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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1997 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from ______to______
Commission file number: 0-20758
HA-LO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Illinois 36-3573412
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5980 TOUHY AVE., NILES, ILLINOIS 60714
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(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code:
(847)647-2300
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, No Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /
The aggregate market value of voting stock held by
stockholders who were not affiliates of the registrant was
approximately $552,191,800 as of March 23, 1998 (based on the
closing sale price on that date as reported by Midwest
Edition of THE WALL STREET JOURNAL). For this computation,
the registrant has excluded the market value of all shares
of its common stock reported as beneficially owned by
executive officers and directors of the registrant and
certain other stockholders; such exclusion shall not be
deemed to constitute an admission that any such person is an
"affiliate" of the registrant. At March 23, 1998, the
registrant had issued and outstanding an aggregate of
21,355,937 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's 1997 Annual
Report to Shareholders and of the proxy statement for the
Annual Meeting of Shareholders to be held on June 2, 1998
described in Parts II, III and IV hereof are incorporated by
reference in this report.
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PART I
ITEM 1. BUSINESS
GENERAL
HA-LO Industries, Inc. ("HA-LO" or the "Company") is the largest and one
of the fastest growing marketers and distributors of promotional products in
the United States. Its approximately 700 core sales representatives market
and sell promotional products primarily to large and mid-sized corporations.
The Company has 25 showrooms located throughout the United States, Canada and
Europe in which it displays some of the more than 300,000 promotional
products available from the Company's network of over 2,500 vendors. The
Company and its sales representatives develop innovative promotional products
and programs that are tailored to satisfy its customers' specific needs.
Promotional products, which generally are articles of merchandise imprinted
or otherwise customized with a customer's name, logo or message, are utilized
by the Company's customers for marketing, employee incentives and 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 has obtained exclusive rights to
distribute promotional products to corporate customers in the United States
and Canada using merchandise manufactured by Champion Products, Inc. and
Roots, Canada, Inc. HA-LO also has entered into a joint marketing
relationship with Sony Signatures, a division of Sony Corporation of America
and one of the lead sponsors of World Cup France '98.
Through its Market USA Subsidiary, the Company also provides
telemarketing and customer management services to its clients. Other
services offered by the Company include sports marketing, event planning and
advertising.
The Company's over 30,000 customers include manufacturing, financial
service, broadcasting, technology, consumer product and communications
companies as well as professional sports teams. Selected customers of the
Company include Ford Motor Company, Abbott Laboratories, General Electric,
Allied Signal, Ameritech Corporation, General Mills and the Green Bay Packers.
INDUSTRY
According to Promotional Products Association International, the United
States market for promotional products, measured by distributors' sales, has
grown from approximately $4.5 billion in 1989 to approximately $9.5 billion in
1996, a compound annual growth rate of 11.3%. The promotional products industry
is highly fragmented and, according to industry sources, is undergoing
consolidation. There currently are more than 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 one-person, one-product businesses
who bring sample cases and suppliers' catalogs to their customers, to entities
similar to
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the Company, which maintain showrooms to assist customers in selecting from
an array of available products. Industry sources estimate that approximately
98% of promotional products distributors had sales of $2.5 million or less in
1996, with the 25 largest suppliers accounting for less than 18% of total
industry sales. Many of the larger distributors are also manufacturers (or
affiliates of manufacturers) of products traditionally used in the
promotional products industry.
Management believes that as conventional forms of advertising become more
expensive, companies will increasingly 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
sole-source, full-service distributors. The criteria for selecting a
distributor include such factors as cost, quality and responsiveness, as well
as whether a distributor has full-service capabilities, such as design and
customization services and the ability to develop marketing programs. Many
of the Company's customers are requiring their suppliers to reduce marketing
costs and provide increasing support for upfront design and marketing program
management services. Generally, distributors with sufficient size,
capabilities and financial resources to meet such demands can best satisfy
these requirements. These changes are providing an opportunity for
full-service providers of promotional products, such as the Company, to grow
by acquiring new customers previously served by smaller competitors.
The telephone-based marketing industry also is highly fragmented and
competitive, and includes both captive and independent companies. According
to the Direct Marketing Association, $85 billion was spent on telephone-based
direct marketing in 1996, which is approximately twice the amount spent a
decade earlier. This significant industry growth has prompted the need for
technologically advanced high volume call centers dedicated to providing
telephone-based marketing services for clients on an outsourced basis. In
addition, many large companies are continuing to focus on their core
competencies and are outsourcing their non-core functions. The advantages of
telephone-based marketing, which include high response rates, low cost per
transaction, direct interaction with customers and the ability to immediately
respond to customer inquiries, make it an attractive alternative to other
forms of direct marketing and provide expansion opportunities for the Company.
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PRODUCTS AND SERVICES
PROMOTIONAL PRODUCTS. Promotional products generally are articles of
merchandise imprinted or otherwise customized with an advertiser's name, logo or
message, which are used for marketing to, providing sales incentives and awards
for and developing goodwill among a targeted audience. 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 with each customer to develop a marketing program that utilizes promotional
products designed to reach the specific audience targeted by the customer.
When a concept for a new promotional product is designed, 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. The art department employs full-time artists with experience in
illustration, graphics and typography, as well as in designing corporate
logos. Further, the Company's personnel utilize the latest design software
and equipment and have access to thousands of pieces of artwork. The
Company's in-house production department performs limited engraving, hot
stamping and silk screening on samples and on finished products, which
enables the Company to produce samples on short notice and satisfy customer
requests for last minute orders. The Company's believes that its multiple
design and production facilities 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
then stores in its warehouses and ships from time-to-time in small quantities at
the direction of the customer. Corporate fulfillment programs generally are
implemented in conjunction with a customer catalog or brochure featuring 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. The Company
currently is providing corporate fulfillment services for a number of customers,
including General Electric, Allied Signal, Guinness, U.S. Cellular and Sports
Illustrated.
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 program development;
and catalog design for both paper and electronic formats. The Company also
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provides computerized inventory reports that assist the customer in monitoring
its marketing efforts and, on request, automatically reorders products at
predetermined levels.
TELEMARKETING. In addition to its core promotional products business, the
Company also creates, manages and conducts large scale outbound telemarketing
programs for large corporate clients, primarily in the insurance and financial
service industries. Market USA maintains a network of more than 2,100
telephone service representatives ("TSRs") and 300 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. It currently operates over 1,200 workstations
in 19 call centers located primarily throughout the Midwestern United States and
Canada.
Outbound telemarketing consists of direct sales, research and service
activities that commence when Market USA places calls to parties targeted by its
client to offer the client's products or services. Market USA generally
receives customer data files electronically from its clients. These files have
been preselected to match the demographic profile of the targeted customer for
the product or service being offered and contain each targeted customer's name,
address, phone number and other relevant data. Market USA's data management
systems sort the records and electronically assign them to one of its call
centers. Telephone calls are controlled by computerized call management systems
that utilize predictive dialers to automatically dial the numbers in the files,
determine if a live connection is made and present connected calls to a TSR who
has been trained for the client's program. When a call is presented, the
customer's name, other information about the customer and the program script
simultaneously appear on the TSR's computer screen. The TSR then uses the
script to solicit an order for the product or service or to request information
that will be added to the client's database.
During the course of each telemarketing program, Market USA carefully
monitors its representatives to ensure strict compliance with the script and to
monitor 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 outgoing telemarketing campaign. Access to such
data enables Market USA's clients to modify or enhance an ongoing program and
modify it to improve its effectiveness.
INTEGRATED MARKETING SERVICES. The Company's ability to provide integrated
marketing services that complement its promotional products and telemarketing
businesses differentiates it from the more than 15,000 other companies in the
promotional product industry. The Company's current operating divisions include
the following:
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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.
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- developed a series of
seminars to enable a large corporate client to present its capabilities to
potential customers in markets through the country. Events by
HA-LO-Registered Trademark- developed the theme and the staging of the
seminars, and then arranged venues in cities across the United States to
host these "road show" presentations.
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.
GROWTH STRATEGY
The Company's goal is to continue being the leading marketer and
distributor of promotional products in the United States and become the
leading marketer and distributor internationally. Specific elements of the
Company's growth strategy include:
GROW INTERNALLY. The Company seeks to continue to grow by adding more
sales representatives, opening additional showrooms and increasing the
productivity of its current sales force. During 1997, over 50 experienced sales
representatives joined HA-LO (excluding sales people previously associated with
acquired businesses), primarily from other companies in the promotional products
industry. 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 offered to its clients. The Company has successfully increased the
productivity of its sales representatives through performance-based
compensation, general sales training, educating sales representatives regarding
HA-LO's various services and providing financial incentives to sales
representatives who successfully cross-sell such services, increased fulfillment
capabilities, exclusive product lines, sophisticated systems and increased
visibility in the market
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place.
The Company currently has 25 showrooms throughout the United States, Canada
and Europe that provide customers with the opportunity to view products and
develop ideas for additional products and programs that can be used in the
customers' marketing or advertising campaigns. The Company plans to continue to
add sales representatives and open additional showrooms.
The Company believes that there is significant opportunity to expand its
telemarketing business by targeting new clients in the insurance and financial
services industries that are seeking to outsource their telemarketing programs.
The Company believes Market USA has a competitive advantage in competing for
these new clients because of its expertise and reputation for quality service
with clients in these industries. For example, Market USA currently has more
than 300 licensed insurance agents in the United States and Canada, which the
Company believes is more than any of its direct competitors.
PURSUE ACCRETIVE, STRATEGIC ACQUISITIONS. The Company believes that there
are significant opportunities in the fragmented promotional products industry to
acquire high-quality companies, which provide the Company with additional sales
representatives and established customer bases and which would enable the
Company to enter new geographic markets quickly. Since January 1, 1993, the
Company has completed 18 acquisitions in the promotional products industry. The
Company 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 take
advantage of the fragmented nature of the telemarketing industry by making
strategic acquisitions. Through selected strategic acquisitions, Market USA
intends to provide telemarketing services to customers in additional industries
or complement its client base in one of its current industry specializations.
EXPAND EXISTING CUSTOMER RELATIONSHIPS. The Company has developed strong
customer relationships with large organizations, many of which have significant
marketing budgets. Such relationships enable the Company to identify new
business opportunities and to quickly respond to customer needs in the early
stages of a marketing program, thereby increasing its sales volume. The Company
believes that it has many opportunities to further penetrate its existing
customer base by continuously introducing new and creative promotional products
and programs and cross selling to customers the Company's complementary
value-added marketing services. In addition, as customers seek to centralize
their promotional products purchases, the Company believes it has a substantial
opportunity to obtain a greater share of its customers' total purchases. Market
USA also seeks to capture a greater share of its clients'
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direct sales activities and cross-sell to its existing clients other
telemarketing related services. For example, Market USA initially was
retained by Allstate Insurance to provide telephone sales of insurance
policies and, as a result of such providing services, was retained to create
a lead acquisition program for Allstate's insurance agents.
OBTAIN ADDITIONAL EXCLUSIVE SUPPLY CONTRACTS. The Company seeks to offer
brand name merchandise to its customers at attractive prices by entering into
exclusive distribution agreements with high-end suppliers. During 1997, the
Company signed exclusive supply contracts with Champion Products, Inc.
(Champion), a division of Sara Lee Corporation, which gives HA-LO exclusive
rights to sell branded Champion apparel to the corporate promotional market in
the United States and Canada. Champion is a leading manufacturer, distributor
and retailer of premier athletic clothing and apparel. In addition, in July
1997 the Company signed an exclusive distribution agreement with Roots, Canada,
Inc. (Roots) to sell branded Roots products to the corporate promotional markets
in the United States and Canada. Roots is a manufacturer of high-quality
leather jackets, luggage and accessories as well as active wear. The Company
internally developed catalogs featuring Champion and Roots merchandise for its
sales representatives to use in presenting product alternatives to their
clients. The Company plans to sign additional exclusive distribution contracts
to ensure high quality merchandise for its customer and continue to increase its
brand awareness.
PROVIDE COMPREHENSIVE PROMOTIONAL AND TELEMARKETING SERVICES. Since
January 1, 1993, the Company has expanded its business into non-promotional
product markets to capitalize on the trend towards "one-stop shopping" and to
better leverage its customer base. The Company seeks to offer its customers
a comprehensive array of promotional and marketing services. In addition to
its core promotional products offerings, the Company also offers outbound
and, to a lesser extent, inbound telemarketing, full-service advertising and
marketing, sports marketing and events 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 its customers.
INCREASE BRAND IDENTITY AND CORPORATE VISIBILITY. A significant part of
the Company's marketing efforts have been directed towards 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 displaying the HA-LO
name include the San Diego Padres, Oakland Athletics, Cincinnati Reds, Houston
Astros, Detroit Tigers, New York Mets, New York Yankees, Pittsburgh Pirates and
Montreal Expos. The Company also has created an
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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 relationships and branded products
have greatly increased its name recognition in the promotional products
industry and it intends to pursue additional sports related marketing
opportunities and develop additional lines of exclusive products to offer to
its customers. The Company's national presence, broad product capabilities
and status as a public company differentiates it from its competitors,
thereby increasing its business opportunities and enabling it to attract new
sales representatives and acquisition opportunities.
BUSINESS STRATEGIES
EXPAND PRODUCT LINE AND LEVERAGE BUYING POWER. The Company seeks to offer
its customers a wide range of high-quality promotional products. Currently, the
Company has access to over 300,000 types of promotional products from more than
2,500 vendors located primarily throughout North America and the Far East,
including premium name brand merchandise typically available only through
leading department and specialty stores. The Company's broad product line
provides its customers with comprehensive, one-stop shopping for most of their
promotional products and advertising specialty needs. 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.
PENETRATE CLIENT BASE THROUGH CROSS SELLING. By offering its customers a
comprehensive array of promotional and marketing services, the Company has
positioned itself to benefit from the corporate trends toward utilizing a
limited number of preferred vendors and outsourcing non-core functions. In
addition to its core promotional product offerings, the Company also offers
telemarketing, advertising agency services, sports marketing and events planning
services. The Company has implemented an ongoing training and education program
to enable its sales representatives to effectively cross-sell other HA-LO
marketing services to their customers. HA-LO sales representatives also receive
financial incentives based on their success in cross selling.
LEVERAGE FLEXIBLE EXPENSE STRUCTURE. The Company's organizational
structure minimizes fixed overhead costs by: (i) compensating its sales force
almost exclusively on a commission basis, (ii) handling a substantial majority
of its sales via direct shipment from the vendor to the customer, thereby
minimizing the Company's inventory carrying costs and
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(iii) 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.
OFFER SOPHISTICATED DESIGN AND DELIVERY CAPABILITIES. The Company seeks to
position itself as an integral part of its customers' overall marketing and
advertising programs by offering more sophisticated services than the typical,
small promotional products distributor. The Company's in-house design and
production department enables it to provide individually designed solutions to
all of 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 complete
catalogs of promotional products, both in print and electronic format. 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 enable it to attract
new customers and to obtain a greater percentage of its customers' marketing and
promotional products orders.
PROVIDE SOPHISTICATED SYSTEMS CAPABILITIES. The Company's principal
offices provide centralized accounting, human resources, warehousing, and
information systems services. The Company currently is upgrading its
information system to link the Company's offices and sales representatives and
enable sales representatives to receive detailed information regarding their
customers' purchasing patterns, payment history and order status.
WORLD WIDE SERVICE/INTERNATIONAL EXPANSION
The Company has successfully grown by offering a wide range of services and
offering its services on a national and international basis. The Company
currently services most of its customers' international operations out of the
Company's domestic offices; however, in many cases a customer's needs would be
better satisfied on a local basis. During 1997, the Company acquired two
promotional products distributors in Europe and will continue actively seeking
international acquisitions to further establish a foundation for obtaining more
international business.
PURCHASING
The Company purchases products directly from manufacturers and typically
arranges to have the customer's name, logo or advertising message imprinted on
the products by the manufacturer or another third party. A majority of all
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promotional products sold by the Company are shipped directly by the
manufacturer or third party supplier to its customers. The remaining products
are warehoused by the Company in conjunction with its corporate fulfillment
programs.
The Company's information system allows it to electronically identify
products that are available from over 2,500 vendors and to make product
specifications, prices and pictures immediately available to its sales
representatives and customers. The Company also has developed its own catalogs
which depict 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 the Company's strict quality and delivery
standards and enable the Company to be very competitive on pricing large orders.
The Company generally is required to order products further in advance from
foreign manufacturers than from its domestic suppliers. The Company is not
dependent upon any single manufacturer.
PERSONNEL
The Company believes a key component of its success is the quality of its
employees and sales representatives and it is continually refining its approach
to hiring, training and motivating qualified employees and personnel.
Approximately 700 core sales representatives, the majority of whom are
independent contractors, currently market the Company's promotional products.
The Company believes that it will continue to attract and retain high-performing
sales representatives and high-quality 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 form of sales representative arrangement provide for the
representative to receive a commission in an amount equal to a percentage of the
gross profit from the sale of products attributable to that person. All orders
taken by the representative must comply with the pricing and other policies of
the Company and are subject to acceptance by the Company. Typically, a
representative has no assigned or exclusive territory.
As of December 31, 1997, the Company employed approximately 1,000 people in
its promotional products business and 3,000 people in its telemarketing
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.
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CUSTOMERS
The Company's promotional product customers include manufacturing,
financial service, broadcasting, consumer product and communications companies
as well as professional sports teams. Market USA provides telemarketing services
to customers primarily in the insurance and financial services industries.
Selected customers of the Company include Ford Motor Company, Abbott
Laboratories, General Electric, Allied Signal, Ameritech Corporation, General
Mills and the Green Bay Packers. For the year ended December 31, 1997, no
single customer accounted for more than 10% of the Company's net sales.
BACKLOG
With respect to its promotional products business, the Company usually has
a modest 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 27, 1998, the Company had a backlog of firm orders of approximately
$28,838,000, substantially all of which the Company believes will be shipped by
the end of the second quarter of 1998.
