<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1998
REGISTRATION NO. 333-49667
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HA-LO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
ILLINOIS 36-3573412
<S> <C>
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or No.)
organization)
</TABLE>
5980 WEST TOUHY AVENUE, NILES, ILLINOIS 60714 (847) 647-2300
(Address, including zip code, and telephone number, including
area code, of registrant's executive offices)
LOU WEISBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HA-LO INDUSTRIES, INC.
5980 WEST TOUHY AVENUE
NILES, ILLINOIS 60714
(847) 647-2300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
<TABLE>
<S> <C>
BARRY J. SHKOLNIK, ESQ. JANET O. LOVE, ESQ.
Neal, Gerber & Eisenberg Lord, Bissell & Brook
Two North LaSalle Street 115 South LaSalle Street
Chicago, Illinois 60602 Chicago, Illinois 60603
(312) 269-8000 (312) 443-0700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
investment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION ON SUCH DATE AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 15, 1998
5,500,000 Shares
[LOGO]
HA-LO INDUSTRIES, INC.
Common Stock
(No Par Value)
-------------
Of the 5,500,000 shares of common stock, no par value ("Common Stock"), of HA-LO
Industries, Inc. (the "Company" or "HA-LO") offered hereby (the "Offering"),
3,750,000 shares are being sold by HA-LO and 1,750,000 shares are being
sold by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any of the proceeds from
the sale of shares by the Selling Shareholders. See "Principal and
Selling Shareholders." The Common Stock is listed on the New York
Stock Exchange ("NYSE") under the symbol "HMK." On April 14,
1998, the last reported sale price of the Common Stock on
the NYSE composite tape was $35.25 per share. See "Price
Range of Common Stock and Dividend Policy."
For a discussion of certain factors that should be considered in connection with
an
investment in the Common Stock, see "Risk Factors" beginning on page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Discounts and Proceeds to Selling
Price to Public Commissions Company(1) Shareholders
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Per Share......................................... $ $ $ $
Total(2).......................................... $ $ $ $
</TABLE>
- ------------------------
(1) Before deduction of expenses payable by the Company estimated at $ .
(2) The Company and one of the Selling Shareholders have granted the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase a maximum of 825,000 additional shares to cover
over-allotments of shares. If the Underwriters exercise this option in full,
the total Price to Public will be $ , Underwriting Discounts and
Commissions will be $ , Proceeds to Company will be $ and
Proceeds to Selling Shareholders will be $ .
The Common Stock is offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject any orders in whole or in part. It is expected that the Common Stock will
be ready for delivery on or about , 1998, against payment in
immediately available funds.
Credit Suisse First Boston
ABN AMRO Incorporated
Merrill Lynch & Co.
Morgan Stanley Dean Witter
Prospectus dated , 1998
<PAGE>
[Inside Front Cover]
The following artwork will appear on the inside front cover of the
prospectus: In the center of the page, there will be a photograph of the outside
of the New York Stock Exchange, with various flags that contain the name 'HA-
LO.' Around the outside edge of the page, surrounding the NYSE photograph, will
be six photographs of select promotional products offered by HA-LO, imprinted
with the logos of current or former HA-LO clients. Below such photographs will
be the following disclaimer:
The pictures within this Prospectus display a variety of the products available
from the Company. All companies whose logos appear on various merchandise are
current or former clients. There can be no assurance that these companies will
continue to be clients or will order the products shown here in the future.
--------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED INTO THIS PROSPECTUS BY
REFERENCE. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, AMONG OTHER THINGS,
THE INFORMATION SET FORTH UNDER "RISK FACTORS" BELOW. UNLESS OTHERWISE
INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. AS USED IN THIS
PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE, THE TERMS THE "COMPANY" AND
"HA-LO" REFER TO HA-LO INDUSTRIES, INC. AND ITS SUBSIDIARIES.
THE COMPANY
HA-LO is the largest and one of the fastest growing distributors of
promotional products in the United States and also has substantial operations in
Canada and Europe. In addition to its promotional products business, the Company
provides other value-added marketing services, such as telephone-based
marketing, full-service advertising, events planning services and sports
marketing.
HA-LO's promotional products business represented over 80% of its 1997 net
sales. To market its promotional products, HA-LO utilizes a system of 25 sales
offices with showrooms located primarily in the United States and also in Canada
and Europe. The showrooms display some of the 300,000 products provided by the
Company's network of more than 2,500 vendors. HA-LO's approximately 700 core
sales representatives market and sell promotional products primarily to large
and mid-sized corporations. The Company's promotional products are items that
are useful or decorative and are imprinted or otherwise customized with a
customer's name, logo or message. These products are utilized by the Company's
customers for marketing, to build brand recognition and as employee incentives,
customer gifts and giveaways. Promotional products are designed to be utilized
by the recipient over an extended period of time, so that the products enjoy
repeated exposure and reinforce a brand name or marketing message. The Company
has exclusive rights to distribute merchandise manufactured by Champion
Products, Inc. and Roots, Canada to corporate customers in the United States and
Canada. HA-LO also has established a joint marketing relationship with Sony
Signatures, a division of Sony Corporation of America and one of the lead
sponsors of World Cup Soccer '98. Customers of HA-LO include AlliedSignal,
America Online, Ameritech, Ford Motor Company, General Electric, General Mills,
Motorola, Time Warner, the Chicago Bulls and the Green Bay Packers.
The Company leverages its promotional products business expertise by
developing innovative promotional products and programs that are tailored to
satisfy its customers' specific needs. HA-LO cross-sells complementary marketing
services through its other operating divisions and subsidiaries: Events by
HA-LO-Registered Trademark-, an event planning business; HA-LO
Sports-Registered Trademark-, a sports marketing agency; and Duncan & Hill, a
full-service advertising and marketing communications agency. In addition, the
Company provides telephone-based marketing services through its wholly-owned
subsidiary, Market USA, Inc. ("Market USA"), which maintains a network of
approximately 2,100 telephone representatives and over 1,200 workstations in 19
call centers located primarily throughout the Midwestern U.S. and Canada.
The Company went public in November 1992 and, since then, has experienced
steady growth. Net sales and net income for 1997 were $413.8 million and $13.9
million, respectively. This translates to compound annual growth rates for the
five-year period from 1993 through 1997 of 30% for net sales and 40% for net
income.
3
<PAGE>
STRATEGY
BUSINESS STRATEGY. The Company believes its business strategy is attractive
to customers, as well as to its sales representatives and employees, and will
enable it to expand its leadership position in the marketing and promotional
products industry. Key components of the Company's business strategy are to:
(i) increase brand identity and corporate visibility;
(ii) leverage flexible expense structure;
(iii) capitalize on buying power;
(iv) continue to offer sophisticated design and service capabilities; and
(v) expand sales support capabilities.
GROWTH STRATEGY. The Company believes its business strategy is the
foundation on which it has achieved, and will continue to achieve, strong growth
in sales and earnings. The Company expects that continued growth will arise from
internal growth, increases in its market share, acquisitions and strong industry
fundamentals. Key elements of the Company's growth strategy are to:
(i) leverage its size and distribution capabilities;
(ii) expand the range of complementary marketing services it provides;
(iii) further penetrate its existing customer relationships;
(iv) expand and strengthen its sales force;
(v) pursue strategic, accretive acquisitions; and
(vi) obtain additional exclusive distribution agreements.
INDUSTRY
The U.S. promotional products industry continues to grow rapidly. According
to Promotional Products Association International, total industry revenues
increased 18% in 1996 to approximately $9.5 billion, representing an
acceleration over the previous four-year average annual growth rate of 16.3%.
The promotional products market currently constitutes a relatively small portion
of the overall advertising market, representing just 6% of the $171.0 billion of
total advertising expenditures in 1996. The Company believes the promotional
products industry will continue to gain an increasingly larger share of total
advertising expenditures because promotional products are more cost-effective,
longer-lasting and better targeted than traditional advertising. The industry,
which is highly fragmented and undergoing consolidation, currently is comprised
of approximately 15,000 distributors, 98% of which had sales of less than $2.5
million in 1996.
The telemarketing industry also is highly fragmented and competitive.
According to Direct Marketing Association, $97.8 billion was spent on
telephone-based direct marketing in 1996, which is more than twice the amount
spent a decade earlier. Although approximately 90% of the market is comprised of
in-house organizations, the Company believes that this market will continue to
grow as companies continue to outsource telemarketing services in order to focus
on their primary businesses.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company........................... 3,750,000 shares
Common Stock Offered by the Selling Shareholders.............. 1,750,000 shares
Total Common Stock Offered................................ 5,500,000 shares
Common Stock to be Outstanding Immediately after the 25,283,388(1)
Offering....................................................
Use of Proceeds to the Company................................ To repay approximately $47.0
million of indebtedness, for
future acquisitions and for
general corporate purposes,
including working capital.
See "Use of Proceeds."
NYSE Symbol................................................... HMK
</TABLE>
- ------------------------
(1) Does not include 4,512,970 shares of Common Stock reserved for issuance upon
exercise of outstanding options (excluding options exercised in connection
with the Offering) and 1,056,702 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants as of April 1, 1998.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA(1):
Net Sales............................................ $ 413,791 $ 344,422 $ 283,080 $ 195,003 $ 145,652
Cost of Sales........................................ 279,984 244,259 206,346 140,081 105,346
---------- ---------- ---------- ---------- ----------
Gross Profit......................................... 133,807 100,163 76,734 54,922 40,306
Selling Expenses..................................... 52,126 40,159 31,689 22,913 14,579
General and Administrative Expenses.................. 52,817 43,587 34,312 24,876 21,096
Non-recurring Charges Related to Acquisitions........ 3,845 1,693 1,800 -- --
---------- ---------- ---------- ---------- ----------
Operating Income................................... 25,019 14,724 8,933 7,133 4,631
Interest Expense, Net................................ (1,878) (938) (2,149) (1,012) (613)
---------- ---------- ---------- ---------- ----------
Income Before Income Taxes........................... 23,141 13,786 6,784 6,121 4,018
Provision for Income Taxes........................... 9,259 6,360 2,515 1,284 438
---------- ---------- ---------- ---------- ----------
Net Income........................................... $ 13,882 $ 7,426 $ 4,269 $ 4,837 $ 3,580
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro Forma Net Income(2).............................. $ 8,241 $ 4,070 $ 3,673 $ 2,411
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income Per Share--Diluted(2),(3)................. $ 0.64 $ 0.39 $ 0.23 $ 0.23 $ 0.15
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA(1):
Working Capital...................................... $ 77,871 $ 57,729 $ 39,350 $ 23,306 $ 14,597
Total Assets......................................... 210,627 128,682 107,780 77,011 52,427
Long-term Debt....................................... 43,626 28,006 12,112 13,536 6,789
Shareholders' Equity(4).............................. 81,386 57,114 46,865 20,383 16,798
OTHER FINANCIAL DATA(1):
EBITDA(5)............................................ $ 30,860 $ 19,854 $ 12,582 $ 8,136 $ 5,720
Capital Expenditures................................. 8,189 7,495 3,252 1,592 2,135
</TABLE>
- ------------------------
(1) All periods presented include acquisitions accounted for using the
pooling-of-interests accounting method.
(2) Certain entities acquired by the Company and accounted for using the
pooling-of-interests accounting method had elected to be treated as S
Corporations and were not subject to Federal income taxes prior to
acquisition by the Company. Pro forma net income includes unaudited
provision for income taxes for such entities, computed at an effective rate
of 40%.
(3) Includes non-recurring charges related to acquisitions in 1997, 1996 and
1995 of $0.11, $0.05 and $0.06, respectively.
(4) Includes dividends of $2,890, $3,912, $5,715, $1,276 and $785 declared by
acquired companies in 1997, 1996, 1995, 1994 and 1993, respectively, prior
to their acquisition by the Company.
(5) EBITDA represents income from operations before interest expense, income
taxes and depreciation and amortization. EBITDA is presented because it is a
widely accepted indicator of a company's financial performance. However,
EBITDA should not be construed as an alternative to net income as a measure
of the Company's operating results or to cash flows from operating
activities (determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED HEREBY. SEE "FORWARD-LOOKING STATEMENTS."
RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS
An important element of the Company's growth strategy has been and continues
to be the acquisition of businesses that complement, enhance or geographically
expand its existing services. Since January 1, 1993, the Company has acquired 18
promotional products companies and two telephone-based marketing companies.
There can be no assurance, however, that HA-LO will be able to (i) maintain its
recent growth rate through acquisitions, (ii) identify suitable acquisition
candidates and acquire such companies on favorable terms, (iii) successfully
integrate acquired businesses into its existing operations or realize the
intended benefits of such acquisitions, or (iv) retain sales representatives and
key employees previously associated with acquired businesses. To complete future
acquisitions, the Company may issue a significant number of shares of Common
Stock and/or incur significant additional indebtedness, which could have a
dilutive effect on the Company's earnings or book value per share of Common
Stock. See "Business-- Growth Strategy" and "Recent Developments."
DIFFICULTIES OF MANAGING RAPID GROWTH
The Company has experienced rapid growth over the past several years as a
result of internal growth and acquisitions. The Company's anticipated continued
rapid growth can be expected to place significant demands on its management and
resources. If the Company is unable to manage growth effectively, its business,
results of operations or financial condition could be materially adversely
affected. See "Business--Growth Strategy."
QUARTERLY FLUCTUATIONS IN SALES AND EARNINGS; FOURTH QUARTER CONCENTRATION
Some of the Company's customers tend to utilize a greater portion of their
advertising and promotional budgets in the latter half of the year, which
historically has resulted and may continue to result in a disproportionately
large share of the Company's net sales being recognized in the fourth quarter.
The Company incurs general and administrative expenses evenly throughout the
year, which historically has resulted and may continue to result in a
disproportionate share of its net income being reported in the fourth quarter.
In addition, the timing of and method of accounting used to report the results
of operations of acquired businesses may cause substantial fluctuations in the
Company's operating results from quarter to quarter. Therefore, the operating
results for one quarter may not be a reliable indicator of the results to be
expected in any future quarter.
DEPENDENCE UPON SALES REPRESENTATIVES
The success of the Company is largely attributable to its ability to
attract, motivate and retain high quality sales representatives. The Company's
sales force currently consists of approximately 700 core sales representatives.
Most of the Company's sales representatives are independent contractors who are
not contractually prohibited from representing other companies, including the
Company's competitors. The Company is not dependent upon any one or any
affiliated group of sales representatives for a material amount of its revenues;
however, when a sales representative terminates his or her relationship with the
Company, that representative's customers may cease to utilize the Company's
services. There can be no assurance that the Company will not experience a
significant turnover rate in the future. See "Business-- Personnel."
7
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success has been the result, in large part, of the skills and
efforts of the Company's senior management. In addition, the Company's success
and continued growth will depend on its ability to recruit, hire, motivate and
retain other highly qualified managerial personnel, including personnel
previously employed by or associated with businesses acquired by the Company.
The loss of one or several members of senior management or the inability of the
Company to attract and retain highly qualified managerial personnel could have a
material adverse effect on the Company's business, future growth, results of
operations or financial condition. See "--Difficulties of Managing Rapid Growth"
and "Management."
RISKS ASSOCIATED WITH THE COMPANY'S TELEPHONE-BASED MARKETING BUSINESS
TECHNOLOGY. Market USA has made significant investments in sophisticated
and specialized telecommunications and computer technology to enable it to
provide customized telephone-based marketing solutions to its clients. The
Company anticipates that it will need to periodically update this technology and
develop new technology in order for Market USA to remain competitive. Market
USA's business is highly dependent on its computer, telephone and software
systems, and the temporary or permanent loss of such equipment or systems,
through casualty or operating malfunctions, could have a materially adverse
effect on the Company's business. Market USA's business also is dependent on
services provided by various local and long distance telephone companies. A
significant increase in the cost of telephone services that Market USA cannot
recover through an increase in service prices, or any significant disruption in
telephone services, could have a material adverse effect on Market USA and the
Company.
GOVERNMENTAL REGULATION. The telemarketing industry has become subject to
an increasing amount of federal and state regulation. For example, rules
promulgated by the United States Federal Communications Commission limit the
hours during which telemarketers may call consumers and prohibit the use of
automated telephone dialing equipment to call certain telephone numbers. In
addition, a number of states have enacted or are considering enacting
legislation to regulate telephone solicitations. Market USA also is subject to
various Canadian federal, provincial and territorial laws and regulations,
including, but not limited to, certain fraud provisions of the Canadian Criminal
Code and certain misleading advertising provisions of the Competition Act
(Canada). Market USA believes that its operating procedures substantially comply
with applicable governmental regulations regarding telephone solicitation;
however, there can be no assurance that additional legislation, or changes in
regulatory enforcement, will not limit the activities of Market USA or its
clients in the future or significantly increase the cost of regulatory
compliance.
Several of the industries in which Market USA's clients operate,
particularly the insurance and financial services industries, are subject to
varying degrees of government regulation. Generally, compliance with these
regulations is a responsibility shared by Market USA and its clients; however,
Market USA could be subject to a variety of enforcement or private actions for
its failure or the failure of its clients to comply with such regulations. The
telephone service representatives who sell insurance products are required,
among other things, to be licensed by various state and provincial insurance
commissions and to participate in regular continuing education programs. As a
result, changes in these regulations or their enforcement could materially
increase Market USA's operating costs.
COMPETITION. The telemarketing industry is highly fragmented and is
becoming increasingly competitive. Market USA competes with the in-house
operations of its clients and potential clients and also with non-captive
telemarketing and customer service corporations ranging in size from small firms
offering special applications or short-term projects to large, publicly traded
companies. Some of Market USA's competitors may have greater financial and
technical capabilities and resources than the Company. There can be no assurance
that additional competitors with greater resources than the Company will not
enter
8
<PAGE>
the industry or that the Company's clients will not choose to conduct more of
their telephone-based sales, marketing or customer service activities using
in-house personnel. See "Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company currently has offices in the United States, Canada, Italy, Great
Britain, Argentina, Belgium and Hong Kong, and an important component of the
Company's growth strategy is to expand its international distribution
capabilities. The Company seeks to acquire additional international businesses
to further enhance its abilities to meet the needs of its multi-national
clients; however, there can be no assurance that the Company will be able
successfully to identify suitable international acquisition candidates, acquire
such candidates on economically favorable terms or integrate acquired businesses
into its existing operations. In addition, there are certain risks inherent in
conducting international business, including exposure to currency fluctuations,
longer collection cycles, compliance with foreign laws, unexpected changes in
regulatory requirements, staffing and managing foreign operations, political
instability, currency control laws and potentially adverse tax consequences.
There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's existing international operations and
on its international expansion plans. See "Business--Growth Strategy" and
"Recent Developments."
FOREIGN SOURCES OF SUPPLY
A sizeable portion of the Company's sales are comprised of products
manufactured by foreign suppliers. The Company's use of foreign suppliers is
subject to a number of risks, including transportation delays and interruptions,
political and economic disruptions, the imposition of tariffs, quotas and other
import or export controls, currency fluctuations and changes in governmental
policies. The Company currently has alternative domestic suppliers and regularly
evaluates additional sources of supply. Orders placed with foreign suppliers
must generally be placed further in advance than orders placed with domestic
manufacturers. The Company believes that the foreign suppliers it uses are
reliable and the Company has not experienced significant difficulties with such
suppliers in the past; however, there can be no assurance that the Company will
not experience any such difficulties in the future. See "Business--Purchasing
and Vendor Networks."
COMPETITION
The promotional products industry is highly fragmented and competitive, with
few barriers to entry. The Company believes that its national and international
distribution capabilities, professional sales force and complementary,
value-added marketing services provide it with a competitive advantage; however,
these capabilities also may result in higher administrative costs than those
incurred by certain of HA-LO's smaller competitors. In addition, certain 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. The Company's existing competitors, and companies that may enter
the market, may have substantially greater financial and other resources than
HA-LO. The Company also competes for advertising dollars with other media, such
as television, radio, newspapers, magazines and billboards. There can be no
assurance that HA-LO will be able to continue to compete successfully against
current and future competitors or that competitive pressures faced by HA-LO will
not materially adversely affect its business, operating results and financial
condition.
DISCRETIONARY USE OF PROCEEDS
The Company expects to use a portion of net proceeds of the Offering to
repay approximately $47.0 million of outstanding indebtedness. The remainder of
the net proceeds will be used for working capital and general corporate
purposes, internal growth and acquisitions, including a possible acquisition of
a European-based promotional products distributor; however, the Company
currently has no definitive
9
<PAGE>
agreements with respect to any material acquisitions. Consequently, a material
portion of the Company's net proceeds of the Offering presently are uncommitted
and the Company's management will have discretion over the use of such funds.
See "Use of Proceeds" and "Recent Developments."
