Company's by-laws increasing the number
of shares of common stock authorized from 25,000,000 to
100,000,000.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. UNAUDITED SELECTED QUARTERLY OPERATING RESULTS:
The following table represents unaudited selected
financial information for the eight quarters ended
December 31, 1996. This information has been prepared by
the Company on a basis consistent with the Company's
audited financial statements and includes all adjustments
(consisting of normal recurring accruals) which management
considers necessary for a fair presentation of the results
for such periods. The operating results for any quarter
are not necessarily indicative of the results for any
future period. All periods presented have been adjusted to
reflect the effects of an acquisition accounted for under
the pooling-of-interests method of accounting, a
three-for-two stock split and a 25% stock dividend. A
reconciliation of previously reported amounts follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------
1996 1995
-------------------------------------------------- --------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Previously reported....... $ 38,459 $ 47,513 $ 53,120 $ 66,671 $ 28,207 $ 38,107 $ 48,005 $ 58,547
Effect of acquired
company.................. 11,453 13,280 11,990 12,400 8,081 9,665 9,992 10,662
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total net sales......... 49,912 60,793 65,110 79,071 36,288 47,772 57,997 69,209
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Profit
Previously reported....... 10,692 14,578 15,740 20,150 9,397 11,283 13,219 15,985
Effect of acquired
company.................. 2,661 3,029 2,793 2,802 1,935 2,213 2,602 2,772
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total gross profit...... 13,353 17,607 18,533 22,952 11,332 13,496 15,821 18,757
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per share, fully
diluted
(Pro forma in 1995)
Previously reported....... 0.01 0.08 0.07 0.21 0.01 0.04 0.07 0.09
Effect of acquired
company.................. 0.05 0.04 0.03 0.06 0.02 0.04 0.03 0.03
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total net income per
share.................. $ 0.06 $ 0.12 $ 0.10 $ 0.27 $ 0.03 $ 0.08 $ 0.10 $ 0.12
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The Company's net sales have increased each quarter within
a fiscal year and, in particular, its fourth quarter net
sales have been higher than net sales in previous
quarters. This is primarily a result of the Company's
customer's buying patterns.
NOTE 17. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS:
The Company's common stock, which is quoted on the Nasdaq
National Market under the symbol "HALO", was held by
approximately 240 shareholders of record as of March 24,
1997. The following table sets forth the range of high and
low bid quotations for each quarterly period in 1996 and
1995 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................................................................... 153/8 103/4
Second Quarter.................................................................. 2313/16 143/8
Third Quarter................................................................... 25 151/4
Fourth Quarter.................................................................. 323/16 213/4
1995
First Quarter................................................................... 55/8 31/4
Second Quarter.................................................................. 53/4 43/4
Third Quarter................................................................... 93/4 53/8
Fourth Quarter.................................................................. 163/8 73/4
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of HA-LO Industries, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance
sheets of HA-LO Industries, Inc. (an Illinois corporation)
and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders'
equity and cash flows for each of the three years ended
December 31, 1996, 1995 and 1994. 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 financial
position of HA-LO Industries, Inc. and Subsidiaries as of
December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years
ended December 31, 1996, 1995 and 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 14, 1997
20
d<PAGE>
Exhibit 21
SUBSIDIARIES OF HA-LO INDUSTRIES, INC.
The following is a list of all direct and indirect subsidiaries of
the registrant as of March 24, 1997. The state or other
jurisdiction of incorporation or organization is indicated in
parentheses followingn each subsidiary's name. The names of the
divisions or other business units of each subsidiary are indented
and listed below the relevant subsidiary's name.
Fletcher, Barnhardt & White, Inc. (Illinois)
Market U.S.A., Inc. (Illinois)
Marusa Marketing, Ltd. (Canada)
HA-LO Sports, Inc. (Illinois)
Creative Concepts in Advertising, Inc. (Michigan)
Creadis Group, Inc. (British Columbia)
1132832 Ontario, Corp. (Ontario)
1132831 Ontario, Corp. (Ontario)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-64878 on Form S-8, 33-89820 on Form S-8,
33-99946 on Form S-8, 333-00358 on Form S-3, 333-03928 on Form S-8, 333-10481
on Form S-4, and 333-19301 on Form S-3.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR
THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3862958
<SECURITIES> 2908370
<RECEIVABLES> 53409454
<ALLOWANCES> 429000
<INVENTORY> 5776350
<CURRENT-ASSETS> 68215182
<PP&E> 16508494
<DEPRECIATION> 6826000
<TOTAL-ASSETS> 87634002
<CURRENT-LIABILITIES> 25729954
<BONDS> 2901785
0
0
<COMMON> 47535271
<OTHER-SE> 9711657
<TOTAL-LIABILITY-AND-EQUITY> 87634002
<SALES> 254887550
<TOTAL-REVENUES> 254887550
<CGS> 182442369
<TOTAL-COSTS> 182442369
<OTHER-EXPENSES> 57208006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224236
<INCOME-PRETAX> 15617778
<INCOME-TAX> 6248279
<INCOME-CONTINUING> 9369499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9369499
<EPS-PRIMARY> .54
<EPS-DILUTED> .53
</TABLE>