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", "HA-LO Marketing and Promotions", "Events by HA-LO" and
"HA-LO Sports".
COMPETITION
The promotional products industry is highly fragmented and competitive and
the cost of entry is low. 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 telephone-based direct marketing industry in which
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Market USA operates also is highly fragmented and competitive. In-house
telemarketing and customer services organizations comprise by far 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 mail, television and radio
advertising. Market USA believes that the principle 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. Some of
Market USA's competitors have greater financial and technical capabilities
and resources than the Company.
ITEM 2. PROPERTIES
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 include a 2,500 square foot showroom.
Market USA also leases its call center facilities. The leases for these
facilities generally expire between 1998 and 2000 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.
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ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders,
through solicitation of proxies or otherwise, during the fourth quarter of
1997.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Reference is made to "Note 15. Market for the Registrant's Common
Equity and Related Stockholder Matters" of the Company's financial statements
to appear in the Company's Annual Report to Shareholders for 1997 ("Annual
Report"), as well as to note (d) in the Selected Financial Data of the Annual
Report, all of which are incorporated herein by reference.
The Company has not paid a cash dividend on its common stock since its initial
public offering in 1992. The Company does not intend to pay such dividends in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the Selected Financial Data to appear in the
Annual Report which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis of Financial
Conditions and Results of Operations to appear in the Annual Report which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Balance Sheets as of December 31, 1997 and 1996,
Consolidated Statements of Income, Consolidated Statements of Shareholders'
Equity, and Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997, and Notes to Financial Statements to
appear in the Annual Report, and the Report of Arthur Andersen LLP to appear
in the Annual Report, are incorporated herein by reference.
Selected Quarterly Operating Results (Unaudited) to appear in the
Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<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.
Seymour N. Okner 71 Director, Chief Executive Officer of
Market USA, Inc. and Marusa Marketing,
Ltd.
Richard A. Magid 39 Director, Treasurer, Chief Operating
Officer 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 Filipovic 37 Vice President - Administration and
Assistant Secretary
David Blumenthal 35 Vice President
</TABLE>
Officers are elected annually and serve at the discretion of the Board of
Directors. Mr. Okner is the father-in-law of Mr. Robbins. There are no
other family relationships between any directors and executive officers of
the Company.
Mr. Weisbach has been the President and Chief Executive Officer of the
Company since January 1, 1988. From 1972 through 1987, he operated the
predecessor of the Company as a sole proprietorship.
Mr. Nelson has served as the Vice Chairman of HA-LO and Chief Executive
Officer of Creative Concepts in Advertising, Inc. since its acquisition by
HA-LO in January, 1997. Mr. Nelson was the Chairman and Chief Executive
Officer of Creative Concepts in Advertising since its inception in July,
1979 through December, 1996.
15
<PAGE>
Mr. Okner has served as a director of HA-LO and Chief Executive Officer
of Market USA, Inc. and Marusa Marketing, Ltd. Since their acquisition by HA-LO
in September, 1996. Mr. Okner was the President, Treasurer, Secretary and
a director of Market USA since its inception in 1988. He was also the
President and Secretary of Marusa Marketing from April 1992 through
September, 1996. Prior to 1988, Mr. Okner served in various executive
capacities, primarily in the insurance industry, including President of
Montgomery Ward Life Insurance Company and Signature Life Insurance Company
of America.
Mr. Magid was appointed Chief Operating Officer in July of 1996. He has
been the Treasurer since August, 1992 and was also appointed Assistant
Secretary as of March 1996. Additionally, he was the Chief Financial
Officer from August, 1992 until July of 1996 and Vice President - Finance from
August, 1992 through March of 1996. From 1981 until joining HA-LO in 1992,
he was employed by the accounting firm of Arthur Andersen LLP, most recently
as an audit and financial consulting manager.
Mr. Robbins has been Executive Vice President since November, 1992.
From 1978 to November 1992, he was an independent sales representative
marketing specialty and premium advertising products.
Mr. Kilrea was appointed Chief Financial Officer in July of 1996.
Additionally, he was the Vice President of Planning from April, 1996 through
July, 1996. From 1985 until joining the Company in 1996, he was employed by
the accounting firm of Arthur Andersen LLP, most recently as an audit and
financial consulting manager.
Mr. Kerr was appointed Chief Information Officer of the Company in
February 1998. From June 1997 until joining the Company in 1998, he was the
Vice President of Information Technology at Conseco. From August 1996
through June 1997, he was the Senior Vice President and Chief Information
Officer at Pioneer Financial Services, Inc. Prior to this Mr. Kerr held
management positions at CNA Insurance, Digital Equipment Corporation and
Baxter International.
Mr. Nemlich was appointed Vice President - Corporate
Development/Financial Relations in April of 1996. From March of 1993
until joining the Company in 1996, he was a Vice President in Trust
Investment Services at Northern Trust Bank. Prior to this, he spent 15
years in various positions within the financial services industry including
investment banking.
Ms. Berman was appointed Vice President - Retail Accounts in March
of 1996 and has been Secretary of the Company since August, 1992. She was
also the Vice President of Administration from August 1992 to March of 1996.
From 1985 to August 1992, she was the Director of Administration for the
Company and its predecessor. From 1982 to 1985, she was the administrative
assistant for the Company's predecessor.
Mr. Margolin was appointed Vice President - Finance and
Planning and Assistant Secretary in March of 1996 and has been the Corporate
Controller since January of 1993. From 1988 until joining HA-LO in 1993, he
was employed by the accounting firm of Arthur Andersen LLP as an audit
and financial consultant.
16
<PAGE>
Ms. Filipovic was appointed Vice President - Administration in March
of 1996. She was the Director of Administration/Human Relations from
March of 1994 to March of 1996. From July of 1984 through March of 1994,
she held various positions throughout the Company and for the Company's
predecessor.
Mr. Blumenthal was appointed Vice President in March of 1996. From March
of 1995 through March of 1996, he was Director of Information Systems. He
started with HA-LO in 1981 and has held various positions with the Company
and its predecessor.
Additional information required by Item 10 regarding Directors and
Executive Officers is incorporated by reference from the "Election of
Directors", "Executive Compensation" and "Security Ownership of Certain
Beneficial Owners and Management" sections of the Company's 1998 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the "Executive Compensation" and "Certain Transactions" Sections of the
Company's 1998 Proxy Statement; provided, however, that neither the Report
of the Compensation Committee on Executive Compensation nor the Performance
Graph set forth therein shall be incorporated by reference herein, in any of
the Company's previous filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, or in any of
the Company's future filings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated by reference from the
"Security Ownership of Certain Beneficial Owners and Management" section of the
Company's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the "Executive Compensation" and "Certain Transactions" Sections of the
Company's 1998 Proxy Statement; provided, however, that neither the Report
of the Compensation Committee on Executive Compensation nor the Performance
Graph set forth therein shall be incorporated by reference herein, in any of
the Company's previous filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, or in any of
the Company's future filings.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements (incorporated herein by
reference to the Company's Annual Report for the
year ended December 31, 1997)
(i) Report of Independent Public Accountants;
(ii) Consolidated Balance Sheets-December 31,
1997 and 1996;
(iii) Consolidated Statements of Income for each
of the three years in the period ended
December 31, 1997;
(iv) Consolidated Statements of Shareholders'
Equity for each of the three years in the
period ended December 31, 1997;
(v) Consolidated Statements of Cash Flows for
each of the three years in the period ended
December 31, 1997; and
(vi) Notes to Financial Statements.
2. Schedules
All schedules for which provision is made in the
applicable accounting regulations of the
Securities and Exchange Commission are omitted
because such schedules are not required or the
information required has been presented in the
aforementioned financial statements.
3. Exhibits
The exhibits to this report are listed in the
Exhibit Index included elsewhere herein (pages
20 through 22).
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during
the fourth quarter of 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 1998
HA-LO INDUSTRIES, INC.
Registrant
By: GREGORY J. KILREA
-----------------------
Gregory J. Kilrea
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1998:
Signature Title
--------- -----
/s/ LOU WEISBACH Director, Chairman of the Board,
-------------------- President and Chief
Lou Weisbach Executive Officer(Principal
Executive Officer)
/s/ LINDEN D. NELSON Director, Vice Chairman of
-------------------- the Board and Chief
Linden D. Nelson Executive Officer
of Creative Concepts in
Advertising, Inc.
/s/ DAVID C. ROBBINS Director, Executive Vice President
--------------------
David C. Robbins
/s/ RICHARD A. MAGID Director, Treasurer,
--------------------- Chief Operating Officer, and Assistant Secretary
Richard A. Magid
/s/ THOMAS HERSKOVITS Director
---------------------
Thomas Herskovits
/s/ JORDON R. KATZ Director
---------------------
Jordon R. Katz
/s/ MARSHALL J. KATZ Director
---------------------
Marshall J. Katz
---------------------
/s/ NEIL A. RAMO Director
---------------------
Neil A. Ramo
/s/ ROBERT SOSNICK Director
---------------------
Robert Sosnick
/s/ S. N. OKNER Director, Chief Executive
--------------------- Officer of
S. N. Okner Market USA, Inc. and
Marusa Marketing, Ltd.
19
<PAGE>
HA-LO INDUSTRIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- --------------------------------------------------------------------------------
<S> <C>
3.1 Restated Articles of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (8)
3.3 Articles of Amendment to the Articles of Incorporation of the
Company, dated August 29, 1994. (4)
3.4 Articles of Amendment to the Articles of Incorporation of the Company,
dated February 21, 1997. (8)
4. Specimen of Stock Certificate for Common Stock. (1)
10.1 Employment Agreement, dated as of January 1, 1992, between
the Company and Lou Weisbach. (1,9)
10.2 Agreement and Plan of Merger and Amalgamation dated as of June 14,
1996 among the Company, HA-LO Acquisition Corporation, Inc., HA-LO
Acquisition Corporation of Canada Ltd., Market USA, Inc., Marusa Marketing
Inc., Marusa Financial Services Ltd., Nerok Verifications, Inc. and the
shareholders of Market USA, Inc. and Marusa Marketing Inc. (6)
10.3 Agreement and Plan of Merger and Plan of Reorganization dated as of
October 29, 1996 by and among the Company, HA-LO Acquisition Corporation
of Michigan, Inc., Creative Concepts in Advertising, Inc., Creadis Group
Inc., 1132832 Ontario Inc., 1132831 Ontario Corp., and the shareholders of
Creative Concepts in Advertising, Inc., 1132832 Ontario Inc., and 1132831
Ontario Corp. (8)
10.4 Employment Agreement, dated as of September 30, 1996, between the Company,
Market USA, Inc. and Seymour N. Okner. (6,9)
10.5 Agreement, dated October 15, 1991, between the Company and RMI, Inc. (1,9)
10.6 Agreement, dated March 15, 1994, by and between the Company and Marshall J. Katz. (4,9)
10.7 HA-LO Industries, Inc. Stock Plan. (1,9)
10.8 HA-LO Industries, Inc. Key Employee Incentive Plan. (1,9)
10.9 Exclusive Premium Purchasing Agreement, dated January 11, 1995,
between Montgomery Ward & Co., Incorporated and the Company. (4)
10.10 Stock Purchase Agreement, dated January 11, 1995, between the Company and Merchant
Partners, L.P. (4)
10.11 Warrant agreement between the Company and Merchant Partners, L.P., dated
January 11, 1995. (4)
10.12 Form of Indemnity Agreement between the Company and each of its directors and
officers. (1,9)
10.13 Agreement between David C. Robbins and the Company dated October 25, 1994. (4)
20
<PAGE>
10.14 Agreement between David C. Robbins and the Company dated February 1, 1995. (4)
10.15 Building Lease, dated December 30, 1992, between the Company and LaSalle National
Trust N.A. No. 115722. (2)
10.16 Agreement, dated as of March 17, 1997, between the Company and Marshall J. Katz. (8,9)
10.18 Amendment of October 1996 to Bonus Shares Agreement, dated February 1, 1995, between
the Company and David C. Robbins. (8,9)
10.19 Employment Agreement, dated as of January 3, 1997, between the Company and
Linden D. Nelson. (8,9)
10.20 Employment Agreement, dated as of April 15, 1996, between the Company and
Gregory J. Kilrea. (8,9)
10.21 Employment Agreement, dated as of April 15, 1996, between the Company and
Michael Nemlich. (8,9)
10.22 Negotiable Promissory Note, dated August 16, 1993 from the Company to Facility
Capital Corporation and Notice and Acknowledgment of to Comerica Bank - Illinois. (3)
10.23 HA-LO Industries, Inc. Stock Plan (as amended and restated) (4,9)
10.24 Sales Representative Agreement, dated July 21, 1993, between the Company and Neil Ramo. (3,9)
10.25 Second Amendment to the HA-LO Industries, Inc. Stock Plan (as amended and restated), adopted
October 28, 1995. (5)
10.26 Third Amendment to the HA-LO Industries, Inc. Stock Plan (as amended and restated), adopted on
February 26, 1996. (5)
10.27 First Amendment to Exclusive Premium Purchasing Agreement, dated December 27, 1995, between
Montgomery Ward & Co., Incorporated and the Company. (5)
10.28 First Amendment to Warrant, dated December 27, 1995, between the Company and Merchant Partners, L.P.
(relative to January 11, 1995 Warrant). (5)
10.29 Warrant, dated December 27, 1995, from the Company to Merchant Partners, L.P. (5)
10.30 Employment Agreement, dated as of March 15, 1995, between the Company and Richard A. Magid. (5,9)
10.31 Employment Agreement, dated as of December 29, 1995, by and among FBW Acquisition Corporation, the
Company and Philip C. Blount III. (7,9)
10.32 HA-LO Industries, Inc. 1997 Stock Plan. (8,9)
10.33 Credit Agreement, dated as of January 31, 1997, among the Company, American National Bnk and
Trust Company of Chicago, individually as Agent, and the Lenders which are or become parties
thereto. (8)
10.34 Guaranty Agreement, dated as of January 31, 1997, by Fletcher, Barnhardt & White, Inc.,
Market U.S.A., Inc., and Creative Concepts in Advertising, Inc. (8)
10.37 Asset Purchase Agreement and Plan of Reorganization, dated December 22, 1995,
between the Company, one of its subsidiaries, Fletcher Barnhardt & White, Inc.,
and its shareholders. (5)
21
<PAGE>
10.38 First Amendment to Asset Purchase Agreement and Plan of
Reorganization, dated December 29, 1995, between the Company, one of
its subsidiaries, Fletcher Barnhardt & White, Inc., and its
shareholders. (5)
10.39* Amended and Restated HA-LO Industries, Inc. 1997 Stock Plan. (9)
10.40* 1997 Employment Agreement between the Company and Lou Weisbach. (9)
10.41* Employment Agreement dated January 1, 1997 between the Company
and Richard Magid. (9)
10.42* Agreements by and between the Company and certain employees dated
November, 1997, regarding change of control. (9)
10.43* Agreements by and between the Company and David Robbins dated
November, 1997, regarding change of control. (9)
10.44* Agreements by and between the Company and Barbara Berman dated
November, 1997, regarding change of control. (9)
10.45* 1998 Restatement of the HA-LO 401(k) Savings Plan. (9)
10.46* HA-LO Industries, Inc. Executive Deferred Compensation Plan (as
amended and restated) effective February 1, 1997. (9)
10.47* Executive Incentive Compensation Plan for Various Employees (9)
13. * Portions of Annual Report to Shareholders for 1997 of registrant
that are incorporated herein by reference (for the information
of the Securities and Exchange Commission and not to be deemed "filed"
with the Commission, except for the portions expressly incorporated by
reference in this report).
21 * List of subsidiaries of registrant
23.1* Consent of independent public accountants.
27.1* Financial Data Schedule -- 1997
27.2* Financial Data Schedule -- 1996 and 1995
</TABLE>
- ----------
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Registration Statement (no. 33-51698) on Form S-1, as amended, filed by
the Company under the Securities Act of 1933, as amended.
(2) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
(4) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(5) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(6) Incorporated by reference to the Registration Statement (no. 333-10481) on
Form S-4, as amended, filed by the Company under the Securities Act of
1933, as amended.
(7) Incorporated by reference to the Registration Statement (no. 333-03928) on
Form S-8 filed by the Company under the Securities Act of 1933, as amended.
(8) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(9) Management contract or compensatory plan or arrangement.
* Filed herewith.
22
<PAGE>
Exhibit 10.39
HA-LO INDUSTRIES, INC.
1997 STOCK PLAN
(AMENDED AND RESTATED)*
1. PREAMBLE.
In 1997, HA-LO Industries, Inc. (the "Company") established the HA-LO
Industries, Inc. 1997 Stock Plan (the "Plan") as a means whereby the Company
may, through awards of (i) stock appreciation rights ("SARs"), (ii)
non-qualified stock options ("NSOs"), (iii) restricted stock ("Restricted
Stock"), and (iv) phantom stock ("Phantom Stock"):
(a) provide employees who have substantial responsibilities for the
direction and management of the Company and other employees of the
Company with additional incentive to promote the success of the
Company's business;
(b) enable such employees to acquire proprietary interests in the Company;
(c) encourage such employees to remain in the employ of the Company;
(d) provide Officers and Directors of the Company (who are not otherwise
employees of the Company) with additional incentive to promote the
success of the Company's business; and
(e) provide Sales Representatives with an incentive to remain associated
with the Company and to promote the success of the Company's business.
By action of the Board of Directors of the Company, the Plan was approved.
The terms of the Plan are contained herein.
The provisions of this Plan do not apply to or affect any option, SAR, or
stock heretofore or hereafter granted under any other stock plan of the Company,
and all such options, SARs or stock continue to be governed by and subject to
the applicable provisions of the plan under which they were granted.
2. DEFINITIONS.
2.01 "BOARD" or "BOARD OF DIRECTORS" means the board of directors
of the Company.