CERTAIN ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK
Certain provisions of the Company's Restated Articles of Incorporation, as
amended (the "Articles"), and Amended and Restated By-laws (the "By-laws"), as
well as provisions of the Illinois Business Corporation Act of 1983, as amended
(the "IBCA"), could have the effect of preventing or delaying a takeover of the
Company. The Company's Board of Directors has the authority to issue up to
10,000,000 shares of Preferred Stock and to determine the price, voting,
liquidation, dividend and other rights, preferences and privileges of such
shares without any further vote or action by the Company's shareholders. The
rights of the holders of Common Stock will be subject to and may be adversely
affected by the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate transactions, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company or to otherwise effect a
change of control. The Company has no present plan to issue shares of Preferred
Stock. The Company also has executed agreements with 10 of its officers
providing for payment of specified amounts to such officers in the event their
employment is terminated following a change of control. Additionally, the IBCA
prohibits a corporation from engaging in a business combination with an
"interested shareholder" for a period of three years after the transaction in
which the person became an interested shareholder, unless: (i) the board of
directors of the corporation approved the transaction in which the interested
shareholder became an interested shareholder or approved the business
combination, (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder owned
at least 85% of the voting stock outstanding at the time the transaction
commenced (other than certain excluded shares), or (iii) upon or following the
transaction in which such person became an interested shareholder, the business
combination is approved by the board of directors of the corporation and the
affirmative vote at a meeting of shareholders of at least two-thirds of the
outstanding voting stock that is not owned by the interested shareholder;
however, as amended by the Company's Articles, this provision requires the
affirmative vote of only a majority of the Company's outstanding voting stock.
An "interested shareholder" is a person who, together with affiliates and
associates, owns, or within three years prior to such transaction did own, 15%
or more of the corporation's outstanding voting stock. These provisions could
have the effect of deterring hostile takeovers or delaying or preventing changes
in control or management of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 25,283,388 shares of Common
Stock outstanding, of which approximately 4,500,000 shares constitute
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). Of such restricted
securities, the Company is required to file registration statements covering
approximately 2,550,000 shares, to enable the holders thereof to resell such
shares without restriction. The Company also has filed Registration Statements
on Form S-8 covering an aggregate of 5,821,130 shares reserved for issuance upon
exercise of options granted or to be granted under the Company's stock plans. As
of April 1, 1998, options to purchase an aggregate of 4,512,970 shares of Common
Stock (excluding options exercised in connection with the Offering) and warrants
to purchase an aggregate of 1,056,702 shares of Common Stock were outstanding.
In addition, the Company may issue a substantial number of shares of Common
Stock as full or partial consideration for acquisitions of existing businesses.
Sales in the public market of a substantial number of shares of Common Stock
could adversely affect the prevailing market price of the Common Stock and could
impair the Company's future ability to raise capital through future offerings of
its equity securities. However, the Company, its directors and executive
officers and the Selling Shareholders have agreed not to offer, sell, contract
to sell or otherwise dispose of any Common Stock or any securities
10
<PAGE>
convertible into or exchangeable for Common Stock for 90 days after the
effective date of the Offering without the prior written consent of Credit
Suisse First Boston Corporation. See "Shares Eligible for Future Sale" and
"Underwriting."
VOLATILITY OF STOCK PRICE
The Common Stock historically has been subject to significant price
fluctuations in response to a variety of factors, including quarterly variations
in operating results, announcing acquisitions, strategic alliances and joint
ventures, general conditions in the promotional products industry, and general
economic and market conditions. In addition, the stock market has experienced
significant price and volume fluctuations that have adversely affected the
market prices of equity securities of some companies and that often have been
unrelated to the operating performance of such companies. See "Price Range of
Common Stock and Dividend Policy."
YEAR 2000 COMPLIANCE
Date sensitive computer applications that currently record years in
two-digit, rather than four-digit, format may be unable to properly categorize
and process dates occurring after December 31, 1999 (the "Year 2000" problem).
The Company has made a preliminary determination that it will not incur
significant costs to make its software programs and operating systems Year 2000
compliant. If Year 2000 related failures were to occur in the Company's computer
and information systems, however, the Company could incur significant,
unanticipated liabilities and expenses.
FORWARD-LOOKING STATEMENTS
Statements herein regarding HA-LO's prospective business, growth and
acquisition opportunities are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and involve substantial risks and
uncertainties. Forward-looking statements include statements contained in the
"Prospectus Summary," "Management's Discussion and Analysis" and "Business"
sections of this Prospectus regarding the Company's ability to (i) continue to
grow through acquisitions of businesses, (ii) integrate acquired businesses
successfully into its existing operations, (iii) continue to recruit, motivate
and retain high quality sales representatives and management personnel, and (iv)
cross-sell promotional products, sports marketing, advertising services and
telephone-based marketing services across its customer base. Forward-looking
statements also include statements relating to the Company or its operations
that are preceded by terms such as "expects," "believes," "intends" and similar
expressions. The Company's actual results of operation or financial performance
may differ materially from those implied by such forward-looking statements as a
result of various factors, including, without limitation, the following: (a)
most of the Company's sales representatives are independent contractors who are
not contractually prohibited from representing other companies, including
competitors of the Company; (b) the Company's ability to cross-sell its
complementary yet distinct promotional products, telephone-based marketing,
advertising and sports marketing services depends, in large part, upon the
Company's ability to educate and motivate its sales representatives; (c) the
Company does not maintain its own manufacturing facilities and is dependent upon
domestic and foreign manufacturers for its supply of promotional products; and
(d) the promotional products and telemarketing industries are very competitive.
Actual results also may vary as a result of the other factors described under
"Risk Factors."
11
<PAGE>
RECENT DEVELOPMENTS
The Company has reached a non-binding, preliminary understanding to acquire
a European-based distributor of promotional products for an estimated purchase
price of approximately $60.0 million, approximately half of which is expected to
be paid in shares of Common Stock with the remainder being paid using a portion
of the Company's net proceeds of the Offering. The transaction is subject to,
among other things, the execution of definitive agreements, appropriate
corporate approvals and completion of the Company's business and legal due
diligence reviews. Accordingly, there can be no assurance that this acquisition
will be completed or, if completed, regarding the ultimate purchase price or the
definitive terms thereof.
The Internal Revenue Service (the "IRS") has completed its field audit
examination of the Company's federal employment tax returns for the years ended
December 31, 1994 and 1993. This examination included a review of the facts,
circumstances and legal authority supporting the Company's position that its
independent sales representatives of promotional products have properly been
treated as independent contractors for federal employment tax purposes. The IRS
examination has been concluded without penalty or assessments of additional
employment tax.
The Company recently announced that it expects to incur a pre-tax charge of
approximately $1.5 million, or approximately $0.04 per share, in the first
quarter of 1998, relating to two events--a recent fire that damaged its office
and distribution facility in Detroit, and the closing of a warehouse and
embroidery operation in Hayward, California that was acquired as part of a 1997
acquisition.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common Stock
are estimated to be approximately $124.8 million ($145.7 million if the
Underwriters' over-allotment option is exercised in full), based on an assumed
public offering price of $35.25 per share and after deducting underwriting
discounts and commissions and estimated Offering expenses. The Company expects
to receive approximately $903,000 in proceeds from the exercise of options by
two of the Selling Shareholders in connection with the Offering. Except for such
proceeds, the Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
The Company intends to use a portion of its net proceeds to repay
approximately $47.0 million of indebtedness outstanding under its credit
facilities, which consist of an unsecured revolving line of credit of up to $45
million (the "Revolver"), a term acquisition loan of up to $20 million (the
"Term Loan") and various revolving credit facilities with several European banks
of up to $5.0 million. The Revolver expires on January 31, 1999 and borrowings
under the Term Loan mature on the earlier of five years from the date of
borrowing or June 30, 2003. Borrowings under such credit facility bear interest
at a per annum rate equal to (i) a specified bank's prime rate less .25%, or
(ii) the London Interbank Offered Rate ("LIBOR") plus an amount between .375%
and 1.0%, which amount is determined based upon a ratio specified in the credit
facility agreement. As of April 6, 1998, LIBOR was 5.7% and the applicable prime
rate was 8.25%. Borrowings under the Revolver were used for general corporate
purposes; no borrowings currently are outstanding under the Term Loan. Interest
on borrowings under the European facilities ranges from 8% to 13%.
The Company intends to use the remaining $77.8 million of net proceeds,
together with amounts available under the Revolver and Term Loan, for future
acquisitions and general corporate purposes, including working capital. The
Company is engaged in ongoing evaluations of third parties regarding possible
acquisitions and has reached a non-binding, preliminary understanding to acquire
a European-based promotional products distributor for approximately $60.0
million, approximately half of which is expected to be paid in shares of Common
Stock; however, the Company has not executed definitive agreements with respect
to such acquisition and there can be no assurance that such acquisition will
occur. See "Recent Developments." Pending any such uses, the Company plans to
invest the net proceeds in investment grade, interest bearing securities.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "HMK" and, prior to October 27, 1997, was publicly traded on the
Nasdaq National Market under the symbol "HALO." The following table sets forth,
for the periods indicated, the range of high and low sale prices, by quarter,
for the Common Stock, as reported by the New York Stock Exchange and the Nasdaq
National Market, as applicable.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First quarter................................................................. 15 3/8 10 3/4
Second quarter................................................................ 23 13/16 14 3/8
Third quarter................................................................. 25 15 1/4
Fourth quarter................................................................ 32 3/16 21 3/4
1997
First quarter................................................................. 29 12 1/2
Second quarter................................................................ 25 1/4 14 1/2
Third quarter................................................................. 29 5/16 22 1/2
Fourth quarter................................................................ 29 3/8 23 1/4
1998
First quarter................................................................. 38 3/8 24 7/16
Second quarter (through April 14, 1998)....................................... 35 5/8 32 11/16
</TABLE>
On April 14, 1998, the last sale price of the Company's Common Stock as
reported on the New York Stock Exchange composite tape was $35.25 per share. As
of April 1, 1998, there were approximately 3,800 holders of record of the
Company's Common Stock.
Since its initial public offering in October 1992, the Company has not paid
any cash dividends on its Common Stock; however, six companies acquired by HA-LO
since December 1995 in transactions accounted for using the pooling-of-interests
accounting method paid aggregate cash dividends in 1996 and 1997 of $3.9 million
and $2.9 million, respectively. The Company does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. In addition, the
Company's credit facility restricts the payment of cash dividends if an event of
default exists thereunder or if the payment of the dividend would create an
event of default. No event of default currently exists under the credit
facility.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1997 the Company's cash
and cash equivalents, long-term debt and capitalization (i) on an actual basis
and (ii) as adjusted to reflect the issuance and sale of the Common Stock
offered hereby by the Company and the application of the estimated net proceeds
to repay outstanding indebtedness. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Cash and equivalents..................................................................... $ 2,717 $ 79,490
---------- -----------
---------- -----------
Current maturities of long-term debt..................................................... $ 4,353 $ --
Long-term debt........................................................................... 43,626 --
---------- -----------
Total indebtedness................................................................... 47,979 --
---------- -----------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares authorized and none issued............ -- --
Common Stock, no par value; 100,000,000 shares authorized; 21,085,237 shares issued and
outstanding, actual, and 24,980,237 shares issued and outstanding, as adjusted(1).... 62,155 186,907
Other.................................................................................. (2,132) (2,132)
Retained earnings...................................................................... 21,363 21,363
---------- -----------
Total shareholders' equity............................................................. 81,386 206,138
---------- -----------
Total capitalization................................................................. $ 129,365 $ 206,138
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Does not include 3,814,542 shares of Common Stock reserved for issuance upon
exercise of options (excluding options exercised in connection with the
Offering), and 1,056,702 shares of Common Stock reserved for issuance upon
exercise of warrants, outstanding as of December 31, 1997.
14
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents selected financial data of HA-LO as of and for
the five years ended December 31, 1997, which have been derived from audited
financial statements of HA-LO. The following selected financial data should be
read in conjunction with the Financial Statements and the related notes
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net Sales............................................ $ 413,791 $ 344,422 $ 283,080 $ 195,003 $ 145,652
Cost of Sales........................................ 279,984 244,259 206,346 140,081 105,346
---------- ---------- ---------- ---------- ----------
Gross Profit......................................... 133,807 100,163 76,734 54,922 40,306
Selling Expenses..................................... 52,126 40,159 31,689 22,913 14,579
General and Administrative Expenses.................. 52,817 43,587 34,312 24,876 21,096
Non-recurring Charges Related to Acquisitions........ 3,845 1,693 1,800 -- --
---------- ---------- ---------- ---------- ----------
Operating Income................................... 25,019 14,724 8,933 7,133 4,631
Interest Expense, Net................................ (1,878) (938) (2,149) (1,012) (613)
---------- ---------- ---------- ---------- ----------
Income Before Income Taxes........................... 23,141 13,786 6,784 6,121 4,018
Provision for Income Taxes........................... 9,259 6,360 2,515 1,284 438
---------- ---------- ---------- ---------- ----------
Net Income........................................... $ 13,882 $ 7,426 $ 4,269 $ 4,837 $ 3,580
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro Forma Net Income(2).............................. $ 8,241 $ 4,070 $ 3,673 $ 2,411
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income Per Share--Diluted(2),(3)................. $ 0.64 $ 0.39 $ 0.23 $ 0.23 $ 0.15
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA(1):
Working Capital...................................... $ 77,871 $ 57,729 $ 39,350 $ 23,306 $ 14,597
Total Assets......................................... 210,627 128,682 107,780 77,011 52,427
Long-term Debt....................................... 43,626 28,006 12,112 13,536 6,789
Shareholders' Equity(4).............................. 81,386 57,114 46,865 20,383 16,798
OTHER FINANCIAL DATA(1):
EBITDA(5)............................................ $ 30,860 $ 19,854 $ 12,582 $ 8,136 $ 5,720
Capital Expenditures................................. 8,189 7,495 3,252 1,592 2,135
</TABLE>
- ------------------------
(1) All periods presented include acquisitions accounted for using the
pooling-of-interests accounting method.
(2) Certain entities acquired by the Company and accounted for using the
pooling-of-interests accounting method had elected to be treated as S
Corporations and were not subject to Federal income taxes prior to
acquisition by the Company. Pro forma net income includes unaudited
provision for income taxes for such entities, computed at an effective rate
of 40%.
(3) Includes non-recurring charges related to acquisitions in 1997, 1996 and
1995 of $0.11, $0.05 and $0.06, respectively.
(4) Includes dividends of $2,890, $3,912, $5,715, $1,276, and $785 declared by
acquired companies in 1997, 1996, 1995, 1994 and 1993, respectively, prior
to their acquisition by the Company.
(5) EBITDA represents income from operations before interest expense, income
taxes and depreciation and amortization. EBITDA is presented because it is a
widely accepted indicator of a company's financial performance. However,
EBITDA should not be construed as an alternative to net income as a measure
of the Company's operating results or to cash flows from operating
activities (determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percent of net
sales represented by each line item presented below. All periods presented have
been restated to include the results of acquisitions accounted for using the
pooling-of-interests method of accounting. This information should be read in
conjunction with the Company's financial statements, notes thereto and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Sales......................................... 100.0% 100.0% 100.0%
Cost of Sales..................................... 67.7% 70.9% 72.9%
--------- --------- ---------
Gross Profit...................................... 32.3% 29.1% 27.1%
Selling Expenses.................................. 12.6% 11.7% 11.2%
General and Administrative Expenses............... 12.8% 12.6% 12.1%
Non-recurring Charges Related to Acquisitions..... 0.9% 0.5% 0.6%
--------- --------- ---------
Operating Income................................ 6.0% 4.3% 3.2%
Interest Expense, Net............................. 0.4% 0.3% 0.8%
--------- --------- ---------
Income Before Income Taxes........................ 5.6% 4.0% 2.4%
Provision for Income Taxes........................ 2.2% 1.8% 0.9%
--------- --------- ---------
Net Income........................................ 3.4% 2.2% 1.5%
--------- --------- ---------
--------- --------- ---------
Pro Forma Net Income(1)........................... 2.4% 1.4%
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Certain entities acquired by the Company and accounted for using the
pooling-of-interests accounting method had elected to be treated as S
Corporations and were not subject to Federal income taxes prior to
acquisition by the Company. Pro forma net income includes unaudited
provision for income taxes for such entities, computed at an effective rate
of 40%.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased 20.2% to $413.8 million from $344.4 million
for 1996. Of the $69.4 million increase, $53.1 million is due to internal growth
and $16.3 million is from acquired companies.
GROSS PROFIT. Gross profit as a percentage of net sales for 1997 was 32.3%
($133.8 million) compared to 29.1% ($100.2 million) for 1996. The increase is
due primarily to increased margins in the promotional products business and a
continued focus on profitable growth.
SELLING EXPENSES. Selling expenses as a percentage of net sales for 1997
were 12.6% ($52.1 million) compared to 11.7% ($40.2 million) for 1996. The .9%
increase is due primarily to increased commissions attributable to sales growth
and the increase in gross profit as a percentage of sales. To a lesser extent,
the increase is due to increased investments in corporate visibility and
exclusive product arrangements.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as
a percentage of net sales for 1997 were 12.8% ($52.8 million), relatively
unchanged from 1996 ($43.6 million). The $9.2 million increase is due to
increased infrastructure required to support the Company's growth.
16
<PAGE>
NON-RECURRING CHARGES RELATED TO ACQUISITIONS. Operating results for 1997
and 1996 include non-recurring charges of $3.8 million and $1.7 million,
respectively, to complete acquisitions accounted for using the
pooling-of-interests accounting method.
INTEREST EXPENSE, NET. Net interest expense in 1997 increased to $1.9
million from $938,000 in 1996. The increase is due to working capital needs
necessary to fund growth, an acceleration of payments to vendors of acquired
companies to bring them in line with Company standards and additional borrowings
incurred to fund certain 1997 acquisitions.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 21.7% to $344.4 million in 1996 compared to
1995 sales of $283.1 million. Virtually all of the $61.3 million increase was
attributable to internal growth.
GROSS PROFIT. Gross profit as a percentage of net sales for 1996 was 29.1%
($100.2 million) compared to 27.1% ($76.7 million) in 1995. The increase is due
primarily to a continued focus on profitable growth.
SELLING EXPENSES. Selling expenses as a percentage of net sales for 1996
were 11.7% ($40.2 million) for 1996 compared to 11.2% ($31.7 million) in 1995.
The .5% increase is due to increased commissions attributable to sales growth
and the increase in gross profit as a percentage of net sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as
a percentage of net sales were 12.6% ($43.6 million) compared to 12.1% ($34.3
million) in 1995. The increase is due to increased infrastructure required to
support the Company's growth.
NON-RECURRING CHARGES RELATED TO ACQUISITIONS. Operating results for 1996
and 1995 include non-recurring charges of $1.7 million and $1.8 million,
respectively, to complete acquisitions accounted for using the
pooling-of-interests accounting method.
INTEREST EXPENSE, NET. Net interest expense decreased to $938,000 in 1996
from $2.1 million in 1995. The decrease is the result of proceeds from the
Company's public offering in November, 1995 being used to reduce debt.
LIQUIDITY AND CAPITAL RESOURCES
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 the first quarter of 1997, the Company refinanced its line of credit. The
new agreement provides for an unsecured credit facility totaling $65 million,
consisting of a $45 million revolving line of credit (the "Revolver") and $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.
As of December 31, 1997, the Company's working capital was $77.9 million
compared to $57.7 million as of December 31, 1996. The $20.2 million increase in
working capital is attributable to the overall sales growth of the Company and a
continued focus on working capital management.
Capital expenditures, excluding acquisitions, were approximately $8.2
million in 1997 compared to $7.5 million in 1996. The increase between years
relates primarily to updating of the Company's computer systems and investments
in facilities necessary to support the Company's growth. Management currently
expects capital expenditures to be approximately $7.5 million in 1998, excluding
acquisitions.
17
<PAGE>
Overall, the Company believes that availability from its credit facility,
the net proceeds to the Company of the Offering and cash flows from future
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 periods presented.
YEAR 2000 COMPLIANCE
The Company's operating divisions and subsidiaries utilize various software
programs and operating systems. Based upon its preliminary review, the Company
does not believe that it will incur significant costs to make its software
programs and operating systems Year 2000 compliant. The Company will continue to
review its date sensitive software programs and operating systems and make
necessary upgrades and modifications.
18
<PAGE>
BUSINESS
GENERAL
HA-LO is the largest and one of the fastest growing distributors of
promotional products in the United States and also has substantial operations in
Canada and Europe. In addition to its promotional products business, the Company
provides other value-added marketing services, such as telephone-based
marketing, full-service advertising, events planning services and sports
marketing.
HA-LO's promotional products business represented over 80% of its 1997 net
sales. To market its promotional products, HA-LO utilizes a system of 25 sales
offices with showrooms located primarily in the United States and also in Canada
and Europe. The showrooms display some of the 300,000 products provided by the
Company's network of more than 2,500 vendors. HA-LO's approximately 700 core
sales representatives market and sell promotional products primarily to large
and mid-sized corporations. The Company's promotional products are items that
are useful or decorative and are imprinted or otherwise customized with a
customer's name, logo or message. These products are utilized by the Company's
customers for marketing, to build brand recognition and as employee incentives,
customer gifts and giveaways. Promotional 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
items, such as etched crystalware, calendars, golf accessories, key chains,
watches and mugs. Promotional products are designed to be utilized by the
recipient over an extended period of time, so that the products enjoy repeated
exposure and reinforce a brand name or marketing message. The Company has
exclusive rights to distribute merchandise manufactured by Champion Products,
Inc. and Roots, Canada to corporate customers in the United States and Canada.
HA-LO also has established a joint marketing relationship with Sony Signatures,
a division of Sony Corporation of America and one of the lead sponsors of World
Cup Soccer '98.
The Company leverages its promotional products business expertise by
developing innovative promotional products and programs that are tailored to
satisfy its customers' specific needs. HA-LO cross-sells complementary marketing
services through its other operating divisions and subsidiaries: Events by
HA-LO-Registered Trademark-, an event planning business; HA-LO Sports-Registered
Trademark-, a sports marketing agency; and Duncan & Hill, a full-service
advertising and marketing communications agency. In addition, the Company
provides telephone-based marketing services through its wholly-owned subsidiary,
Market USA, which maintains a network of approximately 2,100 telephone
representatives and over 1,200 workstations in 19 call centers located primarily
throughout the Midwestern U.S. and Canada. The Company also provides corporate
fulfillment services, which enable a customer to purchase a large quantity of
promotional products that the Company warehouses and ships in smaller quantities
at the direction of the customer. The Company's over 20,000 customers include
manufacturing, financial service, broadcasting, technology, consumer product and
communications companies, as well as professional sports teams. Customers of
HA-LO include AlliedSignal, America Online, Ameritech, Ford Motor Company,
General Electric, General Mills, Motorola, Time Warner, the Chicago Bulls and
the Green Bay Packers.
INDUSTRY
The U.S. promotional products industry continues to grow rapidly. According
to Promotional Products Association International, the United States market for
promotional products, measured by distributors' sales, has grown from
approximately $5.2 billion in 1992 to approximately $9.5 billion in 1996, a
compound annual growth rate of 16.3%. The Company believes the promotional
products industry will continue to gain an increasingly larger share of total
advertising expenditures because promotional products are more cost-effective,
longer-lasting and better targeted than traditional advertising. Currently, the
promotional products market constitutes a relatively small portion of the
overall advertising market, representing just 6% of the $171.0 billion total
advertising expenditures in 1996. The promotional products
19
<PAGE>
industry is highly fragmented and, according to industry sources, is undergoing
consolidation. There currently are approximately 15,000 distributors of
promotional products in the United States. Distributors tend to be closely-held
entities with a local or regional focus, ranging from sole proprietorships that
bring sample cases and suppliers' catalogs to their customers, to entities that
maintain showrooms to assist customers in selecting from an array of available
products. Industry sources estimate that approximately 98% of promotional
products distributors each had sales of $2.5 million or less in 1996, with the
25 largest distributors in the aggregate accounting for less than 18% of
industry sales in 1996. Some of the larger distributors are also manufacturers
(or affiliates of manufacturers) of products traditionally used in the
promotional products industry.
The Company believes that as conventional forms of advertising become more
expensive, companies increasingly will seek alternative methods of promotion.
Promotional products and programs generally represent a lower cost alternative
to more traditional advertising and can be utilized by companies to deliver
specific messages to targeted recipients. Because promotional products are
designed to be utilized by the recipient over an extended period of time, these
products enjoy repeated exposure and reinforce a brand name or marketing
message.
The Company believes that many companies increasingly are patronizing a
limited number of promotional products suppliers and are focusing on financially
strong, full-service distributors. The criteria for selecting a distributor
include cost, quality, responsiveness, breadth of service (including design and
customization services), the ability to develop marketing programs and the
ability to service clients nationally and internationally. Generally, only
larger distributors with sufficient size, capabilities and financial resources
are able to fulfill all of such criteria. The trend of companies to consolidate
their suppliers provides an opportunity for full-service providers of marketing
and promotional products services, such as the Company, to grow by obtaining new
customers previously served by smaller competitors.
The telemarketing industry also is highly fragmented and competitive, and
includes both captive and independent companies. According to Direct Marketing
Association, $97.8 billion was spent on telephone-based direct marketing in
1996, which is more than twice the amount spent a decade earlier. This
significant industry growth has created a demand for technologically advanced
high volume call centers dedicated to providing telemarketing services for
clients on an outsourced basis. Although over 90% of the industry is comprised
of in-house operations, many large companies increasingly are focusing on their
core competencies and outsourcing their non-core functions. The advantages of
telemarketing, 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.
BUSINESS STRATEGY
The Company believes its business strategy is attractive to customers, as
well as to its sales representatives and employees, and will enable it to expand
its leadership position in the marketing and promotional products industry. Key
components of the Company's business strategy are and have been to:
INCREASE BRAND IDENTITY AND CORPORATE VISIBILITY. A significant part of the
Company's marketing efforts has been directed toward increasing public
recognition of the HA-LO brand name. The Company has successfully marketed
itself through associations with professional sports teams and by advertising at
major sports arenas and events. Professional sports teams whose venues display
the HA-LO name include the Chicago Bulls, Chicago Cubs, Cincinnati Reds, Dallas
Mavericks, Detroit Tigers, Houston Astros, Los Angeles Clippers, Milwaukee
Brewers, Minnesota Twins, Montreal Expos, Oakland Athletics, Philadelphia 76ers,
Pittsburgh Pirates, San Diego Padres, Vancouver Canucks and Vancouver Grizzlies.
The Company also has created an exclusive line of apparel known as "HA-LO
Casuals" and a line of general merchandise known as the "HA-LO Global"
collection. The Company believes that these high visibility promotional
20
<PAGE>
relationships and branded products have greatly increased its name recognition
and intends to pursue additional sports related marketing opportunities and
develop additional lines of exclusive products.
LEVERAGE FLEXIBLE EXPENSE STRUCTURE. The Company minimizes fixed costs by:
(i) compensating its sales force almost exclusively on a commission basis, (ii)
sourcing its products from reliable vendors, thereby avoiding fixed costs
associated with internal manufacturing, (iii) handling a substantial majority of
its sales via direct shipment from the vendor to the customer, thereby
minimizing the Company's inventory risks, and (iv) centralizing primary
corporate functions, such as accounting, human resources, warehousing and
information systems. The Company believes that the high proportion of its
variable expenses relative to its fixed costs results in less fluctuations in
its profitability.
CAPITALIZE ON BUYING POWER. As the nation's largest distributor of
promotional products, the Company has successfully negotiated preferred pricing
and rebate programs from many of its vendors and has developed relationships
with reliable overseas manufacturers that satisfy the Company's strict quality
and delivery standards. The Company believes its sales volume and financial
strength have earned it a reputation as a low-cost, high service provider of
promotional products.
CONTINUE TO OFFER SOPHISTICATED DESIGN AND SERVICE CAPABILITIES. The
Company seeks to position itself as an integral part of its customers' overall
marketing and advertising programs by offering more sophisticated services than
the typical smaller promotional products distributor. The Company's in-house
design and production department enables the Company to provide customized
solutions to address its customers' marketing needs. Once a new promotional
products concept has been designed, the Company's full-service, self-contained
art department has the capability, generally within 24 hours, to produce a
visual representation of the product for customer approval. The Company can
design and produce in-house for its customers complete catalogs of promotional
products. In addition, the Company's relationships with a wide range of
suppliers enable the Company to consistently deliver high quality products to
its customers on a timely basis. The Company believes that these capabilities
give it a competitive advantage in attracting new customers and in capturing a
greater percentage of its customers' marketing and promotional products orders.
EXPAND SALES SUPPORT CAPABILITIES. Through its corporate offices, the
Company provides centralized accounting, human resources, warehousing and
information systems services. The Company currently is upgrading its information
system to link its sales offices and enable sales representatives to receive
detailed information regarding their customers' purchasing patterns, payment
history and order status. These capabilities are integral to the Company's
ability to attract and retain high quality sales representatives and enable the
sales representatives to focus their energies on servicing customers and
soliciting new business.
GROWTH STRATEGY
The Company believes its business strategy is the foundation on which it has
achieved, and will continue to achieve, strong growth in sales and earnings. The
Company expects that continued growth will arise from internal growth, increases
in its market share, acquisitions and strong industry fundamentals. Key elements
of the Company's growth strategy include the following:
LEVERAGE SIZE AND DISTRIBUTION CAPABILITIES. HA-LO is the largest company
in a fragmented industry consisting of over 15,000 companies, approximately 98%
of which each have annual revenues of $2.5 million or less. The Company believes
that it is one of the few companies that has the capability to service large,
international corporate customers. For example, under its corporate fulfillment
programs, HA-LO (i) develops catalogs for its customers displaying promotional
products customized with the customers' names and logos, (ii) warehouses large
quantities of promotional products purchased by its customers, and (iii) ships
purchased products in smaller quantities at the direction of the customer.
HA-LO's corporate fulfillment program affords large customers lower per unit
costs and the flexibility to receive immediate delivery of small quantities as
needed. The Company believes that these customers will seek to consolidate
21
<PAGE>
their marketing and promotional products purchases with one or a few larger
suppliers, resulting in substantial opportunities for the Company.
EXPAND COMPLEMENTARY MARKETING SERVICES. The Company has expanded its
promotional products business to include additional marketing services to
capitalize on the trends toward outsourcing and "one-stop shopping" and to
better penetrate its customer base. The Company also provides telephone-based
marketing services, full-service advertising and marketing, sports marketing and
event planning services. The Company continuously is exploring other services,
such as licensing, sales promotion and other business marketing services, that
would complement its current service offerings and facilitate the sale of
additional promotional products to existing customers. See "Products and
Services--Integrated Marketing Services."
FURTHER PENETRATE EXISTING CUSTOMER RELATIONSHIPS. The Company has
developed strong relationships with numerous large customers, many of which have
significant marketing budgets. As a result of such relationships, the Company
increasingly is being consulted by its customers in the initial stages of their
marketing programs. The Company believes this creates opportunities to
proactively introduce new and creative promotional products and programs and
cross-sell its complementary marketing services. The Company has implemented an
on-going training and education program to enable its sales representatives to
effectively cross-sell other HA-LO marketing services to their customers and
further penetrate its existing customer base. HA-LO sales representatives also
receive financial incentives based on their success in cross-selling.
EXPAND AND STRENGTHEN SALES FORCE. The Company seeks to continue to grow by
adding more sales representatives, opening additional sales offices and
increasing the productivity of its sales force. During 1997, over 50 experienced
sales representatives joined HA-LO (excluding sales representatives of acquired
businesses), primarily from other companies in the promotional products
industry. The Company believes industry sales representatives are attracted to
HA-LO for many reasons, including HA-LO's purchasing power, managerial
expertise, financing capabilities, exclusive product arrangements, national and
international fulfillment capabilities, corporate visibility and the full range
of marketing services it offers to its clients. The Company has successfully
increased the productivity of its sales representatives through
performance-based compensation, general sales training and education regarding
HA-LO's various services, and as a result of its enhanced fulfillment
capabilities, exclusive product lines, sophisticated systems and increased
visibility in the marketplace. The Company currently has 25 sales offices with
showrooms, located primarily throughout the United States and also in Canada and
Europe, that provide customers with the opportunity to view the wide array of
products offered by HA-LO and develop ideas for additional products and programs
that can be used in the customers' marketing campaigns.
PURSUE STRATEGIC, ACCRETIVE ACQUISITIONS. The Company believes that it is
well positioned to continue its consolidation of the fragmented promotional
products industry. Although the Company is the largest of the approximately
15,000 competitors in the $9.5 billion promotional products industry, its
promotional products revenues account for only 3% of total industry revenues.
The Company is pursuing acquisitions that will provide it with high quality
sales representatives, established customer bases and management expertise, and
that will enable the Company to enter new geographic markets, including
international markets. In addition to its domestic acquisition activities, HA-LO
actively is pursuing international acquisitions to establish a foundation for
better serving its existing multinational clients and obtaining more
international business. Since January 1, 1993, the Company has acquired 18
promotional products companies and two telephone-based marketing companies, all
of which have been accretive. The Company believes it has demonstrated its
ability to successfully integrate newly-acquired businesses into its existing
operations and improve the performance and profitability of acquired businesses.
In addition, the Company intends to make strategic acquisitions in the
fragmented telemarketing industry. Through selected strategic acquisitions,
Market USA intends to provide telephone-based marketing services to
22
<PAGE>
customers in additional industries, expand the scope of services it provides and
complement its existing industry client base.
OBTAIN ADDITIONAL EXCLUSIVE DISTRIBUTION AGREEMENTS. HA-LO's size and scope
has enabled it to obtain exclusive rights to distribute merchandise of
brand-name suppliers. In 1997, the Company signed exclusive distribution
agreements with Champion Products, Inc., a division of Sara Lee Corporation,
which give HA-LO exclusive rights to sell branded Champion Products apparel to
corporate customers in the United States and Canada. Champion Products, Inc. is
a leading manufacturer, distributor and retailer of premier athletic clothing
and apparel. Also in 1997, the Company signed an exclusive distribution
agreement with Roots, Canada to sell branded Roots' products to corporate
customers in the United States and Canada. Roots, Canada is a manufacturer of
high quality leather jackets, active wear, luggage and accessories. The Company
has developed catalogs featuring Champion Products and Roots merchandise, which
its sales representatives use to market these products. The Company intends to
sign additional exclusive distribution agreements to provide its sales
representatives with a competitive advantage in obtaining and servicing
customers. See "Products and Services--Integrated Marketing Services."
PRODUCTS AND SERVICES
PROMOTIONAL PRODUCTS. Promotional products are items that are useful or
decorative and are imprinted or otherwise customized with a customer's name,
logo or message. These products are utilized by the Company's customers for
marketing, to build brand recognition, and as employee incentives, customer
gifts and giveaways. Promotional 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 items, such
as etched crystalware, calendars, golf accessories, key chains, watches and
mugs. The Company's sales representatives work closely with each customer to
develop a marketing program that utilizes promotional products designed to reach
the specific audience targeted by the customer.
HA-LO also provides its clients with comprehensive marketing support through
the following services: custom product development, from concept design to
sourcing and distribution; graphic services and design development; and catalog
design. When an idea for a new promotional product is conceived, the Company's
full-service, self-contained art department generally has the capability to
produce, within 24 hours, a visual representation of the product for customer
approval. HA-LO's art department employs full-time artists with experience in
design, illustration, graphics and typography and utilizes state of the art
design software and equipment. The Company's in-house customization department
performs limited engraving, hot stamping and silk screening on both samples and
finished products, which enables the Company to produce samples on short notice
and satisfy customer requests for personalized merchandise. The Company believes
that its comprehensive design and production capabilities distinguish it from
many of its competitors.
The Company also provides corporate fulfillment services, which enable a
customer to purchase a large quantity of promotional products that the Company
warehouses and ships in smaller quantities at the direction of the customer.
Corporate fulfillment programs generally are implemented in conjunction with a
customer catalog or brochure that features the type of customized products
available for shipment. The Company's corporate fulfillment programs afford
large customers lower per unit costs and the ability to receive timely
deliveries of small quantities as needed. Such programs generally require the
customer to purchase all custom inventory remaining at the conclusion of the
program. The Company also provides computerized inventory reports that assist
the customer in monitoring its marketing efforts. If requested by HA-LO
customers, these systems automatically reorder products at predetermined levels.
23
<PAGE>
INTEGRATED MARKETING SERVICES. The Company's ability to provide integrated
marketing services that complement its promotional products business
differentiates it from the approximately 15,000 other companies in the
promotional products industry. The Company delivers its integrated marketing
services through the following operating divisions and subsidiaries:
MARKET USA. The Company creates, manages and conducts large scale
telephone-based marketing programs for corporate clients primarily in the
insurance and financial service industries. Market USA employs more than
2,100 telephone service representatives ("TSRs"), including approximately
340 licensed insurance agents, who provide script development,
telephone-based direct sales, database analysis and management, consultation
and program design, as well as customer lead acquisition services, to
clients. For example, Market USA implemented a customer satisfaction and
giveaway program for a large retail client, in which it contacted recent
purchasers of the client's products to assess their satisfaction with the
client's product and to offer them a free gift. Market USA currently
maintains a network of over 1,200 workstations in 19 call centers located
primarily throughout the Midwestern United States and Canada.
During the course of each telephone-based marketing program, Market USA
carefully monitors its representatives to ensure strict compliance with the
script and to maintain quality and efficiency. Market USA's extensive call
monitoring programs and information systems also enable it to provide
clients with hourly reports, if desired, on the status of an ongoing
marketing campaign. Access to such data enables Market USA's clients to
modify or enhance a program to improve its effectiveness.
HA-LO SPORTS-REGISTERED TRADEMARK-. HA-LO Sports-Registered Trademark-
helps customers achieve their business goals and objectives using sports and
entertainment marketing opportunities. HA-LO Sports-Registered Trademark-
provides services such as development and negotiation of sponsorship
arrangements and athlete and celebrity endorsements, event creation and
operation and sponsorship sales. For example, HA-LO Sports-Registered
Trademark- teamed with a major recording studio to produce a compact disc
and cassette tape entitled "The Chicago Bulls Greatest Hits." The compact
disc and cassette tape were sold exclusively by a large retailing customer
of the Company, thereby increasing retail traffic for the customer and
generating net revenues for both the recording studio and the customer.
EVENTS BY HA-LO-REGISTERED TRADEMARK-. Events by HA-LO-Registered
Trademark- is a corporate event production company specializing in
orchestrating corporate meetings, seminars, events and incentive programs.
For example, Events by HA-LO-Registered Trademark- coordinated a series of
seminars to enable a large corporate client to present its capabilities to
potential customers in markets throughout the country. Events by
HA-LO-Registered Trademark- coordinated the theme and the staging of the
seminars, and then booked venues in cities across the United States to host
these "road show" presentations.
DUNCAN & HILL. Duncan & Hill is a full-service advertising and
marketing communications agency that provides both strategic and creative
development of marketing campaigns for all media. Services provided by
Duncan & Hill include positioning, strategic planning, market research and
media planning and buying. For example, Duncan & Hill developed a regional
promotional game for one of its national franchise customers, including
creating all point of purchase materials and radio commercials and
structuring the instant win game and sweepstakes rules.
PURCHASING AND VENDOR NETWORKS
The Company's business strategy includes focusing on sourcing, rather than
manufacturing, promotional products. In keeping with this strategy, the Company
purchases products directly from manufacturers or third party suppliers and
typically arranges to have the customer's name, logo or advertising message
imprinted on the products by the manufacturer or supplier. A significant
majority of all promotional products sold by the Company are shipped directly by
the manufacturer or supplier to the Company's customers, with a small percentage
of products being warehoused by the Company in conjunction with its corporate
fulfillment programs.
24
<PAGE>
Using its management information system, the Company can electronically
identify products that are available from its over 2,500 vendors and make
product specifications, prices and pictures immediately available to its sales
representatives and customers. The Company also has developed its own catalogs
depicting a selection of the broad range of products available through the
Company, including unique items developed by the Company. As the nation's
largest distributor of promotional products, the Company has been able to
successfully negotiate preferred pricing and rebate programs from many vendors.
The Company has developed relationships with U.S. and overseas manufacturers
that meet its strict quality and delivery standards and enable the Company to be
very competitive on pricing large orders.
PERSONNEL
The Company believes a key component of its success is the quality of its
employees and sales representatives and it regularly refines its approach to
hiring, training, motivating and retaining high quality employees and sales
representatives. The Company's promotional products currently are marketed by a
core sales force of approximately 700 representatives, the majority of whom are
independent contractors. The Company believes that it will continue to attract
and retain high quality sales representatives and employees through a
combination of its performance-based compensation structure, purchasing power,
managerial expertise, financing capabilities, exclusive product arrangements,
national and international fulfillment capabilities, corporate visibility and
ability to provide a full range of marketing services to its clients. The terms
of the Company's customary sales representative arrangement form provide for the
representative to receive a commission equal to a specified percentage of the
gross profit generated by each order. All orders taken by a representative must
comply with the pricing and other policies of the Company and are subject to
acceptance by the Company. Typically, a sales representative has no assigned or
exclusive territory and is not contractually prohibited from representing other
companies, including competitors of the Company. See "Risk Factors--Dependence
Upon Sales Representatives."
As of April 1, 1998, the Company employed approximately 1,000 people in its
promotional products business and approximately 3,000 people in its
telephone-based marketing 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 relationship with its employees is excellent.
CUSTOMERS
The Company's over 20,000 promotional products customers include
manufacturing, financial service, broadcasting, consumer product and
communications companies as well as professional sports teams. Market USA
provides telephone-based marketing services to customers primarily in the
insurance and financial services industries. Selected customers of the Company
include AlliedSignal, America Online, Ameritech, Ford Motor Company, General
Electric, General Mills, Motorola, Time Warner, the Chicago Bulls and the Green
Bay Packers. In 1997, no single customer accounted for more than 10% of the
Company's net sales. Montgomery Ward accounted for approximately 12% of the
Company's 1996 net sales and less than 3% of the Company's 1997 net sales.
25
<PAGE>
BACKLOG
With respect to its promotional products business, the Company usually has a
backlog, which it defines as firm orders placed with suppliers but for which the
promotional products have not yet been shipped to the customer. As of February
28, 1998, the Company had a backlog of firm orders of approximately $28.8
million, substantially all of which the Company believes will be shipped by the
end of the second quarter of 1998. The Company's backlog of firm orders as of
February 28, 1997 was $16.1 million.
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-".
COMPETITION
The promotional products industry is highly fragmented and competitive, with
few barriers to entry. The Company's existing competitors, and new companies
that may enter the market, may have substantially greater financial and other
resources than HA-LO. The Company also competes for advertising dollars with
other media, such as television, radio, newspapers, magazines and billboards.
The primary bases for competition are customer service, creativity, customer
relationships, product innovation and pricing. The Company believes its national
and international distribution capabilities, and its complementary, value-added
marketing services, provide it with a competitive advantage; however, these
capabilities also may result in higher administrative costs than those incurred
by certain of HA-LO's smaller competitors. In addition, 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.
The telemarketing industry in which Market USA operates also is highly
fragmented and is becoming increasingly competitive. In-house telemarketing and
customer service organizations comprise the largest segment of the industry and
Market USA competes with the in-house operations of its clients and potential
clients. Market USA also competes with non-captive telemarketing and customer
service corporations ranging in size from small firms offering special
applications or short-term projects to large, publicly traded companies. Some of
Market USA's services also compete with other forms of direct marketing such as
direct mail, television and radio advertising. Market USA believes that the
principal competitive factors in the telemarketing industry are reputation for
quality, sales and marketing results, price, technological expertise and the
ability promptly to provide clients with customized solutions to their sales and
marketing needs.