- ---------------
* Amended as of February 24, 1998.
<PAGE>
2.02 "CAUSE" means, as determined in the sole discretion of the Board, a
Participant's (1) commission of a felony; (2) dishonesty or misrepresentation
involving the Company; (3) serious misconduct in the performance or
non-performance of Participant's responsibilities to the Company; (4)
violation of a material condition of employment; (5) unauthorized use of
trade secrets or confidential information; (6) aiding a competitor of the
Company.
2.03 "CHANGE IN CONTROL" means, the occurrence of any one of the following
events:
(a) any consolidation or merger of the Company, if the Company is not
the continuing or surviving corporation or which contemplates that all or
substantially all of the business and/or assets of the Company shall be
controlled by another corporation or a recapitalization in which the
current controlling stockholders do not continue to be the controlling
stockholders;
(b) any sale, lease, exchange or transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company;
(c) approval by the stockholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval;
(d) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act), other than a person who is a stockholder of the
Company on the Option Date, who shall become the beneficial owner of
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities ordinarily having the
right to vote in the election of directors;
(e) any sale, exchange or transfer (other than transfers among
affiliated entities, i.e. entities controlling, controlled by or under
common control with, the transferor) of securities of the Company
representing more than 50% of (i) the total fair market value of the
Company's then outstanding equity securities, or (ii) the combined voting
power of the Company's then outstanding securities ordinarily having the
right to vote in the election of directors, whether pursuant to a tender or
exchange offer, open market offering, purchase or sale, privately
negotiated purchase and sale or otherwise; or
(f) if during a period of two consecutive years from the Option Date,
individuals who at the beginning of such
-2-
<PAGE>
period constituted the directors of the Company cease for any reason to
constitute a majority thereof, unless the election, or nomination for
election by the Company's stockholders, of each director of the Company
first elected during such period was approved by a vote of at least a
majority of the directors then still in office who were directors at the
beginning of any such period.
2.04 "CODE" means the Internal Revenue Code of 1986, as it exists now and
as it may be amended from time to time.
2.05 "COMMITTEE" means the Compensation Committee of the Board of
Directors. Each member of the Committee shall (a) be a "Non-Employee
Director" as determined under Rule 16b-3(b)(3)(i) of the Exchange Act and (b)
be an "Outside Director" as determined under Treasury Regulation 26 CFR
Section 1.162-27(e)(3) or any successor regulation thereto. Once appointed,
the members of the Committee shall continue to serve until otherwise directed
by the Board of Directors.
2.06 "COMMON STOCK" means the common stock of the Company, no par value.
2.07 "COMPANY" shall means HA-LO Industries, Inc., an Illinois corporation,
any successor thereto and any subsidiary thereof.
2.08 "DIRECTOR" means a member of the Board.
2.09 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as it
exists now or from time to time may hereafter be amended.
2.10 "FAIR MARKET VALUE" means, at the discretion of the Company in each
case, either (a) the mean between the bid and asked prices or (b) the last sale
price, as of the close of business on the day Fair Market Value is to be
determined, for Common Stock as reported by the NASDAQ System or any other stock
exchange on which the Common Stock is traded. If Common Stock is not traded on
that day, then the Fair Market Value shall be determined as of the next
preceding day on which such stock was traded. If trading of the Common Stock is
not reported by the NASDAQ System or on a stock exchange, Fair Market Value will
be determined by the Board based upon the best available data.
2.11 "NAKED SAR" means a SAR issued not in connection with a ISO or NSO.
2.12 "NSO" means non-qualified stock options, which are NOT intended to
qualify under Section 422 of the Code.
2.13 "OFFICER" means a corporate officer of the Company.
-3-
<PAGE>
2.14 "OPTION" means the right of a participant to purchase a specified
number of shares of Common Stock, subject to the terms and conditions of the
Plan.
2.15 "OPTION DATE" means the date upon which an Option, SAR, Restricted
Stock or Phantom Stock is awarded to a Participant under the Plan.
2.16 "OPTION PRICE" means the price per share at which an Option may be
exercised.
2.17 "PARTICIPANT" means an individual to whom an Option, SAR, Phantom
Stock or Restricted Stock has been granted under the Plan.
2.18 "PHANTOM STOCK" means a hypothetical share of Common Stock issued as
phantom stock under the Plan.
2.19 "PLAN" means the HA-LO Industries, Inc. 1997 Stock Plan, as set forth
herein and as from time to time amended.
2.20 "RESTRICTED STOCK" means Common Stock awarded to a Participant
pursuant to this Plan and subject to the restrictions contained in Section 8.
2.21 "SALES REPRESENTATIVE" means an independent contractor who has an
arrangement with the Company, whether or not exclusively, to market, promote and
sell the Company's products.
2.22 "SAR" means a stock appreciation right. A SAR may be a Naked SAR or a
Tandem SAR.
2.23 "TANDEM SAR" means a SAR associated with and issued in connection with
an Option.
2.24 RULES OF CONSTRUCTION.
(a) GOVERNING LAW. The construction and operation of this Plan are
governed by the laws of the State of Illinois.
(b) UNDEFINED TERMS. Unless the context requires another meaning, any
term not specifically defined in this Plan has the meaning given to it
by the Code.
(c) HEADINGS. All headings in this Plan are for reference only and are
not to be utilized in construing the Plan.
(d) GENDER. Unless clearly appropriate, all nouns of whatever gender
refer indifferently to persons or objects of any gender.
-4-
<PAGE>
(e) SINGULAR AND PLURAL. Unless clearly inappropriate, singular terms
refer also to the plural and VICE VERSA.
(f) SEVERABILITY. If any provision of this Plan is determined to be
illegal or invalid for any reason, the remaining provisions are to
continue in full force and effect and to be construed and enforced as
if the illegal or invalid provision did not exist, unless the
continuance of the Plan in such circumstances is not consistent with
its purposes.
3. STOCK SUBJECT TO THE PLAN.
Except as otherwise provided in Section 12, the aggregate number of shares
of Common Stock that may be issued under Options or as Restricted Stock, under
this Plan may not exceed Three Million (3,000,000) shares. Reserved shares may
be either authorized but unissued shares or treasury shares, in the Board's
discretion. If any awards hereunder shall terminate or expire, as to any number
of shares, new NSOs and Restricted Stock may thereafter be awarded with respect
to such shares. The aggregate number of shares of Common Stock that may be
issued under Options, as Restricted Stock or upon which SARs or Phantom Stock
may be awarded to any one Participant may not exceed 500,000, as may be adjusted
pursuant to Section 12.
4. ADMINISTRATION.
The Plan is administered by the Committee. In addition to any other powers
set forth in this Plan, the Committee has the following powers:
(a) to construe and interpret the Plan, including the power to remedy any
ambiguities or inconsistencies in the Plan document;
(b) to establish, amend and rescind appropriate rules and regulations
relating to the Plan;
(c) subject to the express provisions of the Plan, to determine the
individuals who will receive awards of Options, Restricted Stock,
Phantom Stock and/or SARs, the times when they will receive them, the
number of shares to be subject to each award and the Option Price,
payment terms, payment method, and expiration date applicable to each
award;
(d) to contest on behalf of the Company or Participants, at the expense of
the Company, any ruling or decision on any matter relating to the Plan
or to any awards of NSOs, Restricted Stock, Phantom Stock and/or SARs;
-5-
<PAGE>
(e) generally, to administer the Plan, and to take all such steps and make
all such determinations in connection with the Plan and the awards of
NSOs, Restricted Stock, Phantom Stock and/or SARs granted thereunder
as it may deem necessary or advisable;
(f) to determine the form in which payment of a SAR or a Phantom Stock
award granted hereunder will be made (i.e., cash, Common Stock or a
combination thereof) or to approve a participant's election to receive
cash in whole or in part in settlement of the SAR or Phantom Stock
award; and
(g) to determine the form in which tax withholding under Section 15 of
this Plan will be made.
5. ELIGIBILITY.
The Committee shall have the power to award Options, SARs, Restricted
Stock, and Phantom Stock. Subject to the provisions of the Plan, the Committee
shall determine from time to time those employees, Directors and Officers of the
Company and Sales Representatives who shall be designated as Participants and
the number, if any, of Options, SARs, Restricted Stock, and Phantom Stock, or
any combination thereof, to be awarded to each such participant.
6. TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION.
The Committee may, in its discretion, grant NSOs to any Participant under
the Plan. Each NSO shall be evidenced by an agreement between the Company and
the Participant. Unless the Committee (in its discretion) determines otherwise,
each NSO agreement, in such form as is approved by the Committee, shall be
subject to the following terms and conditions and to such other terms and
conditions as the Committee may deem appropriate:
(a) OPTION PERIOD. Each NSO will expire as of the earliest of:
(i) the date on which it is forfeited under the provisions of
Section 11;
(ii) the date three months after the Participant's termination of
employment, directorship or relationship with the Company,
as applicable, for any reason other than death; or
(iii) the date six months after the Participant's death.
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<PAGE>
(b) OPTION PRICE. At the time of grant, the Committee will fix the Option
Price, which will be no less than eighty-five percent (85%) of the
Fair Market Value of the shares subject to the NSO on the Option Date.
(c) OTHER OPTION PROVISIONS. The form of NSO authorized by the Plan may
contain such other provisions as the Committee may from time to time
determine.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
The Committee may, in its discretion, grant a SAR to any Participant under
the Plan. Each SAR shall be evidenced by an agreement between the Company and
the Participant, in such form as is approved by the Committee, and may be a
Naked SAR or a Tandem SAR. Unless the Committee (in its discretion) determines
otherwise, each SAR awarded to Participants under the Plan shall be subject to
the following terms and conditions and to such other terms and conditions as the
Committee may deem appropriate:
(a) TANDEM SARS. Tandem SARs shall terminate on the same date as the
related NSO. A Tandem SAR shall be exercisable only if the Fair
Market Value of a share of Common Stock on the date of surrender
exceeds the Fair Market Value of the Common Stock on the Option Date,
if related to an NSO, and then shall be exercisable to the extent, and
only to the extent, that the related NSO is exercisable. A Tandem SAR
shall entitle the Participant to whom it is granted the right to
elect, so long as such Tandem SAR is exercisable and subject to such
limitations as the Committee shall have imposed, to surrender any then
exercisable portion of his related NSO, in whole or in part, and
receive from the Company in exchange, without any payment of cash
(except for applicable employee withholding taxes), that number of
shares of Common Stock having an aggregate Fair Market Value on the
date of surrender equal to the product of (i) the excess of the Fair
Market Value of a share of Common Stock on the date of surrender over
the per share Option Price under such NSO or the Fair Market Value of
the Common Stock on the Option Date, if such SAR is related to an NSO
and (ii) the number of shares of Common Stock subject to such NSO or
portion thereof which is surrendered. Any NSO or portion thereof
which is surrendered shall no longer be exercisable. The Committee,
in its sole discretion, may allow the Company to settle all or part of
the Company's obligation arising out of the exercise of a Tandem SAR
by the payment of cash equal to the aggregate Fair
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<PAGE>
Market Value of the shares of Common Stock which the Company would
otherwise be obligated to deliver.
(b) NAKED SARS. Naked SARs shall terminate as provided in the
Participant's SAR agreement. The Committee may at the time of
granting any Naked SAR add such conditions and limitations to the
Naked SAR as it shall deem advisable, including but not limited to,
limitations on the period within which the Naked SAR shall be
exercisable and the maximum amount of appreciation to be recognized
with regard to such Naked SAR.
(c) OTHER CONDITIONS. If a Participant is subject to Section 16(a) and
Section 16(b) of the Exchange Act, the Committee may at any time add
such additional conditions and limitations to such SAR which, in its
discretion, the Committee deems necessary or desirable in order to
comply with such Section 16(a) or Section 16(b) and the rules and
regulations issued thereunder, or in order to obtain any exemption
therefrom.
8. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
The Committee, in its discretion, may grant Restricted Stock to any
Participant under the Plan. Each grant of Restricted Stock shall be evidenced
by an agreement between the Company and the Participant. Unless the Committee
(in its discretion) determines otherwise, all shares of Common Stock awarded to
Participants under the Plan as Restricted Stock shall be subject to the
following terms and conditions and to such other terms and conditions as the
Committee may deem appropriate:
(a) RESTRICTED PERIOD. Shares of Restricted Stock awarded to Participants
may not be sold, transferred, pledged or otherwise encumbered before
they vest. Subject to the provisions of subparagraphs (b) and (c)
below and any other restrictions imposed by law, any shares of
Restricted Stock that vest will be transferred, to the Participant or,
in the event of his death, to the beneficiary or beneficiaries
designated by writing filed by the Participant with the Committee for
such purpose or, if none, to his estate. Delivery of shares in
accordance with the preceding sentence shall be made within the
thirty-day period after they vest.
(b) FORFEITURES. A Participant shall forfeit all unpaid accumulated
dividends and all shares of Restricted Stock which have not vested
prior to the date that his employment, membership on the Board, if a
Director, or relationship, if a Sales Representative with the Company
is terminated for any reason.
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<PAGE>
(c) CERTIFICATES DEPOSITED WITH COMPANY. Each certificate issued in
respect of shares of Restricted Stock awarded under the Plan shall be
registered in the name of the Participant and deposited with the
Company. Each such certificate shall bear the following (or a
similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) relating to Restricted Stock contained in the HA-LO
Industries, Inc. 1997 Stock Plan (Amended and Restated) and an
agreement entered into between the registered owner and HA-LO
Industries, Inc. Copies of such Plan and agreement are on file at the
principal office of HA-LO Industries, Inc."
(d) STOCKHOLDER RIGHTS. Subject to the foregoing restrictions, each
Participant shall have all the rights of a stockholder with respect to
his shares of Restricted Stock including, but not limited to, the
right to vote such shares.
(e) DIVIDENDS. On each Common Stock dividend payment date, each
Participant shall receive an amount equal to the dividend paid on that
date on a share of Common Stock, multiplied by his number of shares of
Restricted Stock.
9. TERMS AND CONDITIONS OF PHANTOM STOCK.
The Committee may, in its discretion, award Phantom Stock to any
Participant under the Plan. Each award of Phantom Stock shall be evidenced by
an agreement between the Company and the Participant. The Committee may at the
time of awarding any Phantom Stock add such additional conditions and
limitations to the Phantom Stock as it shall deem advisable, including, but not
limited to, the right for Participants to receive payments equivalent to
dividends paid on Common Stock, limitations on the period or periods within
which the Phantom Stock may be surrendered, and the maximum amount of
appreciation to be recognized with regard to such Phantom Stock. If a
Participant is subject to Section 16(a) and Section 16(b) of the Exchange Act,
the Committee may at any time add such additional conditions and limitations to
such Phantom Stock which, in its discretion, the Committee deems necessary or
desirable in order to comply with such Section 16(a) or Section 16(b) and the
rules and regulations issued thereunder, or in order to obtain any exemption
therefrom. An award of Phantom Stock shall entitle the Participant to whom it
is awarded the right to elect, so long as such Phantom Stock is vested and
subject to such limitations as the Committee shall have imposed, to surrender
any then vested portion of the Phantom
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<PAGE>
Stock, in whole or in part, and receive from the Company in exchange therefor
the Fair Market Value on the date of surrender of the Common Stock to which
the surrendered Phantom Stock relates in cash or in shares of Common Stock as
the Committee may determine.
10. MANNER OF EXERCISE OF OPTIONS.
To exercise an Option in whole or in part, a Participant (or, after his
death, his executor or administrator) must give written notice to the Committee,
stating the number of shares to which he intends to exercise the Option. The
Company will issue the shares with respect to which the Option is exercised upon
payment in full of the Option Price. Upon receipt of such notice, and prior to
issuance of shares, the Company may require the Participant (or after his death,
his executor or administrator) to pay to the Company any and all amounts which
the Participant may owe the Company on such date. The Option Price may be paid
in cash, certified bank check or by delivery of irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay for all Common Stock acquired through such exercise and any tax
withholding obligations resulting from such exercise. At the discretion of the
Company, the Option Price may also be paid in shares of Common Stock having an
aggregate Fair Market Value, as determined on the date of delivery, equal to the
Option Price. At the discretion of the Company, the Option Price may be paid in
shares of Common Stock which were received by the Participant upon the exercise
of one or more Options, including shares which the Participant directs the
Company to withhold for the purpose of paying the Option Price from shares the
Participant would have received upon the exercise of the Option. At the
discretion of the Company, the Option Price may be paid in shares of Common
Stock which were received by the Participant as an award of Restricted Stock
under the Plan. The Option Price may be paid by surrender of Tandem SARs equal
to the Option Price.
11. VESTING.
(a) A Participant may not exercise an Option or surrender a SAR or
Phantom Stock until it has become vested. The portion of an Option, SAR or
Phantom Stock award that is vested depends upon the period that has elapsed
since the Option Date. The following schedule applies to any Options
granted under this Plan, to Restricted Stock, SARs, and Phantom Stock
awarded under this Plan unless the Committee establishes a different
vesting schedule (as set forth in the agreement between the Participant and
the Company that governs such award) at the time when an Option is granted
or the Restricted Stock, SAR or Phantom Stock is awarded:
-10-
<PAGE>
<TABLE>
<CAPTION>
Number of Years
Since Option Date Vested Percentage
----------------- -----------------
<S> <C>
Fewer than one 0%
One but fewer than two 20%
Two but fewer than three 40%
Three but fewer than four 60%
Four but fewer than five 80%
Five or more 100%
</TABLE>
If a Participant's employment with, or if a Director, his membership on the
Board of, or if a Sales Representative, his relationship with, the Company
terminates for any reason, he will be deemed to have forfeited, as of the
date of such termination, any Options, Restricted Stock, SARs and/or
Phantom Stock that are not yet vested as of such date. A transfer from the
Company to a subsidiary or affiliate, or VICE VERSA is not a termination of
employment for purposes of this Plan. Notwithstanding the vesting schedule
contained herein or in the Participant's agreement, if the Participant's
employment, or if a Director, his membership on the Board, or if a Sales
Representative, his relationship is terminated for Cause, the Participant's
Vested Percentage shall be 0%, and he shall forfeit all Options, SARs,
Restricted Stock and/or Phantom Stock, automatically and without any action
being required on the part of the Company, effective as of delivery of
notice that his termination was for Cause.