FACILITIES
The Company's principal executive offices are located in 150,000 square feet
of leased office and warehouse space in Niles, Illinois, a suburb of Chicago,
which includes a 2,500 square foot showroom. Most of the Company's showrooms,
sales offices and call centers are located in leased facilities. The Company's
leases generally expire between 1998 and 2008 and most contain renewal options.
The Company believes its facilities are adequate for its current operations, but
that additional facilities will be required to support growth. The Company also
believes that additional or alternative facilities will be available for lease
as needed at commercially reasonable terms.
26
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of April 1, 1998
regarding the current executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
Lou Weisbach..................... 49 Chairman of the Board, President and Chief Executive Officer
Linden D. Nelson................. 37 Director, Vice Chairman of the Board and Chief Executive Officer
of Creative Concepts in Advertising, Inc., a wholly owned
subsidiary of the Company
Seymour N. Okner................. 71 Director, Chief Executive Officer, Chairman and President of
Market USA, Inc. and Marusa Marketing, Ltd.
Richard A. Magid................. 39 Director, Chief Operating Officer, Treasurer and Assistant
Secretary
David C. Robbins................. 45 Director, Executive Vice President
Gregory J. Kilrea................ 34 Chief Financial Officer
Bradford S. Kerr................. 43 Chief Information Officer
Michael P. Nemlich............... 46 Vice President--Corporate Development/Financial Relations
Barbara G. Berman................ 53 Vice President--Retail Accounts and Secretary
Barry T. Margolin................ 31 Vice President--Finance and Planning, Corporate Controller and
Assistant Secretary
Sabina D. Filipovic.............. 37 Vice President--Administration and Assistant Secretary
David J. Blumenthal.............. 35 Vice President--Information Systems
Thomas Herskovits................ 51 Director
Jordon R. Katz................... 46 Director
Marshall J. Katz................. 49 Director
Neil A. Ramo..................... 55 Director
Robert Sosnick................... 64 Director
</TABLE>
Officers are elected annually and serve at the discretion of the Board of
Directors. Seymour N. Okner is the father-in-law of David C. Robbins; there are
no other family relationships between any directors and executive officers of
the Company.
LOU WEISBACH has been the Chairman of the Board, 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.
LINDEN D. NELSON has served as the Vice Chairman of HA-LO and Chief
Executive Officer of Creative Concepts in Advertising, Inc., a wholly owned
advertising specialty subsidiary of the Company, since its acquisition by HA-LO
in January 1997. Mr. Nelson was the Chairman and Chief Executive Officer of
Creative Concepts in Advertising, Inc.'s predecessor since its inception in July
1979 through December 1996.
SEYMOUR N. OKNER has served as a director of HA-LO and as Chairman, Chief
Executive Officer and President of Market USA and Marusa Marketing, Ltd. a
marketing company and an affiliate of Market USA, since its acquisition by HA-LO
in September 1996. Previously, Mr. Okner was the President, Treasurer, Secretary
and a director of Market USA's predecessor since its inception in November 1988.
He
27
<PAGE>
was also the President and Secretary of Marusa Marketing, Ltd. from April 1992
through September 1996. Prior to 1988, Mr. Okner served in various executive
capacities, primarily in the insurance industry, including President of
Montgomery Ward Life Insurance Company and Signature Life Insurance Company of
America.
RICHARD A. MAGID has served as a director since 1992, was appointed Chief
Operating Officer in July 1996 and has been the Treasurer since August 1992 and
the Assistant Secretary since March 1996. He previously served as the Chief
Financial Officer from August 1992 until July 1996 and Vice President-- Finance
from August 1992 through March 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.
DAVID C. ROBBINS has been Executive Vice President since November 1992 and a
director since 1995. From 1978 to November 1992, he was an independent sales
representative of marketing specialty and premium advertising products.
GREGORY J. KILREA was appointed Chief Financial Officer in July 1996,
previously serving as 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.
BRADFORD S. KERR was appointed Chief Information Officer in February 1998.
From June 1997 until joining the Company in 1998, he was the Vice President of
Information Technology at Conseco, an insurance company. From August 1996
through June 1997, he was the Senior Vice President and Chief Information
Officer at Pioneer Financial Services, Inc., an insurance company. Prior to
this, he held management positions at CNA Insurance, Digital Equipment
Corporation, a manufacturer of computer equipment, and Baxter International, a
developer, manufacturer and distributor of medical products.
MICHAEL P. NEMLICH was appointed Vice President--Corporate
Development/Financial Relations in April 1996. From March 1993 until joining the
Company in 1996, he was a Vice President in Trust Investment Services at
Northern Trust Bank. Prior to that, he spent 15 years in various positions
within the financial services industry, including investment banking.
BARBARA G. BERMAN was appointed Vice President--Retail Accounts in March
1996 and has been Secretary of the Company since August 1992. She previously
served as the Vice President of Administration from August 1992 to March 1996.
From 1985 to August 1992, she was the Director of Administration for the Company
and its predecessor and, from 1982 to 1985, she was an administrative assistant
for the Company's predecessor.
BARRY T. MARGOLIN was appointed Vice President--Finance and Planning and
Assistant Secretary in March 1996 and has been the Corporate Controller since
January 1993. From 1988 until joining the Company in 1993, he was employed by
the accounting firm of Arthur Andersen LLP as an audit and financial consultant.
SABINA D. FILIPOVIC was appointed Vice President--Administration in March
1996. She was the Director of Administration/Human Relations from March 1994 to
March 1996. From July 1984 through March 1994, she held various positions
throughout the Company and its predecessor.
DAVID J. BLUMENTHAL was appointed Vice President--Information Systems in
March 1996. From March 1995 through March 1996, he was Director of Information
Systems. Mr. Blumenthal started with the Company in 1981 and has held various
positions throughout the Company and its predecessor.
THOMAS HERSKOVITS has served as a director since 1992. Mr. Herskovits has
been the managing partner of Herskovits Enterprises, a venture capital company,
since 1996 and was the President and Chief Executive Officer of Specialty Foods
Corp. from 1993 to 1996. From 1989 through 1993, he was President
28
<PAGE>
of the KGF Frozen Products Group, an operating unit of Kraft General Foods. From
1984 to 1989, he was President of the Kraft Dairy Group of Kraft General Foods.
JORDON R. KATZ has served as a director since 1992. Mr. Katz has been the
president of JR Katz Assoc., Inc., an insurance and employee benefits planning
company, since 1976.
MARSHALL J. KATZ has been a director and an independent financial consultant
to the Company since 1992. From 1988 through 1991, Mr. Katz was the owner and
president of Northbrook Management Co., a money management firm trading in
futures and options.
NEIL A. RAMO has served as a director since 1992 and has been the president
of NEMAR, Inc., an independent marketing company, since July 1993. Since May
1996, Mr. Ramo has also been a realtor of the Prudential Florida Realty Company.
From August 1991 through June 1993, Mr. Ramo was the president of RMI, Inc.,
d/b/a Creative Promotions International, a predecessor marketing company to
NEMAR, Inc. From 1984 to 1989, he was the president of Carson Pirie Scott
Department Stores. After retiring from Carson Pirie Scott Department Stores, he
pursued personal interests until he founded RMI, Inc.
ROBERT SOSNICK has served as a director since November 1997. Mr. Sosnick has
been the president of Real Estate Development & Investment Company, a developer
of high rise office buildings, industrial parks, shopping centers and other
developments since 1980. Since 1986, he has been a director of Palace Sports &
Entertainment, an owner and developer of entertainment and sports arenas.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of April 1, 1998 and as adjusted to
reflect the sale of Common Stock being offered hereby, by (i) each shareholder
who is known by the Company to beneficially own more than 5% of the currently
outstanding shares of Common Stock, (ii) each of the Company's directors and
executive officers, (iii) all of the directors and executive officers of the
Company as a group, and (iv) each of the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED AFTER OFFERING(2)
PRIOR TO THE OFFERING
----------------------- SHARES TO BE -----------------------
NAME AND ADDRESS(1) NUMBER PERCENT SOLD IN OFFERING NUMBER PERCENT
- --------------------------------------------- --------- ------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Linden D. Nelson............................. 2,251,092(3) 10.5% 337,000(4) 1,914,092 7.6%
Lou Weisbach................................. 2,075,302(5) 9.8% 200,000 1,875,302(6) 7.5%
Seymour N. Okner............................. 945,297(7) 4.5% 488,000(8) 457,297 1.8%
Joel C. Okner Family Trust................... 317,723(9) 1.5% 120,000 197,723 *
Ellyn Robbins Family Trust................... 310,781(9) 1.5% 250,000 60,781 *
Richard A. Magid............................. 276,083(10) 1.3% 45,000 231,083 *
Marshall J. Katz............................. 241,295(11) 1.1% 100,000 141,295 *
Okner Foundation............................. 150,000(7) * 150,000 -- *
Michelle Nelson.............................. 137,500(3) * 50,000 87,500 *
Sanford E. Nelson Trust...................... 137,500(3) * 50,000 87,500 *
Arrielle L. Nelson Trust..................... 137,500(3) * 50,000 87,500 *
David C. Robbins............................. 127,646(12) * 50,000 77,646 *
Neil A. Ramo................................. 113,470(13) * 30,000 83,470 *
Linden D. Nelson Foundation.................. 100,000(3) * 37,000 63,000 *
Thomas Herskovits............................ 85,063(14) * 20,000 65,063 *
Jordon R. Katz............................... 39,531(15) * 10,000(15) 29,531 *
Gregory J. Kilrea............................ 30,384(16) * -- 30,384 *
Michael P. Nemlich........................... 30,384(17) * -- 30,384 *
Barry T. Margolin............................ 22,948(18) * -- 22,948 *
Robert Sosnick............................... 22,500(19) * -- 22,500 *
David J. Blumenthal.......................... 21,509(20) * -- 21,509 *
Barbara G. Berman............................ 18,802(21) * -- 18,802 *
Sabina D. Filipovic.......................... 19,822(22) * -- 19,822 *
Bradford S. Kerr............................. -- * -- -- *
All Directors and Executive Officers, as a
group (17 persons)......................... 6,321,068 28.3% 1,193,000 5,128,068 19.7%
AXA-UAP
The Equitable Companies
Incorporated (23).......................... 1,352,159(23) 6.5% -- 1,352,159 5.4%
</TABLE>
- ------------------------
* Less than one percent.
(1) Unless otherwise indicated by footnote, the nature of beneficial ownership
is direct and arises from sole voting and investment power. The address of
each executive officer and director of the Company is in care of the
Company, 5980 West Touhy Avenue, Niles, Illinois 60714.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes 28,915 shares owned by Maple Lane Acquisition Limited Liability
Company, of which Mr. Nelson is the managing member; 137,500 shares owned
by Michelle Nelson, Mr. Nelson's wife;
30
<PAGE>
100,000 shares held by the Linden D. Nelson Foundation, a charitable
foundation of which Mr. Nelson is President; and 262,500 shares subject to
options exercisable on April 1, 1998 or within 60 days thereafter (the
"Measurement Period"). Excludes 275,000 shares held in the Sanford E.
Nelson Trust and the Arrielle L. Nelson Trust, which are trusts for the
benefit of Mr. Nelson's children, over which Mr. Nelson has no voting or
dispositive powers.
(4) Consists of 250,000 shares being sold by Mr. Nelson, 50,000 shares being
sold by Michelle Nelson and 37,000 shares being sold by the Linden D.
Nelson Foundation. See note 3.
(5) Includes 188,174 shares subject to options held by Mr. Weisbach that are
exercisable during the Measurement Period, 500 shares held by Mr.
Weisbach's minor child and 1,836,628 shares owned by the Lou Weisbach
Revocable Trust. Excludes 85,000 shares held in trust for the benefit of
Mr. Weisbach's wife and 51,187 shares held in trusts for the benefit of Mr.
Weisbach's children, over which Mr. Weisbach has no voting or dispositive
powers.
(6) If the Underwriters' over-allotment option is exercised in full, Mr.
Weisbach will sell an additional 200,000 shares of Common Stock and, after
such sale, will beneficially own 1,675,302 shares of Common Stock,
representing 6.8% of the number of shares of Common Stock outstanding after
the Offering.
(7) Includes 2,500 shares subject to options held by Mr. Okner that are
exercisable during the Measurement Period, 783,797 shares owned by the
Seymour N. Okner Revocable Trust and 150,000 shares owned by the Okner
Foundation, a charitable foundation of which Mr. Okner is President.
Excludes 310,781 shares held in the Ellyn Robbins Family Trust for the
benefit of Ellyn Robbins, one of Mr. Okner's children. Mr. Okner's wife is
the trustee of such trust; however Mr. Okner disclaims beneficial ownership
of all shares held by such trust.
(8) Consists of 338,000 shares being sold by Mr. Okner and 150,000 shares being
sold by the Okner Foundation. See note (7).
(9) The Joel C. Okner Family Trust and the Ellyn Robbins Family Trust are
trusts for the benefit of two of Seymour N. Okner's adult children.
(10) Includes 261,584 shares subject to options held by Mr. Magid that are
exercisable during the Measurement Period, including shares to be sold by
him in the Offering.
(11) Consists of shares subject to options held by Mr. Katz that are
exercisable during the Measurement Period, including shares to be sold by
him in the Offering.
(12) Includes 45,619 shares subject to options held by Mr. Robbins that are
exercisable during the Measurement Period; and an aggregate of 937 shares
owned in trust for the benefit of Mr. Robbins' two minor children.
Excludes 310,781 shares held in trust for the benefit of Ellyn Robbins,
Mr. Robbins' wife, over which Mr. Robbins has no voting or dispositive
power.
(13) Includes 45,952 shares subject to options held by Mr. Ramo that are
exercisable during the Measurement Period and 375 shares subject to
options held by Mr. Ramo's wife that are exercisable during the
Measurement Period.
(14) Includes 41,812 shares held jointly with Mr. Herskovits' wife; 7,500
shares owned by Mr. Herskovits' minor son; and 30,001 shares subject to
options held by Mr. Herskovits that are exercisable during the Measurement
Period.
(15) Includes 19,875 shares held by the JR Katz Profit Sharing Plan; 1,225
shares owned by Mr. Katz's minor sons; and 18,125 shares subject to
options held by Mr. Katz that are exercisable during the Measurement
Period. Of the 10,000 shares being sold, 9,000 shares are being sold by
the JR Katz Profit Sharing Plan and 1,000 shares are being sold by Mr.
Katz's minor son.
31
<PAGE>
(16) Consists of shares subject to options held by Mr. Kilrea that are
exercisable during the Measurement Period.
(17) Includes 27,259 shares subject to options held by Mr. Nemlich that are
exercisable during the Measurement Period.
(18) Consists of shares subject to options held by Mr. Margolin that are
exercisable during the Measurement Period.
(19) Includes 2,500 shares subject to options held by Mr. Sosnick that are
exercisable during the Measurement Period.
(20) Includes 15,947 shares subject to options held by Mr. Blumenthal that are
exercisable during the Measurement Period.
(21) Includes 8,189 shares held jointly with Ms. Berman's husband and 10,613
shares subject to options held by Ms. Berman that are exercisable during
the Measurement Period.
(22) Includes 15,947 shares subject to options held by Ms. Filipovic that are
exercisable during the Measurement Period.
(23) The following information is derived from the Schedule 13G filed with the
Securities and Exchange Commission on February 17, 1998 jointly by
Alliance Capital Management, L.P. and Alpha Assurances Vie Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle (collectively, "Mutuelles AXA"), The Equitable
Companies Incorporated ("Equitable") and AXA-UAP. AXA-UAP owns a majority
interest in Equitable, and Mutuelles AXA, as a group, owns a majority
interest in AXA-UAP. Equitable is the parent holding company of a group of
investment management companies that provide investment advisory and
management services for their clients, which include registered investment
companies and institutional accounts. The investment management companies
hold investment power and, in some cases, voting power over securities
within their portfolios. Equitable disclaims all investment and voting
power over the Common Stock listed on the Schedule 13G; however, it may be
deemed to "beneficially own" such shares pursuant to the rules promulgated
under the Exchange Act. Alliance Capital Management L.P., which is an
investment adviser and a wholly-owned subsidiary of Equitable, is the
beneficial owner of 1,312,659 shares of Common Stock as a result of acting
as investment adviser to various investment companies. Wood, Struthers &
Winthrop Management Corp., which is an investment adviser and a
wholly-owned subsidiary of Equitable, is the beneficial owner of 39,500
shares of Common Stock as a result of acting as investment adviser to
various investment companies. The address of Equitable is 1290 Avenue of
the Americas, New York, New York 10104.
32
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL. Upon completion of the Offering, the Company will have 25,283,388
shares of Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options or warrants), of
which approximately 4,500,000 shares constitute "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act. Restricted
securities are eligible for sale pursuant to Rule 144, subject in certain cases
to the holding period, volume limitations and other restrictions, as described
below. The Company is required to file registration statements covering
approximately 2,550,000 of such restricted securities, to enable the holders
thereof to resell such shares without restriction. The Company also has filed
Registration Statements on Form S-8 covering an aggregate of 5,821,130 of such
shares that are reserved for issuance upon exercise of options granted or to be
granted under the Company's stock plans. As of April 1, 1998, warrants to
purchase an aggregate of 1,056,702 shares of Common Stock were outstanding.
Additionally, as of April 1, 1998, options to purchase an aggregate of 4,512,970
shares of Common Stock were outstanding (excluding options exercised in
connection with the Offering). Upon issuance, all of such shares of Common Stock
not owned by "affiliates" of the Company will be freely tradeable and shares
owned by affiliates will be subject to the restrictions of Rule 144, as
described below. In addition, the Company has issued and in the future may issue
a substantial number of shares of Common Stock as full or partial consideration
for acquisitions of existing businesses.
RULE 144. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned restricted
securities for at least one year (including, in certain circumstances, the
holding period of a prior owner) would be entitled to sell within any
three-month period such number of restricted securities that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 250,000 shares immediately after the
Offering), or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. These restrictions also apply to sales by persons deemed to be
"affiliates" of a company, which generally include its directors, executive
officers and principal shareholders. Sales under Rule 144 are also subject to
certain "manner of sale" provisions and notice requirements and to the
availability of current public information about HA-LO. Under Rule 144(k), a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including, in certain circumstances,
the holding period of a prior owner), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144; therefore, unless otherwise restricted, "144(k)
shares" may be sold immediately upon the completion of the Offering.
REGISTRATION RIGHTS. Since January 1, 1993, the Company has acquired 18
promotional products companies and two telephone-based marketing companies. In
connection with many of these acquisitions, the Company paid all or a portion of
the purchase price using unregistered shares of Common Stock and obligated
itself to file registration statements with the Commission with respect to the
resale of such shares by the holders thereof, in specified increments, generally
over the two to three years following the closing of each acquisition
(generally, the "Resale Rights"). Approximately 2,550,000 shares of Common Stock
that constitute restricted securities (excluding shares being registered and
sold in the Offering by the Selling Shareholders) remain to be registered by the
Company for resale pursuant to the Resale Rights. The Company is required to
register a substantial majority of such shares within the 12 months following
the date of this Prospectus.
AGREEMENT WITH UNDERWRITERS. The Company and its directors and executive
officers and the Selling Shareholders have agreed not to offer, sell, contract
to sell or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exchangeable for Common Stock, for 90 days after the
effective date of the Offering without the prior written consent of Credit
Suisse First Boston Corporation. See "Underwriting."
33
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement to be dated the date of this Prospectus (the "Underwriting
Agreement"), the underwriters named below (the "Underwriters"), for whom Credit
Suisse First Boston Corporation, ABN AMRO Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated are acting as
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Company and the Selling Shareholders the following
respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Credit Suisse First Boston Corporation...........................................
ABN AMRO Incorporated............................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
Morgan Stanley & Co. Incorporated................................................
----------
Total.......................................................................... 5,500,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
obligated to purchase all of the shares of Common Stock offered hereby (other
than those shares covered by the over-allotment option described below) if any
are purchased. The Underwriting Agreement provides that, in the event of a
default by an Underwriter, in certain circumstances, the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Company and a Selling Shareholder have granted to the Underwriters an
option, expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to 625,000 and 200,000 additional shares,
respectively, at the offering price less the underwriting discounts and
commissions, all as set forth on the cover page of this Prospectus. Such option
may be exercised only to cover over-allotments in the sale of the shares of
Common Stock. To the extent that such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as it was obligated to
purchase pursuant to the Underwriting Agreement.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public initially at the public offering price set forth on the
cover page of this Prospectus and, through the Representatives, to certain
dealers at such price less a concession of $ per share, and the Underwriters
and such dealers may allow a discount of $ per share on sales to certain
other dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The Company, its directors and executive officers and the Selling
Shareholders have agreed with the Underwriters that they will not offer, sell,
contract to sell, announce their intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Commission a registration statement
under the Securities Act relating to, any additional shares of Common Stock or
securities convertible or exchangeable into or exercisable for any shares of
Common Stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 90 days after the date of this Prospectus, except
(i) any shares of Common Stock issuable upon the exercise or redemption of an
option or warrant or the conversion or exchange of a security in each case
outstanding on the date of this Prospectus and in accordance with the terms of
the respective securities, (ii) any securities of the Company sold or granted
pursuant to the Company's Stock Plan and 1997 Stock Plan or any other incentive
and other benefit plans in effect as of the date of this Prospectus, (iii)
approximately 300,000 shares that the Company is obligated to register
34
<PAGE>
within such 90-day period, and (iv) shares the Company may issue in connection
with certain future acquisitions as referred to or contemplated in this
Prospectus.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
The shares of Common Stock are listed on the NYSE.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate short covering transactions
and penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of Common
Stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the Representatives to
reclaim a selling concession from a syndicate member when the Common Stock
originally sold by such syndicate member is purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the New York Stock Exchange
or otherwise and, if commenced, may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Shareholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of the Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Canadian
purchasers are advised to seek legal advice prior to any resale of the Common
Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Shareholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
Company, the Selling Shareholders or such persons. All or a substantial portion
of the assets of the Company, the Selling Shareholders and such persons may be
located outside of Canada and, as a result, it may not be possible to satisfy a
judgment against the Company, the Selling Shareholders or such persons in Canada
or to enforce a judgment obtained in Canadian courts against the Company, the
Selling Shareholders or persons outside of Canada.
35
<PAGE>
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the United States federal securities laws.
Following a decision of the U.S. Supreme Court, it is possible that Ontario
purchasers will not be able to rely upon the remedies set out in Section 12(2)
of the United States Securities Act of 1933 where securities are being offered
under a U.S. private placement memorandum such as this document.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of the Common Stock on the same date and
under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in the particular circumstances and with respect to the eligibility of the
Common Stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby will be passed upon for the Company by Neal, Gerber & Eisenberg, Two
North LaSalle Street, Chicago, Illinois, and for the Underwriters by Lord,
Bissell & Brook, 115 South LaSalle Street, Chicago, Illinois.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997 included
in this Prospectus and in the Registration Statement (including financial
statements of the Company included in this Prospectus by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997) have
been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their reports with respect thereto, and are included herein in reliance
upon the authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at its offices at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may also be obtained by mail from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Additionally, the Commission
maintains a Web site containing reports, proxy and information statements and
other information
36
<PAGE>
regarding registrants that file electronically with the Commission. The address
for such Web site is http://www.sec.gov.
In addition, the Common Stock is listed on the New York Stock Exchange under
the symbol "HMK" and reports, proxy statements and other information concerning
the Company may also be inspected at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, exhibits, schedules, and supplements thereto,
the "Registration Statement") under the Securities Act, with respect to the
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement,
which may be inspected and copied at the Public Reference Section of the
Commission referred to above.
The Company furnishes shareholders with annual reports containing audited
financial statements. The Company also furnishes its common shareholders with
proxy materials for its annual meetings complying with the proxy requirement of
the Exchange Act.
This Prospectus incorporates documents by reference which are not presented
or delivered herewith. These documents (other than exhibits to such documents)
are available upon written or oral request from the Company, without charge, to
each person to whom a copy of this Prospectus has been delivered, including a
copy of its most recent Annual Report to Shareholders. Requests should be
directed to HA-LO Industries, Inc., Attention: Michael P. Nemlich, Vice
President--Corporate Development/Financial Relations, HA-LO Industries, Inc.,
5980 West Touhy Avenue, Niles, Illinois 60714-4610, telephone: (847) 647-2300.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the Exchange
Act, are hereby incorporated by reference into this Prospectus: (i) Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, including the
portions of the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders filed on April 20, 1998 and the portions of the Company's 1997
Annual Report to Shareholders for the fiscal year ended December 31, 1997 that
have been incorporated by reference therein; and (ii) Registration Statement on
Form 8-A, filed on October 12, 1992 pursuant to Section 12(b) of the Exchange
Act, and the description of the Common Stock contained therein and any amendment
or report filed for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and before completion of the
Offering shall be deemed to be incorporated herein by reference and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded, for the purposes of this
Prospectus, to the extent that a statement contained herein or in another
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
37
<PAGE>
HA-LO INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Report of Independent Public Accountants................................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............................................ F-3
Consolidated Statements of Income for the three years ended December 31, 1995, 1996 and 1997............ F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1996 and 1997.... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997.............. F-6
Notes to Financial Statements........................................................................... F-7
</TABLE>
F-1
<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,
1997 and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years ended December 31, 1997, 1996
and 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HA-LO Industries, Inc. and
Subsidiaries as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 13, 1998
F-2
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents........ $ 2,717,027 $ 5,261,647
Short-term investments...... -- 2,908,370
Receivables--
Trade..................... 126,060,508 72,462,137
Other..................... 3,126,348 1,753,104
Related party............. 662,702 1,381,471
Inventories................. 24,346,962 11,579,571
Prepaid expenses and
deposits.................. 5,195,515 4,175,783
------------ ------------
Total current assets.... 162,109,062 99,522,083
------------ ------------
PROPERTY AND EQUIPMENT, net... 21,174,491 14,969,812
------------ ------------
OTHER ASSETS:
Intangible assets, net...... 22,568,646 10,906,275
Other....................... 4,774,882 3,283,347
------------ ------------
Total other assets...... 27,343,528 14,189,622
------------ ------------
$210,627,081 $128,681,517
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt............ $ 4,352,493 $ 401,574
Book overdraft.............. 9,919,559 1,218,122
Accounts payable............ 45,420,494 25,367,407
Accrued expenses--
Commissions and wages..... 10,147,536 6,684,616
Other..................... 13,113,841 6,924,874
Due to related parties...... 192,000 138,120
Deferred taxes-current...... 1,092,538 1,058,087
------------ ------------
Total current
liabilities........... 84,238,461 41,792,800
------------ ------------
LONG-TERM DEBT, less
maturities shown above...... 43,625,649 28,005,680
------------ ------------
DEFERRED LIABILITIES.......... 1,376,608 1,768,838
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par
value; 10,000,000 shares
authorized and none
issued.................... -- --
Common stock, no par value;
100,000,000 shares
authorized and 21,085,237
and 20,539,695 issued and
outstanding in 1997 and
1996, respectively........ 62,154,879 50,528,303
Other....................... (2,131,583) (2,179,972)
Retained earnings........... 21,363,067 8,765,868
------------ ------------
Total shareholders'
equity................ 81,386,363 57,114,199
------------ ------------
$210,627,081 $128,681,517
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES..................... $413,790,880 $344,421,740 $283,080,302
COST OF SALES................. 279,984,344 244,259,294 206,346,036
------------ ------------ ------------
Gross profit.............. 133,806,536 100,162,446 76,734,266
SELLING EXPENSES.............. 52,126,118 40,158,273 31,689,606
GENERAL AND ADMINISTRATIVE
EXPENSES.................... 52,816,338 43,586,963 34,312,291
NON-RECURRING CHARGES RELATED
TO ACQUISITIONS............. 3,844,939 1,693,000 1,800,000
------------ ------------ ------------
Income from operations.... 25,019,141 14,724,210 8,932,369
------------ ------------ ------------
INTEREST EXPENSE, net......... (1,878,147) (938,155) (2,148,848)
------------ ------------ ------------
Income before income
taxes................... 23,140,994 13,786,055 6,783,521
PROVISION FOR INCOME TAXES.... 9,259,004 6,359,592 2,514,673
------------ ------------ ------------
NET INCOME FOR THE YEAR....... $ 13,881,990 $ 7,426,463 $ 4,268,848
------------ ------------ ------------
------------ ------------ ------------
PRO FORMA INCOME DATA
(unaudited):
Net income as reported...... 7,426,463 4,268,848
Pro forma adjustment for
income tax (benefit)/
provision................. (814,989) 198,676
------------ ------------
PRO FORMA NET INCOME.......... 8,241,452 4,070,172
------------ ------------
NET INCOME PER SHARE
(unaudited pro forma for
1996 and 1995)
Basic....................... $ 0.67 $ 0.41 $ 0.24
Diluted..................... $ 0.64 $ 0.39 $ 0.23
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic....................... 20,722,881 20,033,376 16,842,851
Diluted..................... 21,712,262 21,147,784 17,361,336
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- TOTAL
SHARES RETAINED SHAREHOLDERS'
ISSUED AMOUNT OTHER EARNINGS EQUITY
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.... 15,982,253 $16,489,640 $ (254) $ 3,893,855 $ 20,383,241
Transfer of S-Corporation
retained earnings......... -- 2,368,313 -- (2,368,313) --
Dividends declared by
acquired companies........ -- (3,280,508) -- (2,434,916) (5,715,424)
Net issuance of shares in
connection with
acquisitions.............. 227,484 852,068 -- -- 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 -- 200,000
Recognition of tax benefits
from options and
restricted stock.......... -- 495,466 -- -- 495,466
Exercise of stock options... 80,852 214,529 -- -- 214,529
Issuance of shares for
cash...................... 3,374,860 25,466,330 -- -- 25,466,330
Contribution of capital from
shareholders of acquired
companies................. -- 677,000 -- -- 677,000
Translation adjustment...... -- -- 22,503 -- 22,503
Net income for the year... -- -- -- 4,268,848 4,268,848
---------- ----------- ----------- ----------- -------------
BALANCE, December 31, 1995.... 19,965,449 45,930,838 (2,425,751) 3,359,474 46,864,561
Dividends declared by
acquired companies........ -- (1,891,579) -- (2,020,069) (3,911,648)
Stock bonus in connection
with acquisition of
business.................. 5,435 62,500 -- -- 62,500
Net issuance of shares in
connection with
acquisitions.............. 429 9,866 -- -- 9,866
Issuance of restricted
stock..................... 1,562 34,375 (34,375) -- --
Amortization of unearned
compensation.............. -- -- 240,000 -- 240,000
Recognition of tax benefits
from options and
restricted stock.......... -- 5,243,790 -- -- 5,243,790
Exercise of stock options... 614,305 2,000,013 -- -- 2,000,013
Repurchase of common
stock..................... (47,485) (861,500) -- -- (861,500)
Translation adjustment...... -- -- 40,154 -- 40,154
Net income for the year... -- -- -- 7,426,463 7,426,463
---------- ----------- ----------- ----------- -------------
BALANCE, December 31, 1996.... 20,539,695 50,528,303 (2,179,972) 8,765,868 57,114,199
Dividends declared by
acquired companies........ -- (1,605,277) -- (1,284,791) (2,890,068)
Stock bonus in connection
with acquisition of
business.................. 1,243 31,250 -- -- 31,250
Net issuance of shares in
connection with
acquisitions.............. 329,615 10,272,549 -- -- 10,272,549
Amortization of unearned
compensation.............. -- -- 257,188 -- 257,188
Recognition of tax benefits
from options and
restricted stock.......... -- 1,984,469 -- -- 1,984,469
Exercise of stock options... 252,623 1,844,641 -- -- 1,844,641
Repurchase of common
stock..................... (37,939) (901,056) -- -- (901,056)
Translation adjustment...... -- -- (208,799) -- (208,799)
Net income for the year... -- -- -- 13,881,990 13,881,990
---------- ----------- ----------- ----------- -------------
BALANCE, December 31, 1997.... 21,085,237 $62,154,879 $(2,131,583) $21,363,067 $ 81,386,363
---------- ----------- ----------- ----------- -------------
---------- ----------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income for the year..... $13,881,990 $ 7,426,463 $ 4,268,848
Adjustments to reconcile net
income to net cash
provided by (used for)
operating activities--
Depreciation and
amortization............ 5,840,748 5,129,627 3,650,364
Deferred taxes............ (536,833) (541,953) (858,652)
Increase in cash surrender
value................... (244,265) (14,837) (5,200)
Loss on lease buyout...... -- -- 2,772
Increase (decrease) in
deferred
liabilities--other...... (398,862) 30,040 192,054
Changes in assets and
liabilities, net of
effects of acquired
companies--
Receivables............... (36,617,663) (6,669,958) (13,655,350)
Inventories............... (9,819,373) (1,040,289) (2,778,865)
Prepaid expenses and
deposits................ (543,836) (3,068,600) 447,046
Accounts payable and
accrued expenses........ 17,993,250 (931,945) 11,434,220
----------- ----------- ------------
Net cash provided by
(used for) operating
activities............ (10,444,844) 318,548 2,697,237
----------- ----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment................. (8,188,817) (7,495,422) (3,252,075)
Purchases of samples........ (640,734) (518,924) (543,236)
Decrease (increase) in
short-term investments.... 2,908,370 641,347 (3,549,717)
Decrease (increase) in other
assets.................... 28,279 (196,934) 11,902
Increase in deferred
liabilities............... (307,054) (628,802) (570,777)
Cash paid for
acquisitions.............. (7,200,813) (1,171,857) (1,995,890)
----------- ----------- ------------
Net cash used for
investing
activities............ (13,400,769) (9,370,592) (9,899,793)
----------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings (payments) on
long-term debt and notes
payable................... 7,500,000 1,993,677 (5,504,197)
Net borrowings (payments)
under line of credit...... 7,067,947 12,565,511 (7,947,247)
Repayments from related
party..................... 718,769 50,971 157,839
Decrease (increase) in book
overdraft................. 8,169,559 (943,039) 1,357,257
Cash dividends paid by
acquired companies........ (2,890,068) (3,873,822) (5,715,424)
Net proceeds from issuance
of common stock........... 1,844,641 2,000,013 25,680,859
Repurchase of common
stock..................... (901,056) (861,500) --
----------- ----------- ------------
Net cash provided by
financing
activities............ 21,509,792 10,931,811 8,029,087
----------- ----------- ------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
EQUIVALENTS................. (208,799) 40,154 22,503
----------- ----------- ------------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS........ (2,544,620) 1,919,921 849,034
CASH AND EQUIVALENTS,
beginning of year........... 5,261,647 3,341,726 2,492,692
----------- ----------- ------------
CASH AND EQUIVALENTS, end of
year........................ $ 2,717,027 $ 5,261,647 $ 3,341,726
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<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, Canada and Europe. The Company's core
business is the distribution of promotional products, which are marketed by an
international network of sales representatives. The Company also provides
telemarketing and customer management services as well as sports marketing,
event planning and advertising 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 principle 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>
<S> <C>
Buildings............................... 15-39 years
Furniture, fixtures and equipment....... 5-10 years
Computer and telephone equipment........ 5-7 years
Vehicles................................ 5 years
Leasehold Improvements.................. Life of lease
</TABLE>
Property and equipment at December 31 are composed of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land.................................... $ 852,000 $ 813,000
Buildings............................... 1,272,000 1,175,000
Furniture, fixtures and equipment....... 11,877,000 9,119,000
Computer and telephone equipment........ 16,088,000 12,068,000
Vehicles................................ 107,000 279,000
Leasehold improvements.................. 4,471,000 1,925,000
----------- -----------
34,667,000 25,379,000
Less--Accumulated depreciation.......... 13,493,000 10,409,000
Property and equipment, net............. $21,174,000 $14,970,000
----------- -----------
----------- -----------
</TABLE>
F-7
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 from seven to fifteen years. The Company regularly reviews
the performance of acquired businesses to evaluate the realizability of the
underlying goodwill. Amortization expense in 1997, 1996 and 1995 was
approximately $1,555,000, $1,434,000 and $1,159,000, respectively. Accumulated
amortization of goodwill as of December 31, 1997 and 1996 was $4,750,000 and
$3,195,000, respectively.
E. INVENTORIES
Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
F. 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>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for
interest......................... $1,584,000 $1,431,000 $2,128,000
Cash paid during year for income
taxes............................ $4,015,000 $1,706,000 $1,842,000
SUPPLEMENTAL SCHEDULE OF NONCASH
ACTIVITIES
Recognition of common shares issued
in connection with
acquisitions..................... $10,273,000 $ 10,000 $ 852,000
Recognition of tax benefits from
exercise of stock options and
restricted stock................. $1,984,000 $5,244,000 $ 495,000
Conversion of non-operating assets
to note receivable............... $1,530,000 $ -- --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
G. 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.
H. FOREIGN CURRENCY TRANSLATION
Revenues and expenses from foreign operations 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 foreign entities are translated at
year-end exchange rates with gains and losses resulting from such translations
included in shareholders' equity.
F-8
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
I. 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.
J. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. This statement,
which is effective for fiscal years ending after December 15, 1997, requires
companies to provide relevant information about their capital structure. The
Company has adopted this statement and no disclosures other than those presented
herein are required.
The FASB also issued Statement No. 130, REPORTING COMPREHENSIVE INCOME, and
Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION in 1997. These statements become effective for fiscal years
beginning after December 15, 1997. Management believes adoption of the standards
will not have a material effect on the financial statements.
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 $2,732,000 as of December 31, 1997 and
$2,980,000 as of December 31, 1996. 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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current Provision....................... 9,796,000 6,902,000 3,374,000
Deferred Benefit........................ (537,000) (542,000) (859,000)
---------- ---------- ----------
Total provision......................... $9,259,000 $6,360,000 $2,515,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company's effective tax rate is reconciled to the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate.................. 34.0 % 34.0 % 34.0 %
State income taxes (net of Federal
benefit).............................. 5.0 5.0 5.0
Effect of non-taxable S Corporation
(earnings)/losses..................... -- 6.0 (3.1 )
Other................................... 1.0 1.1 1.2
----- ----- -----
Effective Tax Rate...................... 40.0 % 46.1 % 37.1 %
----- ----- -----
----- ----- -----
</TABLE>
F-9
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INCOME TAXES: (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
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
DEFERRED TAXES--CURRENT
Guaranteed sales, net of related
commissions........................... $ 107,000 $ 260,000
Credits due............................. 1,471,000 913,000
Advanced commissions.................... 168,000 136,000
Non-deductible reserves................. (663,000) (291,000)
Other................................... 10,000 40,000
----------- ----------
Total deferred taxes--current......... 1,093,000 1,058,000
DEFERRED TAXES--NON-CURRENT
Samples................................. $ 589,000 487,000
Acquisition costs....................... (1,650,000) (669,000)
Depreciation and amortization........... 12,000 (336,000)
Deferred costs.......................... (367,000) (327,000)
Other................................... (2,000) (1,000)
----------- ----------
Total deferred taxes--non-current..... (1,418,000) (846,000)
----------- ----------
Total deferred tax
(asset)/liability................... (325,000) 212,000
----------- ----------
----------- ----------
</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 1996 and 1995 provides information as if S Corporations acquired and
accounted for using the pooling-of-interests accounting method had been C
Corporations for income tax purposes.
NOTE 6. DEBT:
The Company has an unsecured credit facility (the, "Facility") totaling $65
million, consisting of a $45 million revolving line of credit (the "Revolver")
and $20 million acquisition term 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 the London Interbank Offered Rate (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. As of December 31, 1997, outstanding
borrowings on the Revolver and the Term were $33,565,649 and $7,500,000,
respectively.
A subsidiary of the Company also has a $5 million commitment from a bank to
provide funds required to construct a new office and warehouse building. This
commitment is subject to the same terms and
F-10
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. DEBT: (CONTINUED)
conditions as the Facility discussed above and is guaranteed by the Company. The
commitment extends through December 31, 1999. Outstanding borrowings as of
December 31, 1997 were $2,560,000.
One of the Company's European subsidiaries has revolving credit facilities
with several banks. These facilities provide for borrowings of up to $5 million
at rates ranging from 8-13%. The borrowings are generally unsecured and mature
at various times throughout 1998. As of December 31, 1997, outstanding
borrowings on these facilities were $4,352,493 and are included in current
maturities of long-term debt on the accompanying consolidated balance sheet.
As of December 31, 1997, the prime rate was 8.5% and LIBOR was 6.0%
NOTE 7. RELATED-PARTY TRANSACTIONS:
A wholly owned subsidiary of the Company leases its corporate headquarters
from the Vice Chairman of the Board of the Company. Rental payments under this
lease are $25,000 per month. The Company believes that the lease terms are no
more or less favorable than otherwise could be obtained from unaffiliated third
parties.
In connection with an acquisition, the Vice Chairman of the Board of the
Company converted certain non-operating assets of the acquired company to a
$1,530,159 note receivable. The note bears interest at 7.0%. As of December 31,
1997, the balance on the note was $662,702.
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 the successful completion of an acquisition. During 1997, the
director earned cash compensation of approximately $1,564,000 and was granted
102,255 options at fair market value at the date of grant. During 1996, the
director earned cash compensation of approximately $307,000 and was granted
57,284 options 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.
NOTE 8. COMMITMENTS AND CONTINGENCIES:
The Internal Revenue Service (the "IRS") has completed its field audit
examination of the Company's federal employment tax returns for the years ended
December 31, 1994 and 1993. This examination included a review of the facts,
circumstances and legal authority supporting the Company's position that its
independent sales representatives of promotional products have properly been
treated as independent contractors for federal employment tax purposes. The IRS
examination has been concluded without penalty or assessments of additional
employment tax.
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 $4,626,000, $3,302,000 and $3,610,000 for 1997,
1996 and 1995, respectively.
F-11
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The aggregate annual minimum lease rentals are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31--
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 4,843,000
1999........................................................................... 4,472,000
2000........................................................................... 4,167,000
2001........................................................................... 3,757,000
2002........................................................................... 3,142,000
Thereafter..................................................................... 7,540,000
-------------
$ 27,921,000
-------------
-------------
</TABLE>
At December 31, 1997, the Company has approximately $3,911,000 in
outstanding letters of credit issued in the ordinary course of business.
Various lawsuits have arisen in the ordinary course of the Company's
business. The Company believes that its defenses are meritorious and that the
eventual outcome of those lawsuits will not have a material effect on the
Company's financial position or results of operations.