(b) Notwithstanding the provisions of Section 11(a) or anything
contained in a Participant's agreement to the contrary, upon a Change in
Control all Option, Restricted Stock, SARs and/or Phantom Stock shall
become 100% vested and immediately exercisable.
12. ADJUSTMENTS TO REFLECT CHANGES IN CAPITAL STRUCTURE.
If there is any change in the corporate structure or shares of the Company,
the Board of Directors may make any adjustments necessary to prevent accretion,
or to protect against dilution, in the number and kind of shares authorized by
the Plan and, with respect to outstanding Options, Restricted Stock, Phantom
Stock and/or SARs, in the number and kind of shares covered thereby and in the
applicable Option Price. For the purpose of this Section 12, a change in the
corporate structure or shares of the Company includes, without limitation, any
change resulting from a recapitalization, stock split, stock dividend,
consolidation, rights offering, spin-off, reorganization, or liquidation and any
transaction in which shares of Common Stock are changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or another corporation.
-11-
<PAGE>
13. NON-TRANSFERABILITY OF OPTIONS, SARS AND PHANTOM STOCK.
The Options and SARs granted or Phantom Stock awarded under the Plan are
not transferable, voluntarily or involuntarily, other than by will, by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in Section 414(p) of the Code. During a Participant's lifetime, his
Options may be exercised only by him.
14. RIGHTS AS STOCKHOLDER.
No Common Stock may be delivered upon the exercise of any Option until full
payment has been made. A Participant has no rights whatsoever as a stockholder
with respect to any shares covered by an Option until the date of the issuance
of a stock certificate for the shares. A Participant who has been granted SARs
or Phantom Stock shall have no rights whatsoever as a stockholder with respect
to such SARs or Phantom Stock.
15. WITHHOLDING TAX.
The Company shall have the right to withhold in cash or shares of Common
Stock with respect to any payments made to Participants under the Plan any taxes
required by law to be withheld because of such payments. Notwithstanding the
foregoing, with respect to a Participant subject to Section 16(a) or 16(b) of
the Exchange Act, all amounts required to be withheld upon either (i) the
vesting of Restricted Stock or (ii) the exercise of a SAR or surrender of
Phantom Stock which had a set duration and for which payment is made in Common
Stock, shall automatically be withheld in Common Stock otherwise deliverable to
the Participant and having a Fair Market Value determined on the date the income
is includable in the Participant's income equal to the amount of taxes required
to be withheld.
16. NO RIGHT TO EMPLOYMENT.
Participation in the Plan will not give any Participant a right to be
retained as an employee of the Company, or any right or claim to any benefit
under the Plan, unless the right or claim has specifically accrued under the
Plan.
17. AMENDMENT OF THE PLAN.
The Board of Directors may from time to time amend or revise the terms of
this Plan in whole or in part and may without limitation, adopt any amendment
deemed necessary; provided, however, that no change in any award previously
granted to a Participant may be made that would impair the rights of the
Participant without the Participant's consent.
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<PAGE>
18. CONDITIONS UPON ISSUANCE OF SHARES.
An Option shall not be exercisable, a share of Common Stock shall not be
issued pursuant to the exercise of an Option, and Restricted Stock shall not be
awarded until such time as the award of Restricted Stock, exercise of such
Option and the issuance and delivery of such share pursuant thereto shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares of Common stock may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Common Stock is being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
19. EFFECTIVE DATE AND TERMINATION OF PLAN.
19.01 EFFECTIVE DATE. This Plan is effective as of January 1, 1997.
19.02 TERMINATION OF THE PLAN. The Board of Directors may terminate
the Plan at any time with respect to any shares that are not then subject to
Options or Restricted Stock. Termination of the Plan will not affect the rights
and obligations of any Participant with respect to Options, SARs, Phantom Stock
or Restricted Stock awarded before termination.
20. DIRECTOR STOCK OPTIONS.
(a) Each Director who is not otherwise an employee of the Company from and
after the effective date of the Plan shall, at the first regularly
scheduled meeting of the Board held after January 1 of each calendar
year, automatically be granted NSOs to purchase ten thousand (10,000)
shares of Common Stock having an exercise price per share equal to
100% of the Fair Market Value of the Common Stock at the Option Date.
(b) Each Director's interest in any NSO granted pursuant to this Section
20 shall vest ratably over a period of twelve months from the Option
Date; provided, however, such NSO may not be exercised at any time
prior to six months after the Option Date. NSOs granted pursuant to
this Section 20 shall expire ten years from the Option Date.
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<PAGE>
(c) In the event that the number of shares of Common Stock available for
future grant under the Plan is insufficient to make all automatic
grants required to be made on such date, then all non-employee
Directors entitled to a grant on such date shall share ratably in the
number of NSOs on shares available for grant under the Plan.
(d) The provisions of paragraph (a) of this Section 20 may not be amended
more often than once every six months. Except as expressly provided
in this Section 20, any NSO granted hereunder shall be subject to the
terms and conditions of the Plan if the grant were made pursuant to
Section 6 hereof.
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<PAGE>
EMPLOYMENT AGREEMENT
This Agreement made as of the day of , 1997 (the "Effective
Date"), by and between HA-LO Industries, Inc., an Illinois corporation
("Employer"), and Lou Weisbach ("Executive").
WHEREAS, in consideration of the employment of Executive with Employer and
other good and valuable consideration the receipt of which is hereof
acknowledged, Executive and Employer agree to execute and be bound by this
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the promise
and covenants contained herein the parties agree as follows:
1. RECITALS. Each of the above recitals are incorporated in this
Agreement and are binding upon the parties hereof.
2. EMPLOYMENT. Employer hereby employs Executive, and Executive hereby
accepts employment as President and Chief Executive Officer of Employer on the
terms and conditions set forth herein.
3. TERM. Subject to the provisions for termination hereinafter provided,
the initial term of this Agreement shall be for a term of five (5) years
commencing as of the Effective Date (such period, or any extensions thereof,
being the "Term"); as of each one (1) year anniversary of the Effective Date,
the duration of the Term shall automatically be extended for successive one (1)
year periods such that the term of this Agreement is restored to five (5) years,
unless either party elects not to so extend the Term and gives notice to the
other party at least sixty (60) days
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<PAGE>
prior to such one (1) year anniversary of the Effective Date of its election
not to so extend.
4. DUTIES OF EXECUTIVE. Executive shall perform, on a full-time best
efforts basis, such duties commensurate with his position and experience as
shall be assigned to him from time to time by the Board of Directors of the
Employer.
5. COMPENSATION AND BENEFITS.
(a) Employer shall pay to Executive salary at an initial annual
rate of Five Hundred Thousand Dollars ($500,000.00) per year, payable
monthly, on the last day of each calendar month or upon such other
frequency as the parties hereto shall agree ("Base Pay"). Subject to the
termination of the Term of this Agreement by Employer prior to the
conclusion of the Term, the Executive shall be guaranteed the monthly
payments of the Base Pay during the Term. The Base Pay may be increased
from time to time by the Board of Directors in its sole discretion.
(b) BONUS AND ADDITIONAL COMPENSATION. Executive shall be
entitled to such bonus payments and additional compensation, based upon
such profit objectives as are established by the Board of Directors of the
Employer (or an authorized committee thereof), in such forms and at such
times as the Board of Directors of the Employer shall determine from time
to time in its sole discretion, including but not limited to the Employer's
Management Incentive Plan.
(c) FRINGE BENEFITS. Employer shall provide to
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<PAGE>
Executive such employee fringe benefits as are generally provided for
employees of Employer similarly situated to Executive, including all
fringe benefits made available to Executive by Employer on or prior to
the Effective Date (including but not limited to medical, dental,
disability and life insurance for Executive and Executive's family, as
applicable (the "Welfare Plans"). Executive shall be entitled to take
such annual vacation at such time and in such amounts as are consistent
with the Executive's prior practice as an employee of Employer.
6. EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement
by the Employer for all reasonable and customary travel and other business
expenses incurred by Executive in carrying out his duties under this Agreement,
including but not limited to, gas, oil, automobile insurance, repairs and
maintenance, parking expenses, tolls, lodgings and meals, while performing
services, and other transportation expenses.
7. TERMINATION. This Agreement shall be terminated on the earliest to
occur of (i) the expiration of the Term; (ii) the mutual agreement of Employer
and Executive; (iii) the death of the Executive; (iv) the permanent disability
of the Executive as herein defined; (v) the dismissal of Executive for "cause"
as hereinafter defined or (vi) by the Executive, upon the occurrence of a
"change of control" (as herein defined). Upon any termination of the term of
this Agreement, Executive shall promptly deliver to the Employer (without
retaining any copies thereof) all the forms, brochures,
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<PAGE>
project materials, sales materials, manuals, letterhead, business cards or
any other written or printed materials relating to the business of the
Employer.
Executive shall be deemed to be "permanently disabled" hereunder if it
is determined by a physician selected by the Employer, with the reasonable
approval of Executive, which physician is on the staff of a hospital associated
with a medical school and located in Cook or Lake County, Illinois, that the
Executive is suffering from a mental, physical or emotional disability or
condition which is reasonably expected to last for two hundred and ten (210)
days or more, and which prevents Executive from fully performing his duties
hereunder.
The Employer shall be deemed to have "cause" to dismiss Executive from
employment by the Employer hereunder upon the occurrence of any of the
following: (i) Executive's conviction of a felony; (ii) Executive's engagement
an illegal conduct tending to place Executive or Employer in disrepute; or (iii)
upon thirty (30) days prior written notice to Executive by Employer, upon
Executive's breach of, and failure to cure, any other material provision of this
Agreement.
8. CHANGE OF CONTROL.
(a) For purposes hereof, a change in control means, the occurrence of
any one of the following events:
i) any consolidation or merger of the Employer wherein the
Employer is not the continuing or surviving corporation or which
contemplates that all or
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<PAGE>
substantially all of the business and/or assets of the Employer shall
be controlled by another corporation or a recapitalization in which
the current controlling stockholders do not continue to be the
controlling stockholders;
ii) any sale, lease, exchange or transfer (in one transaction or
series of related transactions) of all or substantially all of the
assets of the Employer;
iii) approval by the shareholders of the Employer of any plan or
proposal for the liquidation or dissolution of the Employer, unless
such plan or proposal is abandoned within 60 days following such
approval;
iv) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than a person who is a
stockholder of the Employer on the Effective Date, who shall become
the beneficial owner of securities of the Employer representing more
than 50% of the combined voting power of the Employer's then
outstanding securities ordinarily having the right to vote in the
election of directors;
v) any sale, exchange or transfer (other than transfers to
affiliated entities, i.e. entities controlling, controlled by or under
common control with, the transferor) of securities of the Employer
representing more than 50% of (i) the total fair market value of the
Employer's then outstanding equity
- 5 -
<PAGE>
securities, or (ii) the combined voting power of the Employer's then
outstanding securities ordinarily having the right to vote in the
election of directors, whether pursuant to a tender or exchange
offer, open market offering, purchase or sale, privately negotiated
purchase and sale or otherwise; or
vi) if during a period of two consecutive years from the
Effective Date, individuals who at the beginning of such period
constituted the directors of the Employer cease for any reason to
constitute a majority thereof (unless the election, or nomination for
election by the Employer's stockholders, of each director of the
Employer first elected during such period was approved by a vote of at
least a majority of the directors then still in office who were
directors at the beginning of any such period).
(b) For a twenty-four (24) month period after the termination hereof
by the Executive in the event of a change of control, Employer shall
provide for the Executive and the Executive's family with benefits no less
favorable than under the Welfare Plans immediately prior to the
termination. Benefits otherwise receivable by the Executive (or the
Executive's family) pursuant to this Section shall be reduced to the extent
comparable benefits are actually received by or made available to the
Executive from a subsequent employer without cost during such period
following the Executive's
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<PAGE>
termination of employment.
9. SEVERABILITY. Each of the terms and provisions of this Agreement is
to be deemed severable in whole or in part and, if any term or provision of the
application thereof in any circumstances should be invalid, illegal or
unenforceable, the remaining terms and provisions or the application thereof to
circumstances other than those as to which it is held invalid, illegal or
unenforceable, shall not be affected thereby and shall remain in full force and
effect.
10. BINDING AGREEMENT. This Agreement shall be binding upon the parties,
their heirs, successors, personal representatives and assigns. Employer may
assign this Agreement to any successor in interest to the business, or part
thereof, of Employer. Executive may not assign any of his obligations or duties
hereunder.
11. CONTROLLING LAW AND JURISDICTION. This Agreement shall be governed by
and interpreted and construed according to the laws of the State of Illinois.
Executive hereby consents to the jurisdiction of the state and federal courts in
Illinois in the event that any disputes arise under this Agreement.
12. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties with regard to the subject matter hereof, may not be changed orally,
but only by an agreement in writing signed by the parties hereto.
13. FAILURE TO ENFORCE. The failure to enforce any of the provisions of
this Agreement shall not be construed as a waiver of such provisions. Further,
any express waiver by any party with
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<PAGE>
respect to any breach of any provision hereunder by any other party shall not
constitute a waiver of such party's right to thereafter fully enforce each
and every provision of the Agreement.
14. SURVIVAL. The obligations contained in this Agreement shall survive
the termination, for any reason whatsoever, for cause or otherwise, of
Executive's employment with the Employer.
15. HEADINGS. All numbers and heading of paragraphs are for reference
only and are not intended to qualify, limit or otherwise affect the meaning or
interpretation of any paragraph.
16. NOTICES. All notices which are required, permitted or contemplated
hereunder to be given or made shall be given or made in writing by certified
mail (return receipt requested) to the Employer at 5980 West Touhy Avenue,
Niles, Illinois 60714, Attention: Board of Directors, and to the Executive at
2670 Point Lane, Highland Park, Illinois 60035.
17. GENDER. The masculine, feminine or neuter pronouns used herein shall
be interpreted without regard to gender, and the use of the singular or plural
shall be deemed to include the other whenever the context so requires.
WHEREFORE, the parties have executed this Agreement on the date and year
first above written.
EMPLOYER EXECUTIVE
HA-LO INDUSTRIES, INC.
By:____________________________ ___________________________________________
Its:______________________ Lou Weisbach
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), made and entered into effective as
of the 1st day of January, 1998 (the "Effective Date"), by and between HA-LO
INDUSTRIES, INC., an Illinois corporation with offices located at 5980 West
Touhy Avenue, Niles, Illinois 60714 ("Employer"), and RICHARD A. MAGID, a
resident of Illinois ("Employee").
WHEREAS, Employee is the Chief Operating Officer, Vice President and
Treasurer of Employer; and
WHEREAS, in consideration of the employment of Employee with Employer and
other good and valuable consideration, the receipt and sufficiency of which is
hereby mutually acknowledged, Employee and Employer agree to execute and be
bound by this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and covenants of the parties contained herein, the parties, intending
to be legally bound, hereby agree as follows:
1. ALL PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the
entire agreement between the parties concerning the employment of Employee by
Employer, and supersedes all prior and contemporaneous agreements between
Employer and Employee relating to the subject matter hereof.
2. EMPLOYMENT. On the terms and subject to the conditions set forth
herein, Employer hereby employs Employee, and Employee hereby accepts employment
from Employer, as the Chief Operating Officer, Vice President and Treasurer of
Employer. If, during the term of this Agreement, Employee is removed from any
titled office maintained with Employer (whether by action of Employer's Board of
Directors or otherwise) then, unless Employer simultaneously terminates this
Agreement, Employee and Employer shall continue to be bound by the terms and
conditions hereof, and such removal shall not constitute grounds for a breach
under, or termination (including constructive termination) of, this Agreement.
3. TERM. Subject to the provisions for termination hereinafter provided,
the initial term of this Agreement shall be for a term of three (3) years,
commencing as of the Effective Date and ending December 31, 2000 (such period,
or any extensions thereof being the "Term"); provided, however, that as of
December 31, 2000, the Term shall be automatically extended for successive one
(1) calendar year periods, unless either party elects not to so extend the Term
and gives written notice to the other party at least ninety (90) days prior to
such scheduled termination date of their election not to so extend.
<PAGE>
4. DUTIES OF EMPLOYEE. Employee shall perform, on a full-time and best
efforts basis, such duties commensurate with his position and experience as
shall be assigned to him from time to time by the President or Board of
Directors of Employer. As part of his duties hereunder, Employee agrees to
serve as an officer and director of Employer and of such subsidiaries and
affiliates of Employer to which Employee is elected.
5. COMPENSATION AND BENEFITS.
(a) For the three (3) month period commencing on the Effective Date,
Employer shall pay to Employee a salary at the initial annual rate of Two
Hundred Seventy-Five Thousand Dollars ($275,000), in equal installments on
the last day of each month or at such other frequency as the parties hereto
shall agree ("Base Pay"). As of April 1, 1998, Employee's Base Pay shall
increase to Three Hundred Thousand Dollars ($300,000). The Base Pay may
also be increased from time to time by the Compensation Committee of the
Board of Directors of Employer, in its sole discretion.
(b) BONUS COMPENSATION. Employee shall be entitled to receive bonus
compensation structured to reward Employee for excellent performance in an
annual amount, in accordance with the Employer's management incentive
plan(s) based upon such of Employer's profit and other financial objectives
as are established by the Compensation Committee of the Board of Directors
of Employer, in such payment forms and at such times as it shall determine
from time to time in its sole discretion.