NOTE 9. BUSINESS COMBINATIONS:
During 1997, the Company acquired eight companies. Four of the acquisitions
were accounted for using the pooling-of-interests accounting method. On January
3, 1997, the Company completed the acquisition of a distributor of promotional
products for 2,841,415 shares of its common stock. Two other promotional
products distributors and one telemarketing company were also acquired for an
aggregate of 938,310 shares of the Company's common stock. The consolidated
financial statements for all periods presented have been restated to include the
results of these acquired companies.
In addition to the acquisitions discussed above, the Company acquired two
U.S. and two European based distributors of promotional products during 1997
that were accounted for as purchases. The U.S. based companies were acquired for
an aggregate of 221,773 shares of the Company's common stock. The common stock
issued in the U.S. based acquisitions had an aggregate fair market value of
approximately $5.3 million. The European based companies were purchased for an
aggregate of $6.0 million in cash and 190,237 shares of the Company's common
stock. The common stock issued in the European based acquisitions had an
aggregate fair market value of approximately $5.2 million. Total goodwill
recognized for these four acquisitions was approximately $13.2 million. The
consolidated financial statements include the results of these acquired
companies since the date of acquisition.
During 1996, the Company acquired two companies. One of the companies was
accounted for under the purchase method of accounting and acquired for
approximately 400 shares of the Company's common stock and the assumption of
certain liabilities. This acquisition 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 for all the outstanding shares of two telemarketing companies.
Accordingly, the consolidated financial statements for all periods presented
have been restated to include the results of these acquired companies.
F-12
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. BUSINESS COMBINATIONS: (CONTINUED)
During 1995, the Company acquired three companies. Two of the three
acquisitions were accounted for under the purchase method of accounting. These
two businesses were acquired for an aggregate of approximately $1,300,000 in
cash, 227,484 shares of the Company's common stock and the assumption of certain
liabilities. The common stock issued had an approximate fair market value of
$852,000 at the date of closing. These two acquisitions were not determined to
be material to the Company's consolidated financial statements. 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 for
all the outstanding shares of a distributor of promotional products.
NOTE 10. CAPITAL STOCK AND EARNINGS PER SHARE:
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 the offering.
In connection with the termination of acquired companies' S Corporation
status, the Company was required to transfer undistributed retained earnings to
common stock. Dividends paid by the predecessor companies are shown as a
reduction of retained earnings to the extent of their net income, with the
remainder reducing common stock.
The Company adopted FASB Statement No. 128, EARNINGS PER SHARE, in the
fourth quarter of 1997. Under this statement, basic net income per share is
computed by dividing net income by the weighted average number of shares
outstanding during the period. Diluted net income per share is computed by
dividing net income by the weighted average number of shares assuming dilution.
Dilutive shares reflect additional shares that would be outstanding if dilutive
stock options and warrants outstanding were exercised during the period. The
computation of net income per share is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net Income (pro forma for 1996 and 1995)......................... 13,882 8,241 4,070
Net income per share--Basic:
Weighted average common shares................................. 20,723 20,033 16,843
Net income per share--Basic.................................... .67 .41 .24
Net income per share--Diluted:
Weighted average common shares................................. 20,723 20,033 16,843
Effect of dilutive stock options and warrants.................. 989 1,115 518
--------- --------- ---------
Weighted average shares assuming Dilution...................... 21,712 21,148 17,361
--------- --------- ---------
--------- --------- ---------
Net income per share--Diluted.................................. .64 .39 .23
--------- --------- ---------
--------- --------- ---------
</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 customer. These shares were issued under one of the stock Plans described in
Note 12 and have been included as a component of shareholders' equity.
F-13
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. STOCK WARRANTS:
In January, 1995, the Company signed a multi-year agreement to provide
premium promotional products to a customer. 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, the Company issued 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 if
minimum purchase levels are achieved. The Company also issued 374,806 warrants
in connection with the extension of the agreement. These warrants also have an
exercise price at the fair market value on date of grant and expire January 11,
2011. These warrants have been accounted for under the provisions of FASB
Statement No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, which requires
warrants issued to non-employees be recorded at fair 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 12. STOCK OPTIONS:
The Company has two stock plans which provide 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 issued and the terms thereof are at the discretion of the
Compensation Committee of the Company's Board of Directors. Pursuant to the
plans, an aggregate
F-14
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. STOCK OPTIONS: (CONTINUED)
of 5,389,881 shares of the Company's common stock have been reserved. At
December 31, 1997, there were an aggregate of 39,505 shares available for future
grant under the plans. Subsequent to year end, the Company increased the number
of shares authorized under one of the plans by 1,500,000. The exercise price for
incentive stock options and non-qualified stock options granted under the plans
may not be less than 100% and 85%, respectively, of the fair market value of the
common stock at the date of grant. As granted under the plans, the majority of
the options vest annually over two or three years, commencing one year from the
date of grant. All options granted under the plans expire ten years from the
date of grant.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. FASB Statement No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION, (SFAS 123) was issued 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 plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income (pro forma for 1996 and 1995)
As reported....................................................................... $ 13,882 $ 8,241 $ 4,070
Pro forma......................................................................... $ 6,179 $ 5,899 $ 3,567
Basic net income per share
As reported....................................................................... $ 0.67 $ 0.41 $ 0.24
Pro forma......................................................................... $ 0.30 $ 0.29 $ 0.21
Diluted net income per share
As reported....................................................................... $ 0.64 $ 0.39 $ 0.23
Pro forma......................................................................... $ 0.28 $ 0.28 $ 0.21
</TABLE>
Because the SFAS 123 method of accounting 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 pricing model with the following assumptions; risk free
interest rates between 6.4% and 6.8% in 1997, 5.2% and 6.2% in 1996 and between
5.9% and 6.9% in 1995; zero dividend yield for all years; expected lives of 5
years for all years; and volatility of 30 percent for all years.
A summary of the status of the Company's fixed stock option plan and
warrants issued as of December 31, 1997, 1996, and 1995, and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING OUTSTANDING.................. 3,501,540 $ 13.47 2,497,405 $ 5.47 1,058,717 $ 3.02
GRANTED
Price equal to fair value............ 1,876,302 $ 24.09 1,152,464 $ 16.53 1,523,372 $ 7.01
Price in excess of fair value........ -- -- 500,938 $ 33.57 2,813 $ 5.53
EXERCISED.............................. (252,623) $ 7.31 (614,305) $ 3.26 (80,852) $ 2.65
CANCELLED.............................. (41,437) $ 19.70 (34,962) $ 10.52 (6,645) $ 2.72
------------ ----------- ------------ ----------- ------------ -----
ENDING OUTSTANDING..................... 5,083,782 $ 17.63 3,501,540 $ 13.47 2,497,405 $ 5.47
EXERCISABLE AS OF 12/31................ 2,316,553 1,174,396 1,194,580
Weighted average fair value of options
granted:
Price equal to Fair Value.............. $9.39 $6.12 $3.18
Price in excess of Fair Value.......... -- $7.88 $2.00
------------ ------------ ------------
</TABLE>
The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------
WEIGHTED WEIGHTED
NUMBER WEIGHTED AVERAGE AVERAGE NUMBER AVERAGE
OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES 12/31/97 CONTRACTUAL LIFE PRICE 12/31/97 PRICE
- ------------------------------------------------ ----------- ------------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$2.20 - $3.56................................... 1,039,348 6.76 $ 3.43 789,575 $ 3.39
$5.23 - $13.67.................................. 1,150,582 9.23 $ 12.11 494,416 $ 10.77
$14.00 - $25.00................................. 1,109,248 9.00 $ 20.48 473,016 $ 19.25
$25.13 - $28.75................................. 1,282,773 9.13 $ 25.36 391,964 $ 25.49
$32.76 - $33.60................................. 501,831 8.90 $ 33.60 167,582 $ 33.60
----------- --- ----------- ---------- -----------
$2.20 - $33.60.................................. 5,083,782 8.62 $ 17.63 2,316,553 $ 14.13
----------- --- ----------- ---------- -----------
</TABLE>
F-15
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. BUSINESS SEGMENT INFORMATION:
Segment information by industry for the years ended December 31, 1997, 1996,
and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Promotional Products......................................................... $ 349,761 $ 289,132 $ 239,281
Telemarketing................................................................ 64,030 55,290 43,799
---------- ---------- ----------
Total Consolidated......................................................... $ 413,791 $ 344,422 $ 283,080
---------- ---------- ----------
---------- ---------- ----------
OPERATING INCOME:
Promotional Products(1)...................................................... $ 19,010 $ 9,613 $ 5,792
Telemarketing................................................................ 6,009 5,111 3,140
---------- ---------- ----------
Total Consolidated......................................................... $ 25,019 $ 14,724 $ 8,932
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS(2):
Promotional Products......................................................... $ 163,025 $ 94,033 $ 79,460
Telemarketing................................................................ 17,543 12,289 10,543
---------- ---------- ----------
Total Consolidated......................................................... $ 180,568 $ 106,322 $ 90,003
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) Includes corporate overhead expenses and non-recurring acquisition charges
for all periods presented.
(2) Consists primarily of receivables, inventories and property and equipment.
Cash, short-term investments and other assets are considered corporate
assets and are therefore not included.
NOTE 14. UNAUDITED SELECTED QUARTERLY OPERATING RESULTS:
The following table represents unaudited selected financial information for
the eight quarters ended December 31, 1997. This information has been prepared
by the Company on a basis consistent with the Company's audited financial
statements and includes all adjustments 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 results for any future period. All
periods presented have been adjusted to reflect the effects of an entity
acquired in the fourth quarter 1997 and accounted for using the
pooling-of-interests method of accounting.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
1997 1996
---------------------------------------------- ------------------------------------------------
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............. $ 80,379 $ 90,854 $ 98,297 $ 130,820 $ 67,849 $ 78,489 $ 85,196 $ 106,723
Effect of acquired company...... 3,224 3,224 2,120 4,873 1,513 1,518 1,519 1,615
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
Total......................... 83,603 94,078 100,417 135,693 69,362 80,007 86,715 108,338
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
Gross profit
Previously reported............. 24,920 28,110 31,291 44,343 18,137 22,580 24,807 32,593
Effect of acquired company...... 1,212 1,212 814 1,905 432 471 470 672
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
Total......................... 26,132 29,322 32,105 46,248 18,569 23,051 25,277 33,265
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
Net income per share-diluted (pro
forma in 1996)
Previously reported............. $ .03 $ .12 $ .17 $ .32 $ .03 $ .08 $ .08 $ .21
Effect of acquired company...... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .01
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
Total......................... $ .03 $ .12 $ .17 $ .32 $ .03 $ .08 $ .08 $ .20
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ----------- ---------
</TABLE>
NOTE 15. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS:
Prior to October 27, 1997, the Company's stock was quoted on the Nasdaq
National Market under the symbol "HALO." The Company's common stock is now
traded on the New York Stock Exchange under the symbol "HMK", and was held by
approximately 3,800 shareholders of record as of March 23, 1998. The following
table sets forth the range of high and low sales prices for each quarterly
period in 1997 and 1996 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>
1997
First Quarter........................... 29 121/2
Second Quarter.......................... 251/4 141/2
Third Quarter........................... 295/16 221/2
Fourth Quarter.......................... 293/8 231/4
1996
First Quarter........................... 153/8 103/4
Second Quarter.......................... 2313/16 143/8
Third Quarter........................... 25 151/4
Fourth Quarter.......................... 323/16 213/4
</TABLE>
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company, any Selling Shareholder or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 7
Forward-Looking Statements........................... 11
Recent Developments.................................. 12
Use of Proceeds...................................... 12
Price Range of Common Stock and Dividend Policy...... 13
Capitalization....................................... 14
Selected Financial Data.............................. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 16
Business............................................. 19
Management........................................... 27
Principal and Selling Shareholders................... 30
Shares Eligible for Future Sale...................... 33
Underwriting......................................... 34
Notice to Canadian Residents......................... 35
Legal Matters........................................ 36
Experts.............................................. 36
Additional Information............................... 36
Incorporation of Certain Documents by Reference...... 37
Index to Financial Statements........................ F-1
</TABLE>
[LOGO]
HA-LO INDUSTRIES, INC.
5,500,000 Shares
Common Stock
(no par value)
PROSPECTUS
Credit Suisse First Boston
ABN AMRO Incorporated
Merrill Lynch & Co.
Morgan Stanley Dean Witter
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the underwriting
discounts and commissions) of the issuance and distribution of the shares of
Common Stock of HA-LO Industries, Inc. ("HA-LO") being registered, all of which
will be paid by HA-LO.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 63,440
NASD filing fee................................................... 22,000
Printing expenses................................................. 150,000
Fees and expenses of counsel...................................... 150,000
Fees and expenses of accountants.................................. 75,000
Transfer agent and registrar fees................................. 10,000
Blue sky fees and expenses........................................ 5,000
Miscellaneous..................................................... 350,560
---------
Total........................................................... $ 826,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Illinois Business Corporation Act of 1983, as amended (the "IBCA")
authorizes HA-LO to indemnify its directors and officers. HA-LO's Restated
Articles of Incorporation require HA-LO to indemnify any current or former
director or officer to the fullest extent permitted by the IBCA. HA-LO maintains
officers' and directors' liability insurance which insures against liabilities
that officers and directors of HA-LO may incur in such capacities. HA-LO has
also entered into indemnity agreements with each of its directors and officers
pursuant to which HA-LO has agreed to indemnify such persons against any and all
losses and expenses, to the fullest extent permitted under HA-LO's Articles and
By-laws and the IBCA, and to advance to such persons any and all expenses
arising in connection therewith.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See attached Exhibit Index, which is incorporated herein by this
reference.
(b) Financial Statement Schedules:
See attached Index to Financial Statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of
II-1
<PAGE>
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus files as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (ii) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on May 8, 1998.
HA-LO INDUSTRIES, INC.
(Registrant)
By: /s/ LOU WEISBACH
-----------------------------------------
Lou Weisbach
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on May 8, 1998,
in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ---------------------------
<C> <S>
Director, Chairman,
/s/ LOU WEISBACH President and Chief
- ------------------------------ Executive Officer
Lou Weisbach (Principal Executive
Officer)
/s/ RICHARD A. MAGID
- ------------------------------ Director, Treasurer and
Richard A. Magid Chief Operating Officer
Chief Financial Officer
/s/ GREGORY J. KILREA (Principal Financial
- ------------------------------ Officer and Principal
Gregory J. Kilrea Accounting Officer)
*/s/ THOMAS HERSKOVITS
- ------------------------------ Director
Thomas Herskovits
*/s/ JORDON R. KATZ
- ------------------------------ Director
Jordon R. Katz
*/s/ MARSHALL J. KATZ
- ------------------------------ Director
Marshall J. Katz
*/s/ NEIL A. RAMO
- ------------------------------ Director
Neil A. Ramo
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ---------------------------
<C> <S>
*/s/ DAVID C. ROBBINS
- ------------------------------ Director, Executive Vice
David C. Robbins President
*/s/ LINDEN D. NELSON
- ------------------------------ Director, Vice Chairman
Linden D. Nelson
*/s/ ROBERT SOSNICK
- ------------------------------ Director
Robert Sosnick
*/s/ SEYMOUR N. OKNER
- ------------------------------ Director
Seymour N. Okner
</TABLE>
*By: /s/ RICHARD A. MAGID
-------------------------
Richard A. Magid
AS ATTORNEY-IN-FACT
II-4
<PAGE>
HA-LO INDUSTRIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Specimen of Stock Certificate for Common Stock(1)
5.1 Opinion of Neal, Gerber & Eisenberg, counsel to the Company
23.1 Consent of independent public accountants
23.2 Consent of Neal, Gerber & Eisenberg (included in Exhibit 5.1)
24.1 Power of Attorney*
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Registration Statement (No. 33-51698) on Form S-1, as amended, filed by the
Company under the Securities Act of 1933, as amended.
<PAGE>
5,500,000 SHARES
HA-LO INDUSTRIES, INC.
COMMON STOCK
NO PAR VALUE
UNDERWRITING AGREEMENT
_____________________, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
ABN AMRO Incorporated
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. INTRODUCTORY. HA-LO Industries, Inc., an Illinois corporation
("Company") proposes to issue and sell 3,750,000 shares of its common stock, no
par value ("Securities"), and the stockholders listed in Schedule A hereto
("Selling Stockholders") propose severally to sell an aggregate of 1,750,000
shares of the Securities (such 5,500,000 shares of Securities being hereinafter
referred to as the "Firm Securities"). The Company also proposes to issue and
sell, and Lou Weisbach also proposes to sell, to the Underwriters, at the option
of the Underwriters, not more than 625,000 and 200,000 additional shares of
Securities, respectively, as set forth below (such 825,000 additional shares
being hereinafter referred to as the "Optional Securities"). Of the 1,750,000
shares of the Securities to be sold by the Selling Stockholders, 1,605,000
shares are currently outstanding and 145,000 shares are subject to stock options
held by Richard A. Magid and Marshall J. Katz (45,000 and 100,000 shares,
respectively). Such stock options will be exercised on the Closing Date by the
holders thereof pursuant to irrevocable exercise notices delivered to Harris
Trust and Savings Bank, as Custodian, and the Securities issued upon exercise
thereof will be included as part of the offering by the Underwriters to the
public as set forth in the Prospectus. The Securities issuable upon the
exercise of such stock options, together with those Firm Securities and Optional
Securities represented by shares, are herein collectively called the "Offered
Securities." The Company and the Selling Stockholders hereby agree with the
several Underwriters named in Schedule B hereto ("Underwriters") as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. (a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
<PAGE>
(i) A registration statement (No. 333-49667) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (A) has been
declared effective under the Securities Act of 1933, as amended ("Act") and
is not proposed to be amended or (B) is proposed to be amended by amendment
or post-effective amendment. If such registration statement (the "initial
registration statement") has been declared effective, either (A) an
additional registration statement (the "additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (B) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (A) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (B) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all material incorporated by
reference therein, including all information contained in the additional
registration statement (if any) and deemed to be a part of the initial
registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement." The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement." The Initial Registration Statement and the Additional
2
<PAGE>
Registration are hereinafter referred to collectively as the "Registration
Statements" and individually as a "Registration Statement." The form of
prospectus relating to the Offered Securities, as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)")
under the Act or (if no such filing is required) as included in a
Registration Statement, including all material incorporated by reference in
such prospectus, is hereinafter referred to as the "Prospectus." No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission ("Rules and Regulations")
and did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed or will conform, in all material respects to the requirements of
the Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or will
not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the Effective
Date of the Additional Registration Statement in which the Prospectus is
included, each Registration Statement and the Prospectus will conform, in
all material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading. If the Effective
Time of the Initial Registration Statement is subsequent to the execution
and delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all material respects to the requirements of the
Act and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances under
which they were made) not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information is that
described as such in Section 7(c) hereof.
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Illinois, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
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(iv) Each Subsidiary of the Company (as defined herein) has been duly
incorporated and is an existing corporation in good standing under the laws
of the jurisdiction of its incorporation, with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus; and each Subsidiary of the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification; all of the issued and
outstanding capital stock of each Subsidiary of the Company has been duly
authorized and validly issued, is fully paid and nonassessable and is owned
by the Company, directly or through subsidiaries, free from liens,
encumbrances, restrictions upon voting or transfer, and defects. The
Company does not own or control, directly or indirectly, any shares of
stock or other equity interest or long-term debt securities of any
corporation, association, partnership, joint venture or other entity other
than Fletcher, Barnhardt & White, Inc.; Market U.S.A., Inc.; Marusa
Marketing, Ltd.; Marusa Financial; HA-LO Sports, Inc.; Creative Concepts in
Advertising, Inc.; Creadis Group, Inc.; 1132832 Ontario Corp.; 1132831
Ontario Corp.; Flow Plastics, Inc; Wolff Marketing Group, Inc., Joking Spa;
Lees Keystone, Inc.; HMK International Holdings, Inc., HA-LO Belgium, N.V.
and Bavelco, B.V.B.A. (collectively sometimes referred to herein as the
"Subsidiaries" or singly as a "Subsidiary").
(v) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with applicable Federal and state securities law and
conform to the description thereof contained or incorporated by reference
in the Prospectus; the Offered Securities to be issued and sold by the
Company have been duly authorized and will be, when issued and paid for in
accordance with this Agreement, validly issued, fully paid and
nonassessable; the stock options of Richard A. Magid and Marshall J. Katz
representing Offered Securities have been duly authorized, and when shares
of Securities are issued upon exercise thereof and payment of the exercise
price, such shares will be validly issued, fully paid and nonassessable;
and the stockholders of the Company have no preemptive or similar rights
with respect to the Offered Securities or any other securities of the
Company and no further approval or authority of the shareholders or Board
of Directors of the Company will be required for the issuance and sale of
the Offered Securities as contemplated by this Agreement.
(vi) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization," and
except as set forth in or contemplated by the Prospectus, no options,
warrants or other rights to purchase or otherwise acquire any authorized
but unissued shares of Securities or other equity interests of the Company
or any security convertible into or exchangeable for shares of Securities
or other equity interests of the Company are outstanding or contemplated.
The descriptions of the outstanding options, warrants or other similar
rights granted by the Company as set forth in the Prospectus are true and
correct.
(vii) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act, except for the Securities and as referred to or as described in the
Prospectus.
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(viii ) The Securities are listed, and the Offered Securities have
been approved for listing subject to notice of issuance, on The New York
Stock Exchange.
(ix ) No consent, approval, authorization, or order of, or filing
with, any third party or any governmental agency or body or any court is
required for the consummation of the transactions contemplated by this
Agreement in connection with the sale of the Offered Securities, except
such as have been obtained and made under the Act and such as may be
required under state securities laws or pursuant to the rules and
regulations of the National Association of Securities Dealers, Inc.
("NASD").
(x) The execution, delivery and performance of this Agreement, and
the consummation of the transactions herein contemplated will not result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule, regulation or order of
any governmental agency or body or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary of the Company or any of
their properties, or any agreement or instrument to which the Company or
any such Subsidiary is a party or by which the Company or any such
Subsidiary is bound or to which any of the properties of the Company or
any such Subsidiary is subject, or the charter or by-laws or other
organizational documents of the Company or any such Subsidiary.
(xi) This Agreement has been duly authorized, executed and delivered
by the Company, and constitutes the legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except to the extent that (A) enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and by general principles of equity and (B)
rights to indemnity and contribution may be limited by Federal or state
securities laws or policies underlying such laws.
(xii) Except as disclosed in the Prospectus, the Company and its
Subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its Subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(xiii) The Company and each of its Subsidiaries are in compliance in
all respects with applicable domestic or foreign, federal, state, local,
and provincial laws and regulations, including, without limitation, those
applicable to the telemarketing activities of the Company and any of its
Subsidiaries, and have not received any notice from any governmental agency
or body, domestic or foreign, that the conduct of their business is not in
such compliance, except where the failure to be in such compliance would
not individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties, results of operations
or prospects of the Company and its Subsidiaries taken as a whole (a
"Material Adverse Effect"). The Company and its Subsidiaries and, where
required, any of their employees, independent contractors and agents,
possess all licenses, certificates, authorities or permits ("Licenses")
issued by appropriate governmental agencies or bodies, domestic or foreign,
necessary to conduct the business now operated by them, such Licenses are
valid and in full force and effect, no event has
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occurred that allows, or after notice or lapse of time would allow,
revocation or termination of such Licenses or violation of such laws or
regulations, except where revocation, termination or violation would not
have a Material Adverse Effect, and none of the Company nor any of its
subsidiaries have received any notice of proceedings relating to the
revocation or modification of any such License that, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a Material Adverse Effect.
(xiv) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is threatened, and
the Company is not aware of any existing or imminent labor disturbance by
the employees of its principal suppliers, manufacturers or customers that
could, singly or in the aggregate, have a Material Adverse Effect.
(xv) The Company and its Subsidiaries own or have valid licenses for
all trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual
property (collectively, "intellectual property rights") necessary to
conduct the business now operated by them, or presently employed by them.
Neither the Company nor any of its Subsidiaries have received any notice of
infringement of or conflict with asserted rights of others with respect to
any intellectual property rights that, if determined adversely to the
Company or any of its Subsidiaries, would individually or in the aggregate
have a Material Adverse Effect.
(xvi) Neither the Company nor any of its Subsidiaries is in violation
of any statute, any rule, regulation, decision or order of any domestic or
foreign governmental agency or body or court, relating to the use, disposal
or release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any real
property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to
any environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to
such a claim.
(xvii) There are no pending actions, suits or proceedings against or
affecting the Company, any of its Subsidiaries or any of their respective
properties or assets that, if determined adversely to the Company or any of
its Subsidiaries, would individually or in the aggregate have a Material
Adverse Effect or would materially and adversely affect the ability of the
Company to perform its obligations under this Agreement, or which are
otherwise material in the context of the sale of the Offered Securities;
and no such actions, suits or proceedings are threatened or, to the
Company's knowledge, contemplated.
(xviii) The financial statements together with related notes included
in each Registration Statement and the Prospectus present fairly the
financial position of the Company and its consolidated subsidiaries as of
the dates shown and their results of operations and cash flows for the
periods shown, and such financial statements and notes have been prepared
in conformity with the generally accepted accounting principles in the
United States consistently applied throughout the periods represented
thereby and the schedules included in each Registration Statement present
fairly the information required to be stated therein. The other financial
and statistical information
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and data set forth in each Registration Statement and the Prospectus is,
in all material respects, accurately presented and prepared on a basis
consistent with such financial statements and the books and records of
the Company. No other financial statements or schedules are required by
the Act or the Rules and Regulations thereunder to be included in the
Registration Statements or Prospectus. The financial information set
forth in the Prospectus under "Prospectus Summary" and "Selected
Financial Data" presents fairly on the basis stated in the Prospectus,
the information set forth therein.
(xix) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties, prospects or results of operations of the Company and
its Subsidiaries taken as a whole. Since the dates as of which information
is given in the Registration Statements and the Prospectus, neither the
Company nor any of its Subsidiaries has incurred any material liability or
obligation (indirect, direct or contingent) or entered into any material
oral or written agreement or other material transaction that is not in the
ordinary course of business or that could reasonably be expected to result
in a material reduction in the future earnings of the Company or its
Subsidiaries and, except as disclosed in or contemplated by the Prospectus,
there has been no material change in the indebtedness of the Company, no
change in the capital stock and no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(xx) The Company is not and, after giving effect to the offering and
sale of the Offered Securities to be sold by the Company and the
application of the net proceeds thereof as described in the Prospectus,
will not be an "investment company" as defined in the Investment Company
Act of 1940.
(xxi) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(xxii) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or in default under any consent decree, or in
default with respect to any material provision of any lease, loan
agreement, franchise, license, permit or other contract obligation to which
it is a party; and there does not exist any state of facts which
constitutes an event of default as defined in such documents or which, with
notice or lapse of time or both, would constitute such an event of default,
in each case, except for defaults which neither singly nor in the aggregate
would have a Material Adverse Effect.
(xxiii) Neither the Company nor any of its directors, officers or
controlling persons has taken and none of such persons will take, directly
or indirectly, any action designed to or which might reasonably be expected
to cause or result, under the Securities Exchange Act of 1934 or otherwise,
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Offered Securities, and the
Company has not distributed and will not distribute any offering material
in connection with the offering and sale of the Offered Securities
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<PAGE>
other than any preliminary prospectus filed with the Commission or the
Prospectus or other materials, if any, permitted by the Act or the Rules
and Regulations.
(xxiv) There are no statutes or regulations, and there is no material
document of a character required to be described in the Registration
Statements or the Prospectus or to be filed as an exhibit to the
Registration Statements which are not described or filed as required. All
such contracts to which the Company or any of its Subsidiaries is a party
are in full force and effect and neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any other party is in breach
of or default under any such contracts.
(xxv) All offers and sales of the Company's capital stock prior to the
date hereof were at all relevant times exempt from the registration
requirements of the Act or such shares were registered thereunder and were
duly registered with or the subject of an available exemption from the
registration requirements of the applicable state securities or blue sky
laws.
(xxvi) The Company and its Subsidiaries have filed all federal, state,
local and foreign tax returns of any kind required to be filed, including
those relating to income, franchise, payroll, sales, use or other taxes and
has paid all taxes shown as due thereon and, except as disclosed in the
Prospectus and except for any such taxes (or taxes claimed to be due) that
are being contested by the Company in good faith and by appropriate
proceedings, there is no tax deficiency that has been, or to the knowledge
of the Company might be, asserted against the Company or any of its
Subsidiaries or any of their properties or assets that would or could,
singly or in the aggregate, be expected to have a Material Adverse Effect.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries, together with contractual indemnification obligations of
third parties for the benefit of the Company, in respect of any tax
liability for any year not finally determined are adequate to meet any
assessments or reassessments for additional taxes.
(xxvii) Each of the Company and its Subsidiaries maintains insurance
of the types and in such amounts as are generally maintained by companies
engaged in the same or similar businesses, and all of such insurance is in
full force and effect.
(xxviii) Neither the Company nor any of its Subsidiaries has at any
time during the last five years made any payment to any federal, state or
foreign governmental officer or official, or person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States or any jurisdiction thereof.
(xxix) Arthur Andersen LLP, who are reporting upon the audited
financial statements and schedules included or incorporated by reference in
the Registration Statements and the Prospectus are independent public
accountants as required by the Act and the Rules and Regulations
thereunder.
(xxx) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient for purposes of the prevention or
detection of errors or irregularities in amounts that could be expected to
be material to the Company's consolidated financial statements and the
recording of transactions so as to permit the preparation of such
consolidated financial statements in conformity with generally accepted
accounting principles.
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(xxxi) Except as disclosed in the Prospectus and as contemplated in
this Agreement, there are no contracts, agreements or understandings
between the Company and any person that would give rise to a valid claim
against the Company or any Underwriter for a brokerage commission, finder's
fee or other like payment in connection with the transactions contemplated
by this Agreement.
(b) Each Selling Stockholder severally represents and warrants to,
and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has and on each Closing Date
hereinafter mentioned will have valid and unencumbered title to, or
currently exercisable options to purchase Securities representing, the
Offered Securities to be delivered by such Selling Stockholder on such
Closing Date and full right, power and authority to enter into this
Agreement, the Custody Agreement and the Irrevocable Power of Attorney
entered into by such Selling Stockholder in connection with the
transactions contemplated hereby (the "Custody Agreement" and "Power of
Attorney") and to sell, assign, transfer and deliver the Offered
Securities to be delivered by such Selling Stockholder on such Closing
Date hereunder; and upon the delivery of and payment for the Offered
Securities on each Closing Date hereunder the several Underwriters will
acquire valid and unencumbered title to the Offered Securities to be
delivered by such Selling Stockholder on such Closing Date.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the Rules and Regulations and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, (B) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform,
in all material respects to the requirements of the Act and the Rules and
Regulations, did not include, or will not include, any untrue statement of
a material fact and did not omit, or will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (C) on the date of this Agreement, the Initial
Registration Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement each conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b) or (if no such
filing is required) at the Effective Date of the Additional Registration
Statement in which the Prospectus is included, each Registration Statement
and the Prospectus will conform, in all material respects, to the
requirements of the Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which they were made)
not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement:
on the Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all material
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein (in the case of the Prospectus,
in light of the circumstances under which they were made)
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not misleading. The two preceding sentences apply only to the extent
that any statements in or omissions from a Registration Statement or the
Prospectus are based on written information furnished to the Company by
such Selling Stockholder specifically for use therein.
(iii) This Agreement, the Custody Agreement and the Power of Attorney
have each been duly authorized, executed and delivered by or in behalf of
each Selling Stockholder, and this Agreement, the Custody Agreement and the
Power of Attorney each constitutes the legal, valid and binding obligation
of such Selling Stockholder enforceable against such Selling Stockholder in
accordance with its terms, except to the extent that: (A) enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to creditors' rights generally and by general
principles of equity, and (B) rights to indemnity and contribution may be
limited by Federal or state securities laws or policies underlying such
laws.
(iv) No consent, approval, authorization, order, registration or
qualification of or with any third party (whether acting in an individual,
fiduciary or other capacity) or any court or government agency or body is
required to be obtained or made by such Selling Stockholder for the sale of
the Offered Securities or for the consummation of the other transactions
contemplated by this Agreement, the Custody Agreement and the Power of
Attorney in connection with the sale of the Offered Securities, except such
as have been obtained and made under the Act and such as may be required
under state securities laws in connection with the offer and sale of the
Offered Securities or pursuant to the rules and regulations of the NASD.
(v) The execution, delivery and performance of this Agreement, the
Custody Agreement and the Power of Attorney by such Selling Stockholder and
the sale of the Offered Securities being sold by such Selling Stockholder
and the consummation by such Selling Stockholder of the other transactions
contemplated hereby will not contravene, if applicable, any provisions of
the charter, by-laws, trust agreement or other organizational documents of
such Selling Stockholder, or conflict with or result in a breach or
violation of the terms and provisions of or constitute a default under, or
result in the creation or imposition of a lien, charge or encumbrance upon
the Offered Securities to be sold by such Selling Stockholder under any
statute, rule, regulation, order or decree of any governmental agency or
body, domestic or foreign, having jurisdiction over such Selling
Stockholder or any properties, assets or operations of such Selling
Stockholder or any indenture, mortgage, loan agreement, note or other
agreement for borrowed money, any guarantee of any such agreement or any
lease, permit, license or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is
bound or to which any of the properties, assets or operations of such
Selling Stockholder is subject, and such Selling Stockholder has full power
and authority to sell the Offered Securities to be sold by such Selling
Stockholder as contemplated by this Agreement.
(vi) Such Selling Stockholder has not taken or will not take, directly
or indirectly, any action designed to or that could reasonably be expected
to cause or result in stabilization or manipulation of the price of the
Offered Securities, and such Selling Stockholder has not distributed and
will not distribute any offering material in connection with the offer and
sale of the Offered Securities other than any preliminary prospectus filed
with the Commission or the Prospectus or other materials, if any, permitted
by the Act or the Rules and Regulations.
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(vii) There are no contracts, agreements or understandings between
such Selling Stockholder and any person that would give rise to a valid
claim against such Selling Stockholder or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with this
offering.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and each Selling Stockholder
agree, severally and not jointly, to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
each Selling Stockholder, at a purchase price of $ per share, that
number of Firm Securities (rounded up or down, as determined by Credit Suisse
First Boston Corporation ("CSFBC") in its discretion, in order to avoid
fractions) obtained by multiplying 3,750,000 Firm Securities in the case of the
Company and the number of Firm Securities set forth opposite the name of such
Selling Stockholder in Schedule A hereto, in the case of a Selling Stockholder,
in each case by a fraction the numerator of which is the number of Firm
Securities set forth opposite the name of such Underwriter in Schedule B hereto
and the denominator of which is the total number of Firm Securities.
Certificates in negotiable form for the Offered Securities to be sold by
the Selling Stockholders hereunder (and in the case of Richard A. Magid and
Marshall J. Katz, fully completed exercise forms and checks representing the
exercise price of such options) have been placed in custody, for delivery under
this Agreement, under Custody Agreements made with Harris Trust and Savings
Bank, as custodian ("Custodian"). Each Selling Stockholder agrees that the
shares represented by the certificates (or option certificates) held in custody
for the Selling Stockholders under such Custody Agreements are subject to the
interests of the Underwriters hereunder, that the arrangements made by the
Selling Stockholders for such custody are to that extent irrevocable, and that
the obligations of the Selling Stockholders hereunder shall not be terminated by
operation of law, whether by the death of any individual Selling Stockholder or
the occurrence of any other event, or in the case of a trust, by the death of
any trustee or trustees or the termination of such trust. If any individual
Selling Stockholder or any such trustee or trustees should die, or if any other
such event should occur, or if any of such trusts should terminate, before the
delivery of the Offered Securities hereunder, certificates for such Offered
Securities shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death or other event or termination had
not occurred, regardless of whether or not the Custodian shall have received
notice of such death or other event or termination.
The Company and the Custodian will deliver the Firm Securities to the
Representatives for the accounts of the Underwriters, against payment of the
purchase price in Federal (same day) funds by official bank check or checks or
wire transfer to an account at a bank acceptable to CSFBC drawn to the order of
the Company in the case of 3,750,000 shares of Firm Securities and to the
order of the Custodian in the case of 1,750,000 shares of Firm Securities, at
the office of Lord, Bissell & Brook, 115 South LaSalle Street, Chicago,
Illinois, 60603, at 9:00 A.M., Chicago time, on , or at
such other time not later than seven full business days thereafter as CSFBC and
the Company determine, such time being herein referred to as the "First Closing
Date." Notwithstanding the foregoing, for purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment
of funds and delivery of securities for all the Offered Securities sold pursuant
to the Offering.
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In addition, upon written notice from CSFBC given to the Company and Lou
Weisbach from time to time not more than 30 days subsequent to the date of the
Prospectus, the Underwriters may purchase all or less than all of the Optional
Securities at the purchase price per Security to be paid for the Firm
Securities. The Company and Lou Weisbach agree, severally and not jointly, to
sell to the Underwriters the number of Optional Securities specified in such
notice in the same proportion that each of their committed Optional Securities
bears to the total number of Optional Securities, and the Underwriters agree,
severally and not jointly, to purchase such Optional Securities. Such Optional
Securities shall be purchased from the Company and Mr. Weisbach for the account
of each Underwriter in the same proportion as the number of Firm Securities set
forth opposite such Underwriter's name bears to the total number of Firm
Securities (subject to adjustment by CSFBC to eliminate fractions) and may be
purchased by the Underwriters only for the purpose of covering over-allotments
made in connection with the sale of the Firm Securities. No Optional Securities
shall be sold or delivered unless the Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CSFBC to the Company and Mr. Weisbach.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date," which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company and Mr. Weisbach,
as the case may be, will deliver the Optional Securities being purchased on each
Optional Closing Date to the Representatives for the accounts of the several
Underwriters, against payment of the purchase price therefor in Federal (same
day) funds by official bank check or checks or wire transfer to an account at a
bank acceptable to CSFBC drawn to the order of the Company and to Mr. Weisbach,
as the case may be, at the office of Lord, Bissell & Brook, 115 South LaSalle
Street, Chicago, Illinois, 60603. The form in which such Optional Securities
shall be delivered shall be the same form in which the Firm Securities shall
have been delivered on the First Closing Date, as applicable.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. The
Company agrees with the several Underwriters and the Selling Stockholders and,
with respect to clauses (j), (k) and (l) below, the Selling Stockholders agree
with the Company and the several Underwriters:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement. The Company will advise CSFBC promptly of any such
filing pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement and an additional registration statement is necessary to register
a portion of the Offered Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery, the Company
will file
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the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on
the date of this Agreement or, if earlier, on or prior to the time the
Prospectus is printed and distributed to any Underwriter, or will make such
filing at such later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as filed
or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
security holders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC reasonably requests. The Prospectus shall
be so furnished on or prior to 3:00 P.M., New York time, on the business
day following the later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement. All other such
documents shall be so
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furnished as soon as available. The Company will pay the expenses of
printing and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) For a period of 90 days after the date of the Prospectus, the
Company will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Commission a registration
statement under the Act (other than on Form S-8) relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of CSFBC; except (i) issuances of
Securities pursuant to the conversion or exchange of convertible or
exchangeable securities or the exercise of warrants or options, in each
case outstanding on the date hereof, (ii) grants of employee stock options
pursuant to the terms of a plan in effect on the date hereof, or issuances
of Securities pursuant to the exercise of such options; (iii) registrations
on Form S-3 to enable the resale of up to 300,000 shares of Securities
previously issued by the Company in connection with acquisitions, which
registrations are required to be made by the Company during such 90-day
period, and (iv) the issuance of Securities as partial consideration for
the Company's acquisition of a European-based distributor of promotional
products for an estimated purchase price of approximately $60.0 million, as
described in the Prospectus.
(i) The Company will apply its portion of the net proceeds of the
offering and sale of the Offered Securities contemplated hereunder in the
manner set forth in the Prospectus under the caption "Use of Proceeds."
(j) The Company and each Selling Stockholder agrees with the several
Underwriters that the Company will pay all expenses incident to the
performance of the obligations of the Company and the Selling Stockholders
under this Agreement, including fees and disbursements of the accountants
and counsel for the Company, and will reimburse the Underwriters for any
filing fees and other expenses (including reasonable fees and disbursements
of counsel) incurred by them in connection with qualification of the
Offered Securities for sale under the laws of such jurisdictions as CSFBC
designates and the printing of memoranda relating thereto, for the filing
fee incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the National Association
of Securities Dealers, Inc. of the Offered Securities, for any travel
expenses of the Company's officers and employees and any other expenses of
the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities, and for expenses
incurred in distributing preliminary prospectuses and the Prospectus
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(including any amendments and supplements thereto) to the Underwriters;
provided, however, that the Selling Stockholders will pay the underwriting
discounts and commissions relating to the Offered Securities sold by the
Selling Stockholders, and any transfer taxes on the sale by the Selling
Stockholders of the Offered Securities to the Underwriters.