(c) FRINGE BENEFITS. Employer shall provide to Employee such other
employee fringe benefits as are generally provided for the executive
employees of Employer, including all fringe benefits made available to
Employee by Employer on or prior to the Effective Date. Employee shall be
entitled to annual vacation during such period(s) and in such time
increments as are consistent with Employee's prior practices as an
executive employee of Employer.
6. EXPENSE REIMBURSEMENT. Employee shall be entitled to reimbursement by
Employer for all reasonable and customary travel and other business expenses
incurred by Employee in carrying out his duties under this Agreement, including
but not limited to, telephone, computer, fax machine and transportation
expenses.
7. TERMINATION. This Agreement shall be terminated on the earliest to
occur of (i) the expiration of the Term; (ii) the mutual agreement of Employer
and Employee; (iii) the death of the Employee; (iv) the permanent disability of
the Employee, or (v) the dismissal of Employee for "cause" (as hereinafter
defined). Upon any termination of the Term of this Agreement, Employee shall
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promptly deliver to Employer (i) without retaining any copies thereof, all the
forms, brochures, business records, project materials, sales materials, manuals,
letterhead, business cards or any other written or printed materials relating to
the business of Employer, and (ii) any computers, telephones, fax machines,
automobiles, or other personal property owned by Employer and in the possession
of Employee.
Employee shall be deemed to be "permanently disabled" hereunder if it is
determined by a physician selected by Employer, with the reasonable approval of
Employee, which physician is on the staff of a hospital associated with a
medical school and located in Cook or Lake County, Illinois, that Employee is
suffering from a mental, physical or emotional disability or condition which is
reasonably expected to last for two hundred seventy (270) days or more, and
which prevents Employee from performing substantially all of his duties
hereunder.
Employer shall be deemed to have "cause" to dismiss Employee from
employment upon the occurrence of any of the following: (i) Employee's
conviction of a felony; (ii) Employee's engagement in illegal conduct tending to
place Employee or Employer in disrepute; or (iii) upon thirty (30) days prior
written notice to Employee by Employer, upon Employee's breach of, and failure
to cure, any other material provision of this Agreement.
8. EMPLOYEE'S COVENANTS NOT TO COMPETE. Employee covenants that during
the term of this Agreement and for a period of one (1) year thereafter, he shall
not, except as an employee of Employer, directly or indirectly, on his own
account, or as an employee, consultant, agent, partner, joint venturer, owner or
officer of any other person, firm, partnership, corporation or entity, or in any
other capacity, conduct, engage in, or aid or assist anyone in the conduct of a
business which is competitive to that of Employer, or in which advertising
specialty and premium merchandise is sold to customers anywhere in the United
States; provided, however, that the foregoing covenants shall be of no force or
effect in the event Employer (i) violates the terms of this Agreement, (ii)
terminates Employee as an employee other than for cause, or (iii) reduces the
compensation paid to Employee.
9. CONFIDENTIALITY. Employee acknowledges that by virtue of his
employment with Employer, he has been and/or will be exposed to or has had or
will have access to confidential information regarding Employer's business,
including but not limited to, trade secrets and proprietary information, all of
which are proprietary to Employer. Employee further acknowledges that it would
be possible for an employee, upon termination of his association with Employer,
to use the knowledge or information obtained while working for or with Employer
to benefit other individuals or entities. Employee acknowledges that Employer
has expended considerable time and resources in the development and/or purchase
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of certain confidential information used in connection with Employer's business,
including, without limitation, Employer's computer programs and computer
software, accounting methodologies, pricing systems, cost of goods sold,
manufacturing and assembly processes, designs, product margins, customer lists
or records, customer information, customer mark-ups, information regarding
suppliers and vendors, use and utilization of patents, trademarks, trade names,
copyrights, confidential information and trade secrets of Employer or third
parties, marketing techniques, systems and networks of distribution, supplier
information, product content, product mix, inventions and, generally, the
confidential information of Employer which gives, or may give, Employer an
advantage in the marketplace against its competitors (all of the foregoing being
herein referred to collectively as "Proprietary Information"), and which have
been disclosed to or learned by Employee solely for the purpose of Employee's
employment with Employer. Employee acknowledges that Employer's Proprietary
Information constitutes a proprietary and exclusive interest of Employer, and,
therefore, Employee agrees that during the term of his employment and for a
period of sixty (60) months after the termination of Employee's employment with
Employer, for any reason whatsoever, Employee shall hold and keep secret the
Proprietary Information as described herein, as to which Employee is now or any
time during his employment shall become informed, and Employee shall not
directly or indirectly disclose any such information to any person, firm, court,
governmental agency or corporation or use the same except in connection with the
business and affairs of Employer.
10. REMEDIES. Employee acknowledges that compliance with the restrictive
covenants set forth in Paragraphs 8 and 9 herein is necessary to protect the
business, goodwill and Proprietary Information of Employer and that a breach of
these restrictions will irreparably and continually damage Employer for which
money damages may not be adequate. Consequently, Employee agrees that, in the
event that he breaches or threatens to breach any of these covenants, Employer
shall be entitled to both (1) a temporary, preliminary or permanent injunction
in order to prevent the continuation of such harm and (2) money damages insofar
as they can be determined. Nothing in this agreement, however, shall be
construed to prohibit Employer from also pursuing any other remedy, the parties
having agreed that all remedies are to be cumulative. The parties expressly
agree that Employer may, in its sole discretion, choose to enforce the
restrictive covenants in Paragraphs 8 and 9 hereof, in part, or to enforce any
of said restrictive covenants to a lesser extent than that set forth herein. As
money damages for the period of time during which Employee violates these
covenants, Employer shall be entitled to recover, including, without limitation,
the amount of fees, compensation or other remuneration earned by Employee as a
result of any such breach.
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11. SEVERABILITY. Each of the terms and provisions of this Agreement is
to be deemed severable in whole or in part and, if any term or provision of the
application thereof in any circumstances should be invalid, illegal or
unenforceable, the remaining terms and provisions or the application thereof to
circumstances other than those as to which it is held invalid, illegal or
unenforceable, shall not be affected thereby and shall remain in full force and
effect.
12. BINDING AGREEMENT. This Agreement shall be binding upon the parties,
their heirs, successors, personal representatives and assigns. Employer may
assign this Agreement to any successor in interest to the business, or part
thereof, of Employer. Employee may not assign any of his obligations or duties
hereunder.
13. CONTROLLING LAW AND JURISDICTION. This Agreement shall be governed by
and interpreted and construed according to the laws of the State of Illinois.
Employee hereby consents to the jurisdiction of the state and federal courts in
Illinois in the event that any disputes arise under this Agreement.
14. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties with regard to the subject matter hereof, may not be changed orally,
but only by an agreement in writing signed by the parties hereto.
15. FAILURE TO ENFORCE. The failure to enforce any of the provisions of
this Agreement shall not be construed as a waiver of such provisions. Further,
any express waiver by any party with respect to any breach of any provision
hereunder by any other party shall not constitute a waiver of such party's right
to thereafter fully enforce each and every provision of the Agreement.
16. SURVIVAL. The obligations contained in this Agreement shall survive
the termination, for any reason whatsoever, for cause or otherwise, of
Employee's employment with the Employer.
17. HEADINGS. All numbers and heading of paragraphs are for reference
only and are not intended to qualify, limit or otherwise affect the meaning or
interpretation of any paragraph.
18. NOTICES. All notices which are required, permitted or contemplated
hereunder to be given or made shall be given or made in writing by certified
mail (return receipt requested) to Employer and Employee, respectively, at the
addresses shown in the Preamble, or to such other address as either party may
inform the other in writing.
19. GENDER. The masculine, feminine or neuter pronouns used herein shall
be interpreted without regard to gender, and the use of the singular or plural
shall be deemed to include the other whenever the context so requires.
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WHEREFORE, the parties have executed this Agreement on the date and year
first above written.
EMPLOYER: EMPLOYEE:
HA-LO INDUSTRIES, INC.
By:____________________________ ___________________________________________
Its:________________________ Richard A. Magid
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AGREEMENT
AGREEMENT by and between HA-LO Industries, Inc., an Illinois banking
corporation (the "Company"), and 1~ (the "Executive"), dated as of the
____ day of _____________, 1997.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
2) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b)) on which a Change of Control
occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change of Control occurs, and
if it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of Control, then for
all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on December 31, 1999; provided, however, that
commencing January 1, 1999, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
<PAGE>
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
30% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege) to a Person whose holdings do not
exceed 40% of the Outstanding Company Stock or the Outstanding Company
Voting Securities prior to or after such transaction, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i) and (ii) of subsection (c) of this Section 2 are satisfied;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case (with respect to such transactions
effecting the Company), unless, following such reorganization, merger or
consolidation, (i) more than 60% of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined
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voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, and (ii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members
of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, and (B) at least a majority of the members
of the board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such sale or other disposition of assets of the
Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending on the eighteen month
anniversary of such date (the "Employment Period").
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4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position,
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office which
is the headquarters of the Company and is less than 25 miles from such
location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal
to twelve times the highest monthly base salary paid or payable to the
Executive by the Company and its affiliated companies in respect of
the twelve-month period immediately preceding the month in which the
Effective Date occurs.
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During the Employment Period, the Annual Base Salary shall be
reviewed at least annually and shall be increased at any time and
from time to time as shall be substantially consistent with
increases in base salary generally awarded in the ordinary course
of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or
under common control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at
least equal to the average annualized (for any fiscal year consisting
of less than twelve full months or with respect to which the Executive
has been employed by the Company for less than twelve full months)
bonus paid or payable, including by reason of any deferral, to the
Executive by the Company and its affiliated companies in respect of
the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and
programs (including without limited to deferred compensation,
incentive stock option and stock appreciation rights plans and
agreements) applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the aggregate,
than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 90-day
period immediately preceding the
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Effective Date or if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its
affiliated companies.
(v) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period,
the Executive shall be entitled to an office or offices of a size
and with furnishings and
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other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated
companies at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and
its affiliated companies as in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician who is on the staff of a teaching hospital in Cook, Lake or
DuPage Counties, Illinois selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 4(a) (other than as a result of
incapacity due to
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physical or mental illness) which is demonstrably willful and deliberate
on the Executive's part, which is committed in bad faith or without
reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after
receipt of written notice from the Company specifying such breach or
(ii) the conviction of the Executive of a felony involving moral
turpitude.
(c) GOOD REASON. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive (or the elimination of) of
any duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 4(a)
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Section
4(a)(i)(B);
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c), provided that such successor has received at least ten
days prior written notice from the Company or the Executive of the
requirements of Section 11(c).
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause
or by the Executive for Good Reason, shall
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be communicated by Notice of Termination to the other party hereto given
in accordance with Section 12(b). For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not
more than 15 days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or
Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such
fact or circumstance in enforcing the Executive's or the Company's
rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason (or, with respect to Section 6(a)(ii)
hereof, in all event upon a Change of Control):
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the highest Annual Bonus paid to the
Executive for any of the three (3) full fiscal years prior to the
Employment Period and (y) a fraction, the numerator of which is
the number of days in the current
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fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. the amount (such amount shall be hereinafter referred
to as the "Severance Amount") equal to the product of
(1) 2- multiplied by (2) the sum of (x) the Executive's Annual
Base Salary at the time the Notice of Termination was given and
(y) the highest Annual Bonus paid to the Executive for any of the
immediately preceding three (3) full fiscal years, provided,
however, that the Severance Amount shall be lessened by the
amount, if at all, of any other cash severance benefits received
by the Executive or any other cash payments made by the Company
to the Executive with regard to contractual rights of the
Executive (other than those set forth in this Agreement) to
receive salary, bonus or commission compensation from the Company
for periods following the Date of Termination; and
(ii) at all time during the Employment Period the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) as in effect and applicable generally to other
peer executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to the Executive or other peer executives of the Company and its
affiliated companies and their families, provided, however, that if
the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be hereinafter
referred to as "Welfare Benefit Continuation"); and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the
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Executive and/or the Executive's family any other amounts or
benefits required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies
as in effect and applicable generally to other peer executives and
their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect
generally thereafter with respect to other peer executives of the
Company and its affiliated companies and their families (such other
amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Death Benefits
(as defined below)) and (ii) payment to the Executive's estate or
beneficiary, as applicable, of any cash amount to be received by the
Executive or the Executive's family as a death benefit pursuant to the
terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of life insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the
benefits included in this clause (B) shall be hereinafter referred to as
the "Death Benefits").
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive,
other than for (i) payment of Accrued Obligations (which shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Disability
Benefits (as defined below)) and (ii) payment to the Executive of any cash
amount to be received by the Executive as a disability benefit pursuant to
the terms of any plan, policy or arrangement of the Company and its
affiliated companies, but not including any proceeds of disability
insurance covering the Executive to the extent paid for directly or on a
contributory basis by the Executive (which shall be paid in any event as an
Other Benefit) (the
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benefits included in this clause (B) shall be hereinafter referred to as
the "Disability Benefits").
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination
either for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the
timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. RESOLUTION OF DISPUTES.
(a) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees
to pay promptly as incurred, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the
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Executive or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for
in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment
by the Company, whether such termination was for Cause, or (ii) in the
event of any termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such
termination was for Cause or that the determination by the Executive of the
existence of Good Reason was not made in good faith, the Company shall pay
all amounts, and provide all benefits, to the Executive and/or the
Executive's family or other beneficiaries, as the case may be, that the
Company would be required to pay or provide pursuant to Section 6(a) as
though such termination were by the Company without Cause or by the
Executive with Good Reason; provided, however, that the Company shall not
be required to pay any disputed amounts pursuant to this paragraph except
upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
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(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by the accounting firm of Arthur Anderson LLP, or its duly authorized
successor (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
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payment of taxes with respect to such claim is due).If the Company notifies
the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses.Without limitation
on the foregoing provisions of this Section 9(c), the Company shall control
all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's
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control of the contest shall be limited to issues with respect to which
a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION; NON-COMPETITION.
(a) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by
acts by the Executive or representatives of the Executive in violation of
this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it.
(b) In consideration of the promises of the Company herein, the
Executive hereby agrees that while employed by the Company and for a period
of one (1) year after the termination of Executive's employment with the
Company, for any reason, the Executive shall not, directly or indirectly,
in any capacity without the prior written consent of the Company, (i) in
the United States and Canada, for his own account or as an employee,
consultant, agent, partner, joint venturer, owner or officer of any other
person, firm, partnership, corporation or other entity, conduct or engage
in any business directly competitive with the business of the Company as of
the date of
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the termination of the Executive's employment, (ii) solicit or engage in
the business conducted by the Company with a customer or prospective
customer of the Company regarding which customer or prospective customer
Executive had direct or indirect contact as an employee of the Company
or with respect to whom the Executive learned information while so
employed, or (iii) solicit any employee, agent or independent contractor
of the Company, the product of which contract will or may yield a
termination of the employment or agency relationship of such individual
with the Company.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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<PAGE>
IF TO THE EXECUTIVE: 3~
IF TO THE COMPANY: HA-LO Industries, Inc.
5980 Touhy Avenue
Niles, Illinois 60714
Attention: Lou Weisbach
President
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company
may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section
5(c)(i)-(v), shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company
is "at will" and, prior to the Effective Date, may be terminated by either
the Executive or the Company at any time. Moreover, if prior to the
Effective Date, the Executive's employment with the Company terminates,
then the Executive shall have no further rights under this Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
------------------------------------
4-
HA-LO INDUSTRIES, INC.
By:
---------------------------------
Its:
---------------------------
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SCHEDULE 1
There are seven (7) documents omitted as Exhibits which contain the same
material terms of the attached agreement, except that the parties defined
therein as "Executive" (marked as "1-" in the first paragraph of such
document) and the multiple marked as "2-" in Section 6(a)(i)(B) differ among
the documents. Such parties are set forth below (listed as "Executive") with
the corresponding multiple contained in Section 6(a)(i)(B) of their
respective agreements.
EXECUTIVE SECTION 6(a)(i)(B) MULTIPLE
Linden Nelson 2.99
Richard A. Magid 2.50
Greg Kilrea 2.50
Gene Ehrenfeldt 2.00
Sabina Filipovic 2.00
Michael Nemlich 2.00
Barry Margolin 2.00
<PAGE>
AGREEMENT
AGREEMENT by and between HA-LO Industries, Inc., an Illinois banking
corporation (the "Company"), and David A. Robbins (the "Executive"), dated as of
the ____ day of _____________, 1997.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
2) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b)) on which a Change of Control
occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change of Control occurs, and
if it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of Control, then for
all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on December 31, 1999; provided, however, that
commencing January 1, 1999, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
<PAGE>
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
30% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege) to a Person whose holdings do not
exceed 40% of the Outstanding Company Stock or the Outstanding Company
Voting Securities prior to or after such transaction, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i) and (ii) of subsection (c) of this Section 2 are satisfied;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case (with respect to such transactions
effecting the Company), unless, following such reorganization, merger or
consolidation, (i) more than 60% of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined
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voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, and (ii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members
of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, and (B) at least a majority of the members
of the board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such sale or other disposition of assets of the
Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending on the eighteen month
anniversary of such date (the "Employment Period").
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<PAGE>
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position,
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office which
is the headquarters of the Company and is less than 25 miles from such
location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal
to twelve times the highest monthly base salary paid or payable to the
Executive by the Company and its affiliated companies in respect of
the twelve-month period immediately preceding the month in which the
Effective Date occurs.
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During the Employment Period, the Annual Base Salary shall be
reviewed at least annually and shall be increased at any time and
from time to time as shall be substantially consistent with
increases in base salary generally awarded in the ordinary course
of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or
under common control with the Company.
(ii) ANNUAL BONUS; APPLICABLE COMMISSION POLICY. In addition
to Annual Base Salary, the Executive shall be awarded, for each fiscal
year ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash pursuant to the non-discretionary performed based cash
bonus formula applicable to the Executive during the 90-day period
immediately preceding the Effective Date. Each such Annual Bonus
shall be paid no later than the end of the third month of the fiscal
year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus. The Executive shall be paid commissions ("Commissions")
on his sales of Company products in accordance with a commission
policy no less favorable to Executive than the policy applicable to
Executive during the 90-day period immediately preceding the Effective
Date.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and
programs (including without limited to deferred compensation,
incentive stock option and stock appreciation rights plans and
agreements) applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the aggregate,
than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time
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during the 90-day period immediately preceding the Effective Date
or if more favorable to the Executive, those provided generally at
any time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its
affiliated companies.
(v) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period,
the Executive shall be entitled to an
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office or offices of a size and with furnishings and other
appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated
companies at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and
its affiliated companies as in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician who is on the staff of a teaching hospital in Cook, Lake or
DuPage Counties, Illinois selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under
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Section 4(a) (other than as a result of incapacity due to physical or
mental illness) which is demonstrably willful and deliberate on the
Executive's part, which is committed in bad faith or without reasonable
belief that such breach is in the best interests of the Company and
which is not remedied in a reasonable period of time after receipt of
written notice from the Company specifying such breach or (ii) the
conviction of the Executive of a felony involving moral turpitude.
(c) GOOD REASON. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive (or the elimination of) of
any duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 4(a)
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B);
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c), provided that such successor has received at least ten
days prior written notice from the Company or the Executive of the
requirements of Section 11(c).
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
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(d) NOTICE OF TERMINATION. Any termination by the Company for Cause
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
12(b). For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason (or, with respect to Section 6(a)(ii)
hereof, in all event upon a Change of Control):
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the sum of the Annual Bonus and
Commissions paid to the Executive for the fiscal year prior to
the
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Employment Period and (y) a fraction, the numerator of which
is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with
any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Accrued Obligations");
and
B. the amount (such amount shall be hereinafter referred
to as the "Severance Amount") equal to the product of (1) 2.50
multiplied by (2) the sum of (x) the Executive's Annual Base
Salary at the time the Notice of Termination was given and (y)
the sum of the Annual Bonus plus Commissions paid to the
Executive for the immediately preceding fiscal year, provided,
however, that the Severance Amount shall be lessened by the
amount, if at all, of any other cash severance benefits received
by the Executive or any other cash payments made by the Company
to the Executive with regard to contractual rights of the
Executive (other than those set forth in this Agreement) to
receive salary, bonus or commission compensation from the Company
for periods following the Date of Termination; and
(ii) at all time during the Employment Period the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) as in effect and applicable generally to other
peer executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to the Executive or other peer executives of the Company and its
affiliated companies and their families, provided, however, that if
the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be hereinafter
referred to as "Welfare Benefit Continuation"); and
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(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be paid
or provided or which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of the Company
and its affiliated companies as in effect and applicable generally to
other peer executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally thereafter with respect to other
peer executives of the Company and its affiliated companies and their
families (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Death Benefits
(as defined below)) and (ii) payment to the Executive's estate or
beneficiary, as applicable, of any cash amount to be received by the
Executive or the Executive's family as a death benefit pursuant to the
terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of life insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the
benefits included in this clause (B) shall be hereinafter referred to as
the "Death Benefits").
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive,
other than for (i) payment of Accrued Obligations (which shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Disability
Benefits (as defined below)) and (ii) payment to the Executive of any cash
amount to be received by the Executive as a disability benefit pursuant to
the terms of any plan, policy or arrangement of the Company and its
affiliated companies, but not including any proceeds of disability
insurance covering the Executive to the extent paid
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for directly or on a contributory basis by the Executive (which shall be
paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Disability
Benefits").
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination
either for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the
timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. RESOLUTION OF DISPUTES.
(a) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees
to pay promptly as incurred, to the full extent permitted by law, all legal
fees and expenses which the
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Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant
to this Agreement), plus in each case interest on any delayed payment at
the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment
by the Company, whether such termination was for Cause, or (ii) in the
event of any termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such
termination was for Cause or that the determination by the Executive of the
existence of Good Reason was not made in good faith, the Company shall pay
all amounts, and provide all benefits, to the Executive and/or the
Executive's family or other beneficiaries, as the case may be, that the
Company would be required to pay or provide pursuant to Section 6(a) as
though such termination were by the Company without Cause or by the
Executive with Good Reason; provided, however, that the Company shall not
be required to pay any disputed amounts pursuant to this paragraph except
upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of
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the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by the accounting firm of Arthur Anderson LLP, or its duly authorized
successor (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive
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shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect
to such claim is due).If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses.Without limitation
on the foregoing provisions of this Section 9(c), the Company shall control
all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
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taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION; NON-COMPETITION.
(a) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by
acts by the Executive or representatives of the Executive in violation of
this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it.
(b) In consideration of the promises of the Company herein, the
Executive hereby agrees that while employed by the Company and for a period
of one (1) year after the termination of Executive's employment with the
Company, for any reason, the Executive shall not, directly or indirectly,
in any capacity without the prior written consent of the Company, (i) in
the United States and Canada, for his own account or as an employee,
consultant, agent, partner, joint venturer, owner or
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officer of any other person, firm, partnership, corporation or other
entity, conduct or engage in any business directly competitive with the
business of the Company as of the date of the termination of the
Executive's employment, (ii) solicit or engage in the business conducted
by the Company with a customer or prospective customer of the Company
regarding which customer or prospective customer Executive had direct or
indirect contact as an employee of the Company or with respect to whom
the Executive learned information while so employed, or (iii) solicit
any employee, agent or independent contractor of the Company, the
product of which contract will or may yield a termination of the
employment or agency relationship of such individual with the Company.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other
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party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
IF TO THE EXECUTIVE: David A. Robbins
931 Yale Lane
Highland Park, Illinois 60035
IF TO THE COMPANY: HA-LO Industries, Inc.
5980 Touhy Avenue
Niles, Illinois 60714
Attention: Lou Weisbach
President
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company
may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section
5(c)(i)-(v), shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company
is "at will" and, prior to the Effective Date, may be terminated by either
the Executive or the Company at any time. Moreover, if prior to the
Effective Date, the Executive's employment with the Company terminates,
then the Executive shall have no further rights under this Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
--------------------------------------
David A. Robbins
HA-LO INDUSTRIES, INC.
By:
-----------------------------------
Its:
-------------------------------
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AGREEMENT
AGREEMENT by and between HA-LO Industries, Inc., an Illinois banking
corporation (the "Company"), and Barbara G. Berman (the "Executive"), dated as
of the ____ day of _____________, 1997.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
2) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b)) on which a Change of Control
occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change of Control occurs, and
if it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of Control, then for
all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on December 31, 1999; provided, however, that
commencing January 1, 1999, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
<PAGE>
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
30% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege) to a Person whose holdings do not
exceed 40% of the Outstanding Company Stock or the Outstanding Company
Voting Securities prior to or after such transaction, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i) and (ii) of subsection (c) of this Section 2 are satisfied;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case (with respect to such transactions
effecting the Company), unless, following such reorganization, merger or
consolidation, (i) more than 60% of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined
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voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, and (ii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members
of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, and (B) at least a majority of the members
of the board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such sale or other disposition of assets of the
Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending on the eighteen month
anniversary of such date (the "Employment Period").
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4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position,
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office which
is the headquarters of the Company and is less than 25 miles from such
location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal
to twelve times the highest monthly base salary paid or payable to the
Executive by the Company and its affiliated companies in respect of
the twelve-month period immediately
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preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and from time to
time as shall be substantially consistent with increases in base
salary generally awarded in the ordinary course of business to
other peer executives of the Company and its affiliated companies.
Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the
Company.
(ii) ANNUAL BONUS; APPLICABLE COMMISSION POLICY. In
addition to Annual Base Salary, the Executive shall be awarded, for
each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash pursuant to the
non-discretionary performed based cash bonus formula applicable to
the Executive during the 90-day period immediately preceding the
Effective Date. Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
The Executive shall be paid commissions ("Commissions") on her
sales of Company products in accordance with a commission policy no
less favorable to Executive than the policy applicable to Executive
during the 90-day period immediately preceding the Effective Date.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and
programs (including without limited to deferred compensation,
incentive stock option and stock appreciation rights plans and
agreements) applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the aggregate,
than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans,
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<PAGE>
practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its
affiliated companies.
(v) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
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(vii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company
and its affiliated companies at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and
its affiliated companies as in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician who is on the staff of a teaching hospital in Cook, Lake or
DuPage Counties, Illinois selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For
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purposes of this Agreement, "Cause" shall mean (i) a material breach by
the Executive of the Executive's obligations under Section 4(a) (other
than as a result of incapacity due to physical or mental illness) which
is demonstrably willful and deliberate on the Executive's part, which is
committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company and which is not remedied in a
reasonable period of time after receipt of written notice from the
Company specifying such breach or (ii) the conviction of the Executive
of a felony involving moral turpitude.
(c) GOOD REASON. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive (or the elimination of) of
any duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 4(a)
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B);
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c), provided that such successor has received at least ten
days prior written notice from the Company or the Executive of the
requirements of Section 11(c).
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
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(d) NOTICE OF TERMINATION. Any termination by the Company for Cause
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
12(b). For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason (or, with respect to Section 6(a)(ii)
hereof, in all event upon a Change of Control):
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the sum of the Annual Bonus and
Commissions paid to the Executive for the fiscal year prior to
the
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Employment Period and (y) a fraction, the numerator of which
is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with
any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Accrued Obligations");
and
B. the amount (such amount shall be hereinafter referred
to as the "Severance Amount") equal to the product of (1) 2.00
multiplied by (2) the sum of (x) the Executive's Annual Base
Salary at the time the Notice of Termination was given and (y)
the sum of the Annual Bonus plus Commissions paid to the
Executive for the immediately preceding fiscal year, provided,
however, that the Severance Amount shall be lessened by the
amount, if at all, of any other cash severance benefits received
by the Executive or any other cash payments made by the Company
to the Executive with regard to contractual rights of the
Executive (other than those set forth in this Agreement) to
receive salary, bonus or commission compensation from the Company
for periods following the Date of Termination; and
(ii) at all time during the Employment Period the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 4(b)(iv) as in effect and applicable generally to other
peer executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to the Executive or other peer executives of the Company and its
affiliated companies and their families, provided, however, that if
the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be hereinafter
referred to as "Welfare Benefit Continuation"); and
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(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be paid
or provided or which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of the Company
and its affiliated companies as in effect and applicable generally to
other peer executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally thereafter with respect to other
peer executives of the Company and its affiliated companies and their
families (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Death Benefits
(as defined below)) and (ii) payment to the Executive's estate or
beneficiary, as applicable, of any cash amount to be received by the
Executive or the Executive's family as a death benefit pursuant to the
terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of life insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the
benefits included in this clause (B) shall be hereinafter referred to as
the "Death Benefits").
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive,
other than for (i) payment of Accrued Obligations (which shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Disability
Benefits (as defined below)) and (ii) payment to the Executive of any cash
amount to be received by the Executive as a disability benefit pursuant to
the terms of any plan, policy or arrangement of the Company and its
affiliated companies, but not including any proceeds of disability
insurance covering the Executive to the extent paid
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for directly or on a contributory basis by the Executive (which shall be
paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Disability
Benefits").
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination
either for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and the
timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. RESOLUTION OF DISPUTES.
(a) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees
to pay promptly as incurred, to the full extent permitted by law, all legal
fees and expenses which the
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Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant
to this Agreement), plus in each case interest on any delayed payment at
the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment
by the Company, whether such termination was for Cause, or (ii) in the
event of any termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final, nonappealable
judgment by a court of competent jurisdiction declaring that such
termination was for Cause or that the determination by the Executive of the
existence of Good Reason was not made in good faith, the Company shall pay
all amounts, and provide all benefits, to the Executive and/or the
Executive's family or other beneficiaries, as the case may be, that the
Company would be required to pay or provide pursuant to Section 6(a) as
though such termination were by the Company without Cause or by the
Executive with Good Reason; provided, however, that the Company shall not
be required to pay any disputed amounts pursuant to this paragraph except
upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of
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<PAGE>
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by the accounting firm of Arthur Anderson LLP, or its duly authorized
successor (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive
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<PAGE>
shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect
to such claim is due).If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses.Without limitation
on the foregoing provisions of this Section 9(c), the Company shall control
all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
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<PAGE>
taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION; NON-COMPETITION.
(a) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by
acts by the Executive or representatives of the Executive in violation of
this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it.
(b) In consideration of the promises of the Company herein, the
Executive hereby agrees that while employed by the Company and for a period
of one (1) year after the termination of Executive's employment with the
Company, for any reason, the Executive shall not, directly or indirectly,
in any capacity without the prior written consent of the Company, (i) in
the United States and Canada, for her own account or as an employee,
consultant, agent, partner, joint venturer, owner or
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<PAGE>
officer of any other person, firm, partnership, corporation or other
entity, conduct or engage in any business directly competitive with the
business of the Company as of the date of the termination of the
Executive's employment, (ii) solicit or engage in the business conducted
by the Company with a customer or prospective customer of the Company
regarding which customer or prospective customer Executive had direct or
indirect contact as an employee of the Company or with respect to whom
the Executive learned information while so employed, or (iii) solicit
any employee, agent or independent contractor of the Company, the
product of which contract will or may yield a termination of the
employment or agency relationship of such individual with the Company.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other
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party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
IF TO THE EXECUTIVE: Barbara G. Berman
6007 N. Sheridan Road, Apt. 18A
Chicago, Illinois 60660
IF TO THE COMPANY: HA-LO Industries, Inc.
5980 Touhy Avenue
Niles, Illinois 60714
Attention: Lou Weisbach
President
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company
may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section
5(c)(i)-(v), shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company
is "at will" and, prior to the Effective Date, may be terminated by either
the Executive or the Company at any time. Moreover, if prior to the
Effective Date, the Executive's employment with the Company terminates,
then the Executive shall have no further rights under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
----------------------------------
Barbara G. Berman
HA-LO INDUSTRIES, INC.
By:
-------------------------------
Its:
---------------------------
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<PAGE>
1998 RESTATEMENT OF THE
HA-LO INDUSTRIES, INC. 401(K) SAVINGS PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 History of the Plan. . . . . . . . . . . . . . . . . 1
Section 1.2 Former Participants. . . . . . . . . . . . . . . . . 1
Section 1.3 Legal Requirements . . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Accounts . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 Actual Contribution Percentage . . . . . . . . . . . 2
Section 2.3 Actual Deferral Percentage . . . . . . . . . . . . . 2
Section 2.4 Beneficiary. . . . . . . . . . . . . . . . . . . . . 3
Section 2.5 Break in Service . . . . . . . . . . . . . . . . . . 3
Section 2.6 Code . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.7 Company. . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.8 Compensation . . . . . . . . . . . . . . . . . . . . 4
Section 2.9 Disability . . . . . . . . . . . . . . . . . . . . . 4
Section 2.10 Effective Date . . . . . . . . . . . . . . . . . . . 5
Section 2.11 Employee . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.12 Early Retirement Date. . . . . . . . . . . . . . . . 5
Section 2.13 ERISA. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.14 Forfeiting Break in Service. . . . . . . . . . . . . 5
Section 2.15 Forfeiture . . . . . . . . . . . . . . . . . . . . . 5
Section 2.16 Highly Compensated Employee. . . . . . . . . . . . . 5
Section 2.17 Hours of Service . . . . . . . . . . . . . . . . . . 6
Section 2.18 Investment Fund. . . . . . . . . . . . . . . . . . . 7
Section 2.19 Non-Highly Compensated Employee. . . . . . . . . . . 7
Section 2.20 Normal Retirement Date . . . . . . . . . . . . . . . 7
Section 2.21 Participant. . . . . . . . . . . . . . . . . . . . . 7
Section 2.22 Plan . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.23 Plan Administrator . . . . . . . . . . . . . . . . . 7
Section 2.24 Plan Year. . . . . . . . . . . . . . . . . . . . . . 7
Section 2.25 Qualified Domestic Relations Order . . . . . . . . . 7
Section 2.26 Quarterly Date . . . . . . . . . . . . . . . . . . . 8
Section 2.27 Related Entity . . . . . . . . . . . . . . . . . . . 8
Section 2.28 Spouse . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.29 Trust. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.30 Trust Agreement. . . . . . . . . . . . . . . . . . . 8
Section 2.31 Trust Fund . . . . . . . . . . . . . . . . . . . . . 8
Section 2.32 Trustee. . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.33 Valuation Date . . . . . . . . . . . . . . . . . . . 9
Section 2.34 Year of Eligibility Service. . . . . . . . . . . . . 9
Section 2.35 Year of Service. . . . . . . . . . . . . . . . . . . 9
ARTICLE III ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . 11
Section 3.1 Active Participant Eligibility Requirements. . . . . 11
Section 3.2 Inactive Participant . . . . . . . . . . . . . . . . 11
Section 3.3 Former Participant Eligibility Requirements. . . . . 11
Section 3.4 Effect of Reemployment on Participation. . . . . . . 11
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Section 3.5 Commencement . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV CONTRIBUTIONS AND EXPENSES. . . . . . . . . . . . . . . . 14
Section 4.1 Contributions in General . . . . . . . . . . . . . . 14
Section 4.2 Company Contributions. . . . . . . . . . . . . . . . 14
Section 4.3 401(k) Contributions . . . . . . . . . . . . . . . . 15
Section 4.4 Limitation on Allocations. . . . . . . . . . . . . . 17
Section 4.5 Limitation on 401(k) Contributions . . . . . . . . . 18
Section 4.6 Limitation on Matching Contributions . . . . . . . . 20
Section 4.7 Alternative Limitation Test. . . . . . . . . . . . . 22
Section 4.8 Rollover Contributions.. . . . . . . . . . . . . . . 23
ARTICLE V ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Account Values . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Allocation of Investment Income. . . . . . . . . . . 25
Section 5.3 Quarterly Statement of Accounts. . . . . . . . . . . 26
ARTICLE VI DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.1 Eligibility. . . . . . . . . . . . . . . . . . . . . 27
Section 6.2 Retirement . . . . . . . . . . . . . . . . . . . . . 27
Section 6.3 Disability . . . . . . . . . . . . . . . . . . . . . 27
Section 6.4 Death. . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.5 Termination for Other Reasons. . . . . . . . . . . . 27
Section 6.6 Distribution of Accounts . . . . . . . . . . . . . . 28
ARTICLE VII LOANS AND WITHDRAWALS . . . . . . . . . . . . . . . . . . 31
Section 7.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.2 Hardship Withdrawals . . . . . . . . . . . . . . . . 31
Section 7.3 Age 59-1/2 and Over Withdrawals . . . . . . . . . . 32
ARTICLE VIII ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . 33
Section 8.1 Plan Administrator and Named Fiduciary . . . . . . . 33
Section 8.2 Compensation and Expenses. . . . . . . . . . . . . . 33
Section 8.3 Records. . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.4 Records of Trust . . . . . . . . . . . . . . . . . . 33
Section 8.5 Claims Procedure . . . . . . . . . . . . . . . . . . 34
ARTICLE IX TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.1 Trustee's Responsibilities . . . . . . . . . . . . . 36
Section 9.2 Trust. . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.3 No Reversion to Company. . . . . . . . . . . . . . . 36
ARTICLE X GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 37
Section 10.1 Inalienability . . . . . . . . . . . . . . . . . . . 37
Section 10.2 Incompetency . . . . . . . . . . . . . . . . . . . . 37
Section 10.3 Missing Payees . . . . . . . . . . . . . . . . . . . 37
Section 10.4 Non-Guarantee of Employment. . . . . . . . . . . . . 38
Section 10.5 No Right to Trust. . . . . . . . . . . . . . . . . . 38
Section 10.6 Non-Liability Provisions . . . . . . . . . . . . . . 38
Section 10.7 Applicable Law . . . . . . . . . . . . . . . . . . . 38
Section 10.8 Litigation by Participants . . . . . . . . . . . . . 39
Section 10.9 Tax Releases . . . . . . . . . . . . . . . . . . . . 39
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Section 10.10 Inspection of Records. . . . . . . . . . . . . . . . 39
Section 10.11 Pronouns . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.12 Qualified Domestic Relations Order . . . . . . . . . 39
Section 10.13 Uniformed Services Employment and Reemployment
Rights . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XI AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.1 Amendments . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.1 Right to Terminate Plan. . . . . . . . . . . . . . . 42
Section 12.2 Merger or Consolidation of Plan and Trust. . . . . . 42
Section 12.3 Termination of Plan and Trust. . . . . . . . . . . . 42
Section 12.4 Effect of Termination on Vesting . . . . . . . . . . 42
ARTICLE XIII TOP HEAVY PLANS . . . . . . . . . . . . . . . . . . . . . 43
Section 13.1 Top Heavy Plan Requirements. . . . . . . . . . . . . 43
Section 13.2 Top Heavy Plan Definitions . . . . . . . . . . . . . 43
Section 13.3 Right to Participate In Allocation of Company
Contributions. . . . . . . . . . . . . . . . . . . . 46
Section 13.4 Minimum Company Contribution Allocation. . . . . . . 46
ARTICLE XIV INVESTMENT OF ACCOUNTS. . . . . . . . . . . . . . . . . . 48
Section 14.1 Investment Funds . . . . . . . . . . . . . . . . . . 48
Section 14.2 Participant's Choice of Investment Funds . . . . . . 48
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<PAGE>
ARTICLE I
INTRODUCTION
SECTION 1.1 HISTORY OF THE PLAN. Effective January 1, 1994, HA-LO
Industries, Inc. (the "Company") established the HA-LO Industries, Inc.