(k) Each Selling Stockholder agrees to deliver to CSFBC, attention:
Transactions Advisory Group, on or prior to the First Closing Date a
properly completed and executed United States Treasury Department Form W-9
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(l) Each Selling Stockholder agrees, for a period of 90 days after
the date of the Prospectus, not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any additional shares of the
Securities of the Company or securities convertible into or exchangeable or
exercisable for any shares of Securities, or publicly disclose the
intention to make any such offer, sale, pledge or disposal, without the
prior written consent of CSFBC, other than bona fide gifts of Securities
made by any Selling Shareholder to a donee who agrees in writing prior to
receipt of any such gifts to be subject to the foregoing restrictions for
such 90-day period.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of Arthur Andersen LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included or incorporated by reference into the
Registration Statements comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements, if any, included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, a reading of the minutes of
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all meetings of the shareholders and directors (including each
committee thereof) of the Company and its subsidiaries, inquiries
of officials of the Company who have responsibility for financial
and accounting matters and other specified procedures, nothing came
to their attention that caused them to believe that:
(A) the unaudited financial statements, if any, included in
the Registration Statements do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations or any
material modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) the unaudited consolidated net sales, net income and net
income per share amounts for the three-month period ended March
31, 1998 included in the Prospectus do not agree with the amounts
set forth in the unaudited consolidated financial statements for
those same periods or were not determined on a basis
substantially consistent with that of the corresponding amounts
in the audited statements of income;
(C) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than three business days prior to the date of this Agreement,
there was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of the Company and its
consolidated subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any decrease in
consolidated net current assets or net assets, as compared with
amounts shown on the latest balance sheet included in the
Prospectus; or
(D) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period of the previous year and with the period of corresponding
length ended the date of the latest income statement included in
the Prospectus, in consolidated net sales or operating income, or
in the total or per share amounts of consolidated income from
operations or net income;
except in all cases set forth in clauses (C) and (D) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts), numerical data and other financial
information contained in the Registration Statements and the
Prospectus (in each case to the extent that such dollar amounts,
percentages and other financial information are derived from the
general accounting records of the Company and its subsidiaries subject
to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
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accounting records and other procedures specified in such letter and
have found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration Statement is subsequent to such execution and
delivery, "Registration Statements" shall mean the Initial Registration
Statement and the additional registration statement as proposed to be filed
or as proposed to be amended by the post-effective amendment to be filed
shortly prior to its Effective Time, and (iii) "Prospectus" shall mean the
prospectus included in the Registration Statements. All financial
statements and schedules included in material incorporated by reference
into the Prospectus shall be deemed included in the Registration Statements
for purposes of this subsection.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFBC. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of any Selling Stockholder, the Company or the Representatives,
shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
subsidiaries which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities; (ii)
any suspension or limitation of trading in securities generally on the New
York Stock Exchange or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company on
any exchange or in the over-the-counter market; (iii) any banking
moratorium declared by U.S. Federal or New York authorities; or (iv) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to
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<PAGE>
proceed with completion of the public offering or the sale of and
payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Neal, Gerber & Eisenberg, counsel for the Company, to the
effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Illinois,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where
the failure to be so qualified or to be in such good standing would
not have a Material Adverse Effect; each of the subsidiaries of the
Company has been duly incorporated or organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation or organization, and each such
subsidiary has full corporate power and authority to conduct its
business as described in the Registration Statement and the
Prospectus, except where the failure to be so qualified or to be in
such good standing would not have a Material Adverse Effect;
(ii) All outstanding shares of the Common Stock of the Company
(including the 45,000 and 100,000 shares that were issued upon
exercise of stock options held by Richard A. Magid and Marshall J.
Katz, respectively, and included in the Offered Securities) have been
duly authorized and validly issued, are fully paid and nonassessable
and, to the best knowledge of such counsel, have not been issued in
violation of the registration requirements of applicable Federal and
state securities laws; the Offered Securities delivered by the Company
on such Closing Date have been duly authorized and, upon issuance of
such Securities upon payment of the consideration as provided in this
Agreement, will be validly issued, fully paid and nonassessable; the
authorized shares of capital stock of the Company, including the
Offered Securities, are as set forth in the Prospectus under the
caption "Capitalization" and conform as to legal matters to the
description thereof contained or incorporated by reference in the
Prospectus; the issuance of the Securities to be delivered by the
Company is not subject to pre-emptive or other similar rights arising
by operation of law, under the Articles of Incorporation or By-Laws of
the Company or, to the knowledge of such counsel, under any agreement
to which the Company is a party or to which it is subject; and no
further approval or authority of the shareholders or the Board of
Directors of the Company will be required for the issuance and sale of
the Offered Securities to be delivered by the Company as contemplated
by this Agreement;
(iii) All of the issued and outstanding shares of capital
stock of each of the Subsidiaries has been duly and validly authorized
and issued, are fully paid and nonassessable and (except for
directors' qualifying shares) all such shares are owned of record by
the Company and/or a Subsidiary, free and clear of all liens,
encumbrances, equities or claims;
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(iv) To the knowledge of such counsel, except as set forth in the
Prospectus, there are no outstanding (A) securities or obligations of
the Company convertible into or exchangeable for any capital stock of
the Company, (B) warrants, rights or options to subscribe for or
purchase from the Company any such capital stock or any such
convertible or exchangeable securities or obligations or (C)
obligations of the Company to issue any such shares, any such
convertible or exchangeable securities or obligations or any such
warrants, rights or obligations;
(v) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except to the extent that (A)
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
creditors' rights generally and by general principles of equity
(regardless of whether enforceability is considered in a proceeding at
law or in equity) and (B) rights to indemnity and contribution may be
limited by federal or state securities laws or policies underlying
such laws;
(vi) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions herein
contemplated have been duly authorized by all necessary corporate
action on the part of the Company and will not contravene any
provision of the Articles of Incorporation or By-Laws of the Company
or any of its subsidiaries or, to the knowledge of such counsel,
conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
assets or properties of the Company or any of its subsidiaries under,
any statute, any rule, regulation, order or decree of any governmental
agency or body or any court having jurisdiction over the Company or
any of their respective properties, assets or operations, or any
indenture, mortgage, loan agreement, note or other agreement or
instrument for borrowed money, any guarantee of any agreement or
instrument for borrowed money or lease, permit, license or other
agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to
which any of their respective properties, assets or operations is
subject; and the Company has full power and authority to authorize,
issue and sell the Offered Securities as contemplated by this
Agreement;
(vii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body or,
to the knowledge of such counsel, any third party (whether acting in
an individual, fiduciary or other capacity) is required for the
issuance and sale of the Offered Securities by the Company or for the
consummation of the other transactions contemplated by this agreement,
except such as have been obtained and made under the Act and such as
may be required under state securities laws in connection with the
offer and sale of the Offered Securities or as may be required by the
rules and regulations of the NASD;
(viii) To the knowledge of such counsel, neither the Company nor
any of its subsidiaries are (A) in violation of (i) their respective
charters or by-laws or other organizational documents, (ii) any
applicable law, ordinance, administrative or
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governmental rule or regulation, domestic or foreign, except, with
respect to this clause (ii), for such violations that would not,
singly or in the aggregate, have a Material Adverse Effect, or
(iii) any order, decree or judgment of any court or governmental
agency or body, domestic or foreign, having jurisdiction over the
Company, or (B) in default in the performance or observance of any
material obligation, agreement or condition in any indenture,
mortgage, loan agreement, note or other agreement or instrument for
borrowed money, any guarantee of any agreement or instrument for
borrowed money or any lease, permit, license or other agreement or
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound
or to which any of the properties, assets or operations of the
Company or any of its subsidiaries is subject;
(ix) There are no pending or, to the knowledge of such counsel,
threatened actions, suits, proceedings or investigations against or
affecting the Company or any of its subsidiaries or any of their
respective properties, assets or operations that could, singly or in
the aggregate, have a Material Adverse Effect;
(x) To the best knowledge of such counsel after due inquiry,
except as described or referred to in the Prospectus, there are no
contracts, agreements or understandings between the Company or any of
its subsidiaries and any third party (whether acting in an individual,
fiduciary or other capacity) granting such third party the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by
such third party or to require the Company to include such securities
in the securities registered pursuant to the Registration Statements
or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act;
(xi) The descriptions in the Registration Statements and the
Prospectus of statutes, regulations, legal and governmental
proceedings or investigations and contracts and other documents fairly
present in all material respects the information required to be shown;
and, to the knowledge of such counsel, there are no statutes,
regulations or legal or governmental proceedings or investigations
required to be described in the Registration Statements or the
Prospectus that are not described as required or that could have a
material adverse effect on the ability of the Company to perform its
obligations under this Agreement or of any contracts or documents of a
character required to be described in the Registration Statements or
the Prospectus or to be filed as exhibits to the Registration
Statements that are not described and filed as required; it being
understood that such counsel need express no opinion as to the
financial statement and schedules or other financial data included in
or omitted from the Registration Statements and the Prospectus;
(xii) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940;
(xiii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if
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any) was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to the
subparagraph of Rule 424(b) specified in such opinion on the date
specified therein or was included in the Initial Registration
Statement or the Additional Registration Statement (as the case may
be), and, to the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act;
(xiv) Each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; in connection
with the preparation of the Registration Statements and the Prospectus
such counsel have participated in conferences with representatives and
counsel for the underwriters and with certain officers and employees
of, and counsel and independent certified public accountants for, the
Company at which conferences the contents of the Registration
Statements and the Prospectus and related matters were discussed, and,
although such counsel has not undertaken to determine independently
and is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the contents of the Registration
Statements or the Prospectus, no facts have come to such counsel's
attention that lead such counsel to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(xv) To the best knowledge of such counsel after due inquiry,
each Selling Stockholder is the record and beneficial owner of the
Offered Securities to be delivered by such Selling Stockholder on such
Closing Date and has full right, power and authority to enter into
this Agreement, the Custody Agreement and the Power of Attorney and to
sell, assign, transfer and deliver the Offered Securities delivered by
such Selling Stockholder on such Closing Date hereunder; and to the
best knowledge of such counsel after due inquiry, upon the delivery of
and payment for such Offered Securities, the several Underwriters will
have acquired valid and unencumbered title to the Offered Securities
purchased by them from the Selling Stockholders on such Closing Date
hereunder.
(xvi) This Agreement, the Custody Agreement and the Power of
Attorney have each been duly authorized, executed and delivered by
each Selling Stockholder and each constitutes the legal, valid and
binding obligation of each Selling Stockholder enforceable against
such Selling Stockholder in accordance with its terms, except to the
extent that (A) enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to creditors' rights generally and by general principles of
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equity and (B) rights to indemnity and contribution may be limited
by Federal or state securities laws or policies underlying such
laws;
(xvii) To the knowledge of such counsel, no consent, approval,
authorization or order of, or filing with, any governmental agency or
body or any court, domestic or foreign, is required to be obtained or
made by any Selling Stockholder for the consummation of the
transactions contemplated by this Agreement, the Custody Agreement and
the Power of Attorney in connection with the sale of the Offered
Securities sold by the Selling Stockholders, except such as have been
obtained and made under the Act and such as may be required under
state securities laws;
(xviii) The execution, delivery and performance of this
Agreement, the Custody Agreement and the Power of Attorney and the
consummation of the transactions therein and herein contemplated will
not, to the knowledge of such counsel, result in a breach or violation
of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency
or body or any court, domestic or foreign, having jurisdiction over
any Selling Stockholder or any of their properties or any agreement or
instrument to which any Selling Stockholder is a party or by which any
Selling Stockholder is bound or to which any of the properties of any
Selling Stockholder is subject, or the charter or by-laws, trust
agreement or other governing instrument of any Selling Stockholder
which is a corporation, trust or other entity, or result in the
creation or imposition of any lien, charge, or encumbrance upon the
Offered Securities to be sold by such Selling Stockholder;
Such opinion shall be to such further effect with respect to other
legal matters relating to this Agreement and the transactions contemplated
hereby as the Representatives and counsel to the Underwriters may
reasonably request. In rendering such opinion, such counsel may rely as to
matters governed by the laws of jurisdictions other than the laws of
Illinois and the Federal laws of the United States upon an opinion or
opinions of local or foreign counsel, provided that (a) each such local or
foreign counsel is reasonably satisfactory to the Representatives, (b) a
copy of each opinion so relied upon is delivered to you and is in form and
substance reasonably satisfactory to your counsel, and (c) Neal, Gerber &
Eisenberg shall state in their opinion that they believe they are justified
in relying on each such counsel's opinion.
(e) The Representatives shall have received from Lord, Bissell &
Brook, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the corporate existence of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Selling Stockholders and the Company
shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or Chief Operating Officer and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
22
<PAGE>
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the respective dates of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development
or event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its Subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three business days prior
to such Closing Date for the purposes of this subsection.
The Selling Stockholders and the Company will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably request. CSFBC may in its sole discretion waive
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
the Prospectus, any amendment or supplement thereto or any related preliminary
prospectus, in the light of the circumstances under which such statements were
made) not misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(c) below; and provided, further, that with respect to any untrue statement or
alleged untrue statement in or omission or alleged omission from any preliminary
prospectus, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased the Offered Securities
concerned, to the extent that a prospectus relating to such Offered Securities
was required to be delivered by such Underwriter under the Act in connection
with such purchase and any such loss, claim, damage or liability of such
Underwriter results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Offered
Securities to such person, a copy of the Prospectus (exclusive of material
incorporated by reference) if the Company had previously furnished copies
thereof to such Underwriter.
23
<PAGE>
(b) The Selling Stockholders, severally and not jointly, will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
the Prospectus, any amendment or supplement thereto or any related preliminary
prospectus, in the light of the circumstances under which such statements were
made) not misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Selling Stockholders
will be liable in any such case only in the event that any such Selling
Stockholder shall have breached any of the representations and warranties
contained in Section 2(b) herein and no Selling Stockholder will be liable to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with written information furnished to the Company by an Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below; and provided, further,
that the liability under this Section of each Selling Stockholder shall be
limited to an amount equal to the gross proceeds to such Selling Stockholder
from the sale of Offered Securities sold by such Selling Stockholder; and
provided, further, that with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from any preliminary prospectus,
the indemnity agreement contained in this subsection (b) shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased the Offered Securities concerned, to
the extent that a prospectus relating to such Offered Securities was required to
be delivered by such Underwriter under the Act in connection with such purchase
and any such loss, claim, damage or liability of such Underwriter results from
the fact that there was not sent or given to such person, at or prior to the
written confirmation of the sale of such Offered Securities to such person, a
copy of the Prospectus (exclusive of material incorporated by reference) if the
Company had previously furnished copies thereof to such Underwriter.
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company or such Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
(in the case of the Prospectus, any amendment or supplement thereto or any
related preliminary prospectus, in the light of the circumstances under which
such statements were made) not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through the
Representative specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company and each Selling Stockholder
in connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed
24
<PAGE>
that the only such information furnished by any Underwriter consists of the
following information in the Prospectus furnished on behalf of each
Underwriter: the last paragraph at the bottom of the cover page concerning
the terms of the offering by the Underwriters; the legend concerning
over-allotments, stabilizing and similar transactions contained on the inside
front cover page; the concession and reallowance figures appearing in the
fourth paragraph under the caption "Underwriting;" the information contained
in the eighth paragraph under the caption "Underwriting;" and the information
contained under the caption "Notice to Canadian Residents."
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above, except to the extent that
the indemnifying party is materially prejudiced by reason of such omission to
notify. In case any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(e) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other from the offering of the Offered Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholder on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages
26
<PAGE>
or liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the
total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Stockholder or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which
is the subject of this subsection (e). Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Offered Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section shall be in addition to any liability which the Company and the Selling
Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed
but failed to purchase does not exceed 10% of the total number of shares of
Offered Securities that the Underwriters are obligated to purchase on such
Closing Date, CSFBC may make arrangements satisfactory to the Company and the
Selling Stockholders for the purchase of such Offered Securities by other
persons, including any of the Underwriters, but if no such arrangements are
made by such Closing Date, the non-defaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to
purchase the Offered Securities that such defaulting Underwriters agreed but
failed to purchase on such Closing Date. If any Underwriter or Underwriters
so default and the aggregate number of shares of Offered Securities with
respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC, the
Company and the Selling Stockholders for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders, except
as provided in Section 9 (provided that if such default occurs with respect
to Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased
prior to such termination). As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section.
Nothing herein will relieve a defaulting Underwriter from liability for its
default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Stockholders, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective
26
<PAGE>
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Offered Securities. If this Agreement
is terminated pursuant to Section 8 or if for any reason the purchase of the
Offered Securities by the Underwriters is not consummated, the Company and
the Selling Stockholders shall remain responsible for the expenses to be paid
or reimbursed by them pursuant to Section 5 and the respective obligations of
the Company, the Selling Stockholders, and the Underwriters pursuant to
Section 7 shall remain in effect, and if any Offered Securities have been
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of
the Offered Securities by the Underwriters is not consummated for any reason
other than solely because of the termination of this Agreement pursuant to
Section 8 or the occurrence of any event specified in clause (iii), (iv) or
(v) of Section 6(c), the Company and the Selling Stockholders will,
severally, reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department -
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it c/o HA-LO Industries, Inc., 5980
West Touhy Avenue, Niles, Illinois 60714, Attention: Lou Weisbach, with a copy
to Neal, Gerber & Eisenberg, 2 N. LaSalle Street, Chicago, Illinois 60602,
Attention Barry J. Shkolnik, Esq, or, if sent to the Selling Stockholders or any
of them, will be mailed, delivered or telegraphed and confirmed to the address
previously supplied to the Company; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and
confirmed to such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective personal representatives and
successors and the officers and directors and controlling persons referred to in
Section 7, and no other person will have any right or obligation hereunder.
12. REPRESENTATION. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representatives jointly or by
CSFBC will be binding upon all the Underwriters. The Custodian will act for the
Selling Stockholders in connection with such transactions, and any action under
or in respect of this Agreement taken by the Custodian will be binding upon all
the Selling Stockholders.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company and the Selling Stockholders hereby submit to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
27
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement among the Selling
Stockholders, the Company and the several Underwriters in accordance with its
terms.
Very truly yours,
HA-LO INDUSTRIES, INC.
By______________________________________
President and Chief Executive Officer
*_____________________________________
Linden D. Nelson
_____________________________________
Lou Weisbach
*_____________________________________
Seymour N. Okner
_____________________________________
Richard A. Magid
*_____________________________________
Marshall J. Katz
*_____________________________________
Michelle Nelson
*_____________________________________
David C. Robbins
*_____________________________________
Neil A. Ramo
*_____________________________________
Thomas Herskovits
*_____________________________________
Jordon R. Katz
28
<PAGE>
Joel C. Okner Family Trust
By: *________________________________
Trustee
Ellyn Robbins Family Trust
By: *________________________________
Sanford E. Nelson Trust
By: *________________________________
Arrielle L. Nelson Trust
By: *________________________________
Linden D. Nelson Foundation
By: *________________________________
_____________
* By ________________________ as Attorney-In-Fact
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
ABN AMRO INCORPORATED
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
Acting on behalf of themselves and as the
Representatives of the several Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By __________________________________
Title:______________________________
29
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Number of Optional
Firm Securities Securities to
Selling Stockholder to be Sold be Sold
- ------------------- --------------- --------------
<S> <C> <C>
Linden D. Nelson 250,000 --
Lou Weisbach 200,000 200,000
Seymour N. Okner 338,000 --
Richard A. Magid 45,000 --
Marshall J. Katz 100,000 --
Okner Foundation 150,000 --
Michelle Nelson 50,000 --
David C. Robbins 50,000 --
Neil A. Ramo 30,000 --
Thomas Herskovits 20,000 --
Jordon R. Katz 10,000 --
Joel C. Okner Family Trust 120,000 --
Ellyn Robbins Family Trust 250,000 --
Sanford E. Nelson Trust 50,000 --
Arrielle L. Nelson Trust 50,000 --
Linden D. Nelson Foundation 37,000 --
_________ _________
Total 1,750,000 200,000
========= ========
</TABLE>
30
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Underwriter
------------ NUMBER OF
FIRM SECURITIES
TO BE PURCHASED
---------------
<S> <C>
Credit Suisse First Boston Corporation. . . . . . . . . .
ABN AMRO Incorporated . . . . . . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith Incorporated. . . .
Morgan Stanley & Co. Incorporated . . . . . . . . . . . .
--------------
Total 5,500,000
--------------
--------------
</TABLE>
31
<PAGE>
Neal, Gerber & Eisenberg
Two N. LaSalle Street, Suite 2200
Chicago, Illinois 60602
(312) 269-8000
April 11, 1998
HA-LO Industries, Inc.
5980 Touhy Avenue
Niles, Illinois 60714-4610
Re: HA-LO Industries, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We are counsel to HA-LO Industries, Inc., an Illinois corporation (the
"Company"), and in such capacity, we have assisted in the preparation and filing
of the Company's Registration Statement on Form S-3 (Reg. No. 333-49667) (the
"Registration Statement") and the prospectus contained therein relating to the
proposed offering (the "Offering") of up to 6,325,000 shares of no par value
common stock of the Company (the "Common Stock"), of which up to 4,375,000
shares (including 625,000 shares subject to the underwriters' over-allotment
option) will be offered by the Company and up to 1,950,000 shares (including
200,000 shares subject to the underwriters' over-allotment option) will be
offered by certain shareholders of the Company (the "Selling Shareholders").
As such counsel, we have examined the Registration Statement, the proposed
form of Underwriting Agreement to be entered into by the Company, the Selling
Shareholders and Credit Suisse First Boston Corporation, ABN AMRO Incorporated,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley & Co., Incorporated, as representatives of the underwriters of
the Offering (the "Underwriting Agreement"), and such other papers, documents
and certificates of public officials, certificates of the Selling Shareholders
and certificates of officers of the Company as we have deemed necessary and
appropriate as the basis for the opinions hereinafter expressed.
In such examinations, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as conformed or photostatic copies. As to any facts material to
this opinion, we have relied upon statements and representations of (a) the
Company, its officers and certain other of its representatives, (b) the Selling
Shareholders and, if applicable, their officers, trustees and other
representatives, and (c) public officials. We also have assumed that the
Underwriting Agreement will, when executed and delivered, be substantially in
the form submitted to us for examination.
Based upon the foregoing, and subject to the limitations, qualifications,
exceptions and assumptions set forth herein, we are of the opinion that:
1. the issuance by the Company of up to 4,375,000 shares of Common Stock in
connection with the Offering has been duly authorized by all necessary corporate
action on the part of the Company; and
2. the shares of Common Stock to be sold by the Selling Shareholders are,
and, when issued and paid for as described in the prospectus contained in the
Registration Statement and in the Underwriting Agreement, the shares of Common
Stock that are to be issued and sold by the Company will be, validly issued,
fully paid and nonassessable.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the prospectus
contained therein under the caption "Legal Matters."
Very truly yours,
/s/ Neal, Gerber & Eisenberg
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
Amendment No. 1 to Registration Statement File No. 333-49667.
ARTHUR ANDERSEN LLP
May 11, 1998