401(k) Savings Plan (the "Plan") for the benefit of its eligible employees.
Effective July 1, 1996, Creative Concepts in Advertising, Inc. ("CCA")
established the CCA 401(k) Savings Plan (the "CCA Plan") for the benefit of
its eligible employees.
Effective January 1, 1996 Market USA ("Market USA ") established the
Market USA 401(k) Retirement Plan (the "Market USA Plan") for the benefit of
its eligible employees.
CCA and Market USA were acquired by the Company.
Effective January 1, 1998, (the "Effective Date") the CCA Plan and the
Market USA Plan are merged into the Plan and the Plan is hereby amended and
restated in the form hereof.
SECTION 1.2 FORMER PARTICIPANTS. Except as otherwise specifically
provided herein or required by the Code, the provisions of this amended and
restated Plan relating to eligibility for participation, eligibility for
benefits, amount of benefits, manner of benefit payments and timing of
benefit payments shall only apply to an Employee who terminates employment on
or after the Effective Date. An Employee who terminated employment prior to
the Effective Date shall have his eligibility for benefits, and the amount
and form of benefits, if any, determined in accordance with the provisions of
the Plan, the CCA Plan or the Market USA Plan, as applicable, in effect on
the date his employment terminated.
SECTION 1.3 LEGAL REQUIREMENTS. This Plan is intended to meet the
requirements for qualification under Section 401(a) of the Code.
<PAGE>
ARTICLE II
DEFINITIONS
Unless otherwise required by the context, the following terms and
phrases as used in the Plan shall have the meanings set forth in this Article
II.
SECTION 2.1 ACCOUNTS means the following Accounts which may be
maintained under this Plan for Participants, adjusted in each case for such
Account's share in the increase or decrease in the net worth of the Trust, as
provided in Article V:
(a) 401(K) ACCOUNT means the separate Account, if any, maintained for
each Participant to which shall be credited such Participant's 401(k)
Contributions made pursuant to Section 4.3.
(b) MATCHING ACCOUNT means the separate Account, if any, maintained for
each Participant to which shall be credited such Participant's share of the
Company's Matching Contribution, if any, made pursuant to Section 4.2(b).
(c) PROFIT SHARING ACCOUNT means the separate Account maintained for
each Participant to which shall be credited such Participant's allocable
share of the Company's Profit Sharing Contributions, if any, made pursuant to
Section 4.2(a).
(d) ROLLOVER ACCOUNT means the separate Account, if any, maintained for
each Participant to which shall be credited such Participant's Rollover
Contribution, if any, made pursuant to Section 4.6.
(e) TRANSFER ACCOUNT means the separate Account, if any, maintained for
each Participant to which shall be credited any Transfers pursuant to Section
4.6(d).
In addition, such other Accounts may be established and maintained as
the Plan Administrator may deem appropriate, such as, but not limited to,
segregated accounts, noninterest-bearing forfeiture accounts, and the like.
SECTION 2.2 ACTUAL DEFERRAL PERCENTAGE means the percentage
determined by dividing the 401(k) Contributions and Matching Contributions
allocated to a Participant's 401(k) and Matching Account by the Participant's
Compensation. A Participant's Actual Deferral Percentage will be determined
in accordance with the provisions of Code Section 414(q)(6) and Treasury
Regulation Section 1.401(k)-1.
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SECTION 2.3 BENEFICIARY. Beneficiary is defined as follows:
(a) DEFINITION. Beneficiary means any person or entity designated by a
Participant on a form provided by the Plan Administrator to receive benefits
payable, as a result of the Participant's participation in the Plan, upon the
Participant's death.
(b) SPECIAL RULE FOR MARRIED PARTICIPANTS. Each married Participant
will be deemed to have selected his Spouse as his Beneficiary unless the
Participant's Spouse has given written notarized consent on a form provided
by the Plan Administrator. Spousal consent will not be required if the
Participant states on the applicable form provided for that purpose by the
Plan Administrator and notarized that:
(i) the Participant is able to establish to the satisfaction of
the Plan Administrator that he has no Spouse; or
(ii) the Participant's Spouse cannot be located; or
(iii) there are other circumstances under which consent of the
Spouse is not required in accordance with applicable U.S. Treasury or
Department of Labor Regulations.
(c) SPECIAL RULE IF NO DESIGNATION IN EFFECT. If no valid designation
is in effect upon the death of the Participant or if the designated
Beneficiary has predeceased the Participant, the Beneficiary shall be the
person or persons who shall survive the Participant in the first of the
following classes of preferences:
(i) the Participant's Spouse;
(ii) his children, in equal shares, and their descendants, PER
STIRPES; or
(iii) his estate.
SECTION 2.4 BREAK IN SERVICE means a Plan Year during which a
Participant fails to complete more than 500 Hours of Service. In the case of
each Employee who is absent from work for any period pursuant to an
authorized leave of absence due to the pregnancy of the Employee, the birth
of a child of the Employee, the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or for the
purpose of caring for such child for a period beginning immediately following
such birth or placement, the Plan shall treat as Hours of Service, solely for
purposes of determining whether a Break in Service has occurred, the
following Hours of Service:
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<PAGE>
(a) the Hours of Service which otherwise would normally have been
credited to such Employee but for such absence; or
(b) in any case in which the Plan is unable to determine the hours in
subsection (a), 8 Hours of Service per day of such absence;
provided that the total number of hours treated as Hours of Service by reason
of such pregnancy, birth or placement shall not exceed 501 hours. Credit for
such hours shall be given in the computation period only in which the absence
from work begins if a Participant would be prevented from incurring a Break
in Service in such computation period solely because the period of absence is
treated as Hours of Service, or in any other case, in the immediately
following computation period.
SECTION 2.5 CODE means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder. Reference to any section of the
Code includes any successor provision thereto.
SECTION 2.6 COMPANY means HA-LO Industries, Inc. and any corporation
with which the Company shall be merged or consolidated, or any corporation
resulting in any manner from a reorganization of the Company, or any
individual, firm or corporation which shall assume the obligations of the
Company with respect to the Plan.
SECTION 2.7 COMPENSATION means for any period the base salary and
wages for regular hours worked paid by the Company or any Related Entity for
services rendered as an employee and the amount of any Company contribution
pursuant to a salary reduction agreement which is not includable in the gross
income of the Participant under Code Section 125, 402(e)(3), 402(h) or
403(b). Compensation, however, shall not include the Participant's share in
any Profit Sharing or Matching Contributions under the Plan or to any other
employee benefit or insurance program, bonuses or overtime pay. For all
purposes of the Plan, Compensation in excess of the applicable dollar
limitation contained in Code Section 401(a)(17), as may be adjusted by the
Secretary of the Treasury for cost-of-living increases, shall be disregarded
for each Plan Year. The Compensation of a Participant who becomes eligible
to participate at any time other than the first day of a Plan Year shall
include only his Compensation paid to him while a Participant in the Plan.
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SECTION 2.8 DISABILITY means a medically determinable physical or
mental incapacity, which is expected to result in death or to last for a
continuous period of not less than twelve (12) months and which renders him
incapable of performing his duties for his Employer. Disability of a
Participant shall be determined by the Plan Administrator in accordance with
uniform principles consistently applied upon the basis of the opinion of a
physician it selects and such other evidence as the Plan Administrator deems
necessary.
SECTION 2.9 EFFECTIVE DATE means January 1, 1998, except as otherwise
provided herein.
SECTION 2.10 EMPLOYEE means a person who is an employee of the Company
or Related Entity which has adopted the Plan, exclusive of (i) independent
contractors, (ii) any employee the terms of whose employment are governed by
the provisions of a collective bargaining agreement with respect to which
retirement benefits were the subject of good faith negotiations unless such
agreement specifically provides for his coverage hereunder, and (iii)
non-resident aliens with no U.S. source income. The term "Employee" shall
also include any leased employee if required by Section 414(n) of the Code.
SECTION 2.11 EARLY RETIREMENT DATE means the date on which the
Participant attains age 55 and completes five Years of Service.
SECTION 2.12 ERISA means the Employee Retirement Income Security Act
of 1974, as amended.
SECTION 2.13 FORFEITING BREAK IN SERVICE means five consecutive one
year Breaks in Service.
SECTION 2.14 FORFEITURE means the portion of a Participant's Accounts
which is not vested in accordance with Section 6.5 based on his Years of
Service as of the date of his termination of employment with the Company and
any and all Related Entities; provided that no such Forfeiture shall be
deemed to occur before the earlier of the date such Participant receives a
distribution of the entire value of his vested Accounts or the date such
Participant incurs a Forfeiting Break in Service.
SECTION 2.15 HIGHLY COMPENSATED EMPLOYEE means each employee who:
(a) was at any time a 5% or more owner of any Related Entity at any
time during the calendar year or the preceding calendar year; or
(b) received Compensation from any Related Entity in excess of $80,000
for the preceding calendar year and was in the top-paid group of Employees
for such preceding year.
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The determination of whether an individual is a Highly Compensated
Employee will be made in accordance with the provisions of Code Section
414(q) and the regulations issued thereunder. The dollar figures set forth
in subsection (b) above shall be adjusted for cost-of-living increases at the
same time and in the same manner as under Code Section 415(d). Each Highly
Compensated Employee is a member of the "Highly Compensated Group".
SECTION 2.16 HOURS OF SERVICE for any period means the sum of (a), (b)
and (c) below to the extent it does not result in crediting Hours of Service
more than once for these purposes with respect to such period:
(a) hours for which an Employee is directly or indirectly paid, or
entitled to payment, by a Related Entity for the performance of duties in his
capacity as an Employee (an hour for which any overtime or other premium pay
is received shall be counted as 1 hour);
(b) hours for which an Employee is directly or indirectly paid, or
entitled to payment, by a Related Entity for reasons other than the
performance of duties (irrespective of whether the employment relationship
has terminated) such as vacation, holiday, illness, incapacity (including
disability), jury duty, military duty or leave of absence provided that:
(i) no more than 501 Hours of Service shall be credited to an
Employee on account of any single continuous period during which the
Employee performs no duties (whether or not such period occurs in a single
Plan Year);
(ii) no credit shall be allowed for any payment paid or due to an
Employee pursuant to any plan or program solely for the purpose of
compliance with any workers' compensation or employment compensation or
disability insurance laws;
(iii) no Hour of Service shall be credited for any payment which solely
reimburses an Employee for medical or medically related expenses; and
(iv) Hours of Service to be credited under this Section shall be
determined in accordance with the provisions of the Plan and, to the extent
applicable, Sections 2530.200b-2(b) and (c) of the U.S. Department of Labor
Regulations; and
(c) hours for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to for an Employee by a Related Entity, such hours to
be credited for the period to which they relate and determined in accordance
with the provisions of the Plan and, to the extent applicable, Sections
2530.200b-2(b) and (c) of the U.S. Department of Labor Regulations.
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For salaried employees who are exempt for purposes of the Fair Labor
Standards Act ("FLSA"), Hours of Service shall be determined on the basis of
a semi-monthly payroll. An employee shall be credited with 95 hours
semi-monthly if under Section 2.17 such employee would be credited with at
least one Hour of Service during such period to the extent it does not result
in crediting Hours of Service more than once with respect to any period. For
all employees who are nonexempt under the FLSA, Hours of Service shall be
determined on the basis of actual hours for which an employee is paid or
entitled to payment.
SECTION 2.17 INVESTMENT FUND means the investment funds that are
approved by the Plan Administrator for investment of Participant's Accounts
under Article XIV.
SECTION 2.18 NON-HIGHLY COMPENSATED EMPLOYEE means each employee of a
Related Entity who is not a Highly Compensated Employee as determined under
Code Section 414(q) and Treasury Regulations Sections 1.401(k)-1 and
1.401(m)-1. Each Non-Highly Compensated Employee is a member of the
"Non-Highly Compensated Group".
SECTION 2.19 NORMAL RETIREMENT DATE means the date the Participant
attains age 65.
SECTION 2.20 PARTICIPANT means an Employee or former Employee who is
or has been a Participant in the Plan pursuant to Article III hereof. All
Participants shall be further classified as Active Participants, Inactive
Participants and Former Participants as provided in Article III.
SECTION 2.21 PLAN means this profit sharing plan as set forth in this
document, as amended from time to time.
SECTION 2.22 PLAN ADMINISTRATOR means the Company or the committee
appointed by the Company to administer the Plan.
SECTION 2.23 PLAN YEAR means the twelve consecutive month period
commencing each January 1 and ending December 31.
SECTION 2.24 QUALIFIED DOMESTIC RELATIONS ORDER means any judgment,
decree, or order (including approval of a property settlement agreement)
which:
(a) relates to the provision of child support, alimony payments, or
marital property rights to a spouse, child or other dependent of a
Participant,
(b) is made pursuant to a state domestic relations law (including a
community property law),
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(c) creates or recognizes the existence of an Alternate Payee's right
to, or assigns to an Alternate Payee the right to, receive all or a portion
of the benefits payable with respect to the Participant,
(d) clearly specifies the name and last known mailing address, if any,
of the Participant and the name and mailing address of each Alternate Payee
covered by the order, the amount and percentage of the Participant's benefits
to be paid by the Plan to each Alternate Payee, or the manner in which such
amount or percentage is to be determined, the number of payments or period to
which order applies and each plan to which such order applies, and
(e) does not require the Plan to provide (1) any form or type of
benefit, or any option, not otherwise provided under the Plan, (2) increased
benefits, or (3) benefits to an Alternate Payee which are required to be paid
to another payee under another order previously determined by the Plan
Administrator to be a Qualified Domestic Relations Order.
The term "Alternate Payee" means any spouse, former spouse, child or other
dependent of a Participant who is recognized by a Qualified Domestic
Relations Order as having a right to receive all, or a portion of, the
benefits payable under the Plan with respect to the Participant.
SECTION 2.25 QUARTERLY DATE mean each January 1, April 1, July 1 and
October 1.
SECTION 2.26 RELATED ENTITY means (a) the Company or (b) any
corporation, firm or other enterprise on or after the date that such
corporation or business is, along with the Company, a member of a controlled
group of corporations as defined in Section 414(b) of the Code or a member of
a group of trades or businesses under common control as defined in Section
414(c) of the Code, a member of an affiliated service group as defined in
Section 414(m) of the Code, or an entity which is required to be aggregated
pursuant to regulations under Code Section 414(o).
SECTION 2.27 SPOUSE means the individual to whom, under the laws of
the Participant's domicile, a Participant is legally married as of the later
of the date of which the first payment of his Plan benefit is to be made or
the date of his death. A former Spouse shall be treated as a Spouse to the
extent provided under a Qualified Domestic Relations Order.
SECTION 2.28 TRANSFER means a transfer of benefits from another tax
qualified retirement plan for the benefit of a Participant received by this
Plan in a trustee to trustee transfer pursuant to Section 4.6(e).
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SECTION 2.29 TRUST means the "HA-LO Industries, Inc. 401(k) Savings Plan
Trust", the trust established to hold and invest the assets accumulated under
the Plan, which is maintained in accordance with the terms of the Plan and the
Trust Agreement.
SECTION 2.30 TRUST AGREEMENT means any one or more trust agreements
entered into between the Company and the Trustee to carry out the purposes of
the Plan, which trust agreements shall constitute a part of the Plan.
SECTION 2.31 TRUST FUND means the trust fund of all property held by
the Trustee on the Effective Date and all property thereafter from time to
time contributed or delivered to the Trustee pursuant to this Plan and the
Trust Agreement, all property received in exchange therefor or in addition
thereto, and all income and proceeds therefrom, exclusive of distributions
thereof.
SECTION 2.32 TRUSTEE means the Trustee named in the Trust Agreement or
any individual or corporate fiduciary duly appointed successors functioning
in that capacity in accordance with the Trust.
SECTION 2.33 VALUATION DATE means the last day of each calendar
quarter and such other times as the Plan Administrator may direct.
Notwithstanding any other provision of the Plan, to the extent that
Participants' Accounts are invested in mutual funds or other assets for which
more frequent pricing is available ("Frequent Pricing Media"), all amounts
contributed to the Trust Fund will be invested at the time of their actual
receipt by the Frequent Pricing Media, and the balance of each Account shall
reflect the results of such daily pricing from the time of actual receipt
until the time of distribution. References elsewhere in the Plan to the
investment of contributions "as of" a date other than that described in this
Section 2.34 shall apply only to the extent, if any, that assets of the Trust
are not invested in Frequent Pricing Media.
SECTION 2.34 YEAR OF ELIGIBILITY SERVICE. Year of Eligibility Service
with respect to an Employee shall mean a consecutive twelve month period
ending on the first anniversary of the Employee's date of hire and each Plan
Year commencing with or after the Plan Year in which falls the first
anniversary of the Employee's date of hire during which the Employee
completes at least 1,000 Hours with a Related Entity. An Employee who
completes at least 1,000 Hours with a Related Entity in both the consecutive
twelve month period ending on the first anniversary of the Employee's date of
hire and the Plan Year commencing with the Plan Year in which falls the first
anniversary of the Employee's date of hire will be credited with two Years of
Eligibility Service.
SECTION 2.35 YEAR OF SERVICE. Year of Service with respect to an
Employee shall mean any Plan Year during which such Employee
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completes at least 1,000 Hours with a Related Entity, subject to the
following rules:
(a) Plan Years following a Forfeiting Break in Service shall be
disregarded for purposes of determining the Participant's vested percentage
of his Profit Sharing Account prior to the Forfeiting Break in Service.
(b) In the case of a Participant who is entitled to no vested
percentage of his Profit Sharing Account at the time he incurs a Forfeiting
Break in Service, Plan Years prior to such Forfeiting Break in Service shall
be disregarded in calculating the number of the Participant's Years of
Service for purposes of determining the vested percentage of his Accounts
attributable to Company contributions after such Forfeiting Break in Service
if the number of the Participant's consecutive one year Breaks in Service
equals or exceeds the number of the Participant's Years of Service prior to
the Forfeiting Break in Service.
(c) Service with CCA and Market USA shall be counted.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
SECTION 3.1 ACTIVE PARTICIPANT ELIGIBILITY REQUIREMENTS. Each
Participant in the Plan, the CCA Plan or the Market USA Plan immediately
prior to the Effective Date shall continue to be a Participant in the Plan on
and after the Effective Date subject to the limitations of the Plan. Each
Employee hired after the Effective Date shall become an Active Participant on
the January 1 or July 1 ("Entry Date") on or following the date he attains
age 21 and completes one Year of Eligibility Service, provided he is still an
Employee on such date. Each Employee of the Company or CCA hired prior to
the Effective Date who had not yet satisfied the requirements for
participation in the Plan or the CCA Plan shall become an Active Participant
on the first Entry Date on or following the date he attains age 21 and
completes three months of service with a Related Entity. Each Employee of
Market USA hired prior to the Effective Date who had not yet satisfied the
requirements for participation in the Market USA Plan shall become an Active
Participant on the first Entry Date on or following the date he attains age
21 and completes one Year of Eligibility Service.
SECTION 3.2 INACTIVE PARTICIPANT. An Active Participant, who ceases
to be an Employee but who remains an employee of the Company or a Related
Entity, shall automatically become an Inactive Participant as of the date he
ceases to be an Employee. An Inactive Participant shall continue to be
treated the same as an Active Participant in every respect except that no
Company contributions shall be allocated to his Accounts, with the exception
of those to which he may be entitled for the Plan Year in which he ceases to
be an Active Participant as required by Section 4.2. In addition, an
Inactive Participant shall not be permitted to make any 401(k) Contributions
unless and until he again becomes an Active Participant.
SECTION 3.3 FORMER PARTICIPANT ELIGIBILITY REQUIREMENTS. An Active
Participant or an Inactive Participant shall automatically become a Former
Participant as of the date he is no longer an Employee of the Company or any
Related Entity.
SECTION 3.4 EFFECT OF REEMPLOYMENT ON PARTICIPATION.
(a) A Former Participant who is reemployed as an Employee prior to
incurring a Break in Service shall resume participation in the Plan on the
date he is reemployed as an Employee. As of the date he again becomes an
Active Participant, such Participant's Years of Service as of the date of his
prior change in status shall be restored for all purposes under the Plan.
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(b) A Former Participant who is reemployed as an Employee after having
incurred a Break in Service shall be eligible to resume participation in the
Plan on the date he is reemployed as an Employee. As of the date he again
becomes an Active Participant, such Participant's Years of Service as of the
date of his prior change in status shall be restored for all purposes under the
Plan with respect to future Company contributions allocable to him, provided:
(i) such Participant's vesting percentage determined under
Section 6.5 is more than 0%; or
(ii) the number of his consecutive one year Breaks in Service is
less than the greater of five years or his aggregate Years of Service
before such break.
(c) In the event subsection (b) above is inapplicable, a Former
Participant who is reemployed as an Employee after having incurred a Break in
Service shall be eligible to resume participation in the Plan as provided in
Section 3.1. As of the date he again becomes an Active Participant, such
Participant's Years of Service as of the date of his prior change in status
shall not be restored.
(d) If a Former Participant had no vested interest in his Profit Sharing
Accounts at the time of termination of employment and if such Participant is
reemployed as an Employee and resumes participation without incurring a
Forfeiting Break in Service, then the nonvested portion of his Profit Sharing
shall be restored.
(e) In the case of a partially vested Former Participant whose employment
with the Company terminates but who is reemployed by the Company prior to
incurring a Forfeiting Break in Service, and who has received a distribution
from the Plan, the amount of such Participant's then current Account balance
which is nonforfeitable shall be computed as follows:
(i) The amount of any distribution from the Participant's Accounts
made to such Participant as the result of his termination of employment
shall be added to the then current balance in his Accounts (computed after
having deducted any prior distribution).
(ii) The amount computed in (i) above shall be multiplied by the
applicable vested percentage, as computed in accordance with Section 6.5.
(iii) The amount of any prior distribution shall be subtracted from
the amount computed in (ii) above.
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(iv) The sum so determined in (iii) above shall be the Participant's
then current Account balance which is nonforfeitable.
SECTION 3.5 COMMENCEMENT. Each Employee who is or can be anticipated to
become an Active Participant as provided in Section 3.1, as applicable, shall be
responsible for completing such forms and furnishing such other information as
is required by the Plan Administrator.
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ARTICLE IV
CONTRIBUTIONS AND EXPENSES
SECTION 4.1 CONTRIBUTIONS IN GENERAL. Contributions are to be made
hereto by the Company and may be made by the Participant as herein provided.
The Trustee shall have no duty to require any contributions to be made to it
or to determine whether contributions delivered to it hereunder comply with
the provisions of this Plan or any resolutions, rules, regulations or
policies of the Company providing for such contributions. In no event shall
the Company contributions for any Plan Year exceed the amount deductible for
such Plan Year under Section 404 of the Code.
SECTION 4.2 COMPANY CONTRIBUTIONS.
(a) PROFIT SHARING CONTRIBUTIONS. For each Plan Year the Company may
contribute to the Trust on behalf of each Participant who is eligible (as
provided in subsection (c)) such amount or amounts, if any, as the Company
may, in its sole and absolute discretion, determine. All Profit Sharing
Contributions shall be made in cash either in a single payment or in
installments not later than the time prescribed by law for filing the
Company's federal income tax return for the Plan Year (including any
extensions thereof).
(b) MATCHING CONTRIBUTIONS. For each Plan Year the Company may
contribute on behalf of each eligible Participant a Matching Contribution
equal to such amount as determined at the sole discretion of the Company.
All Matching Contributions shall be made in cash either in a single payment
or in installments not later than the time prescribed by law for filing the
Company's federal income tax return for the Plan Year (including any
extensions thereof).
(c) ALLOCATION OF PROFIT SHARING CONTRIBUTIONS. As of the last day of
each Plan Year, there shall be allocated to the Profit Sharing Account of
each Participant who (i) completed a Year of Service in and who was an
Employee on the last day of such Plan Year, or (ii) terminated employment
during the Plan Year on or after his Early Retirement Date, Normal Retirement
Date, Disability or death, his share of the aggregate of the Profit Sharing
Contributions, if any, based on the proportion that each such Participant's
Compensation received for such Plan Year bears to the total of all such
Participants' Compensation received for such Plan Year.
(d) ALLOCATION OF MATCHING CONTRIBUTIONS. As of the last day of each
Plan Year, there shall be allocated to the Matching Account of each
Participant who (i) completed a Year of Service in and who was an Employee on
the last day of such Plan Year, or (ii) terminated employment during the Plan
Year on or after his Early Retirement Date, Normal Retirement Date,
Disability or death, his share of the aggregate of the Matching Contributions
if any,
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arising during such Plan Year based on the proportion that each such
Participant's 401(k) Contributions for such Plan Year bears to the total of
all such Participants' 401(k) Contributions for such Plan Year.
(e) DISPOSITION OF FORFEITURES. Forfeitures that occur during the Plan
Year shall first be used to the extent necessary to restore a Participant's
Accounts as provided in Section 3.4(d). Any remaining Forfeitures shall in
the discretion of the Plan Administrator be used either to (i) reduce the
Matching Contributions for the Plan Year in which such Forfeiture arises and
allocated among eligible Participants as provided in subsection (d), or (ii)
pay expenses of the Plan and Trust.
(f) IRREVOCABILITY OF COMPANY CONTRIBUTION. Except as provided in the
following sentence, no contributions to the Trust and no part of the corpus
or income of the Trust shall revert to the Company or shall be used for or
diverted to any purpose other than for the exclusive benefit of persons
covered by the Plan. Notwithstanding the immediately preceding sentence or
any other provisions of this Plan and Trust to the contrary, all
contributions made by the Company to the Plan are conditioned upon the
deductibility of such contributions under Section 404 of the Code. To the
extent a contribution is disallowed as a deduction under Section 404 of the
Code, the Trustee shall return such contribution to the Company within one
year from the date of disallowance of the deduction. In addition, to the
extent any contributions made by the Company to the Plan are made to the Plan
as a result of a mistake in fact, the Trustee shall return such contributions
to the Company within one year after the date the error is discovered by the
Company.
SECTION 4.3 401(K) CONTRIBUTIONS.
(a) TYPES AND AMOUNTS. Each Employee who is an Active Participant and
who enters into a payroll reduction agreement (as provided in Section 4.3(b))
shall be eligible to contribute by payroll reduction a 401(k) Contribution
equal to a certain designated whole percentage of not less than 1% and not
more than 15% of his Compensation in each pay period based on the
Participant's signed payroll reduction authorization form or such other
authorization acceptable to the Plan Administrator. Such amount shall be
deducted from his pay for each pay period such agreement is in effect. In no
event shall the aggregate contributions made by a Participant under this
Section 4.3(a) for a calendar year exceed the annual limit under Code Section
402(g) as adjusted by the Secretary of the Treasury for that calendar year.
(b) COMMENCEMENT OF CONTRIBUTIONS. Each Employee who is or can be
anticipated to become an Active Participant and who desires to make 401(k)
Contributions from his Compensation while an Active Participant shall, prior
to the Quarterly Date as of which he is eligible and desires to commence
making such 401(k) Contributions,
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complete such payroll deduction or reduction authorization forms or
procedures and furnish such other information in the form and within the time
as is required by the Plan Administrator. Such authorization shall operate
on a Plan Year basis subject to the provisions of subsection (c). If an
Active Participant who is eligible to make such 401(k) Contributions declines
to make contributions or fails to supply all information required on a timely
basis, his right to have payroll reductions shall be preserved as of any
succeeding Quarterly Date provided he is then an Active Participant. Such
payroll reductions shall commence as of the first payroll period following
the Quarterly Date as of which the Participant has elected commencement.
(c) CHANGES AND DISCONTINUANCE OF CONTRIBUTIONS.
(i) An Active Participant may increase, or decrease his 401(k)
Contributions as of the first day of the payroll period coincident with or
next following a Quarterly Date in the frequency and manner determined by
the Plan Administrator. An Active Participant may completely discontinue
his 401(k) Contributions at any time by notifying the Plan Administrator in
such manner as may be required by the Plan Administrator. A Participant
who has discontinued such 401(k) Contributions may recommence them as of
the first payroll period coincident with or next following a Quarterly
Date, provided he then is an Active Participant and satisfies the
requirements of subsection (b).
(ii) The foregoing notwithstanding, the 401(k) Contributions shall
cease automatically as of the last day of the pay period which coincides
with or immediately precedes the date upon which the Active Participant
ceases to be an Active Participant.
(d) PAYMENT TO TRUSTEE. An Active Participant's 401(k) Contributions made
by payroll reduction shall be paid to the Trustee as soon as practicable after
the end of each payroll period and in no event more than 15 business days after
the end of such month.
(e) RETURN OF EXCESS PARTICIPANT CONTRIBUTIONS. If a Participant makes
contributions to this Plan and any other cash or deferred arrangement for a
calendar year which exceed the limit under Code Section 402(g) for such year,
the Participant shall notify the Plan Administrator of the amount of excess
contributions to this Plan by the March 1 of the next calendar year. The amount
of such excess contributions (and any earnings or losses attributable to such
excess for the Plan Year) shall be distributed to the Participant by the
April 15 of the next calendar year in which the excess contribution is made.
For this purpose, if a Participant has made excess contributions to this Plan
(without regard to any other Plan), the Participant shall be deemed to have
given the notice referred to above and the excess contributions
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(and earnings or losses attributable to such excess) shall be distributed to
the Participant by such April 15.
(f) ALLOCATION OF 401(K) CONTRIBUTIONS. Each Active Participant's
401(k) Contributions shall be credited to his 401(k) Account in accordance
with Article V.
(g) VESTING OF 401(K) ACCOUNT. A Participant shall always be 100%
nonforfeitably vested in his 401(k) Account.
SECTION 4.4 LIMITATION ON ALLOCATIONS.
(a) BASIC LIMITATION ON ALLOCATIONS TO PARTICIPANTS. Notwithstanding
anything to the contrary contained in this Plan, there shall not be allocated
to the Accounts of any Participant for any Limitation Year an amount which
would cause his Annual Addition to exceed the lesser of:
(i) $30,000; or
(ii) 25% of the Total Compensation received by the Participant for
such Limitation Year.
If the Annual Addition for a Participant exceeds either of the
foregoing limitations, the Plan Administrator shall, to the extent
necessary to eliminate such excess (and in the following order):
(1) refund or refuse to accept any part or all of the
Participant's 401(k) Contributions to be allocated to his 401(k)
Account in the Limitation Year which are ineligible for a Matching
Contribution under Section 4.2(b);
(2) refund or refuse to accept any part or all of the
Participant's 401(k) Contributions to be allocated to his 401(k)
Account in the Limitation Year which are eligible for a Matching
Contribution under Section 4.2(b), and reduce the corresponding
Matching Contribution related thereto;
(3) reduce the Company's Profit Sharing Contributions which
otherwise would be allocable to the Profit Sharing Account of the
Participant for the Limitation Year in the absence of the limit of
this Section;
(4) retain any excess amount not allocated in accordance with
this subsection 4.4(a) in the Trust (adjusted for its pro rata share
of income, gains and losses) until the next succeeding December 31 at
which time it shall be treated as if it were the Company's advance
contribution for the Plan Year ending on that
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December 31 to the type of Account to which it otherwise would have
been credited.
(b) SPECIAL DEFINITIONS.
(i) LIMITATION YEAR. For the purposes of this Plan, the Limitation
Year shall be the Plan Year.
(ii) ANNUAL ADDITION. Annual Addition means, with respect to any
Limitation Year, the sum of:
(1) all contributions allocable to the Participant under this
Plan and under all other defined contribution plans maintained by the
Company and those Related Entities whose plans are required to be
aggregated pursuant to those provisions of federal law pertaining to
the maximum annual additions to individual accounts in tax qualified
defined contribution plans;
(2) Forfeitures allocable to the Participant under such plans,
if any; and
(3) amounts allocated to an individual medical account, as
defined in Section 415(l)(2) of the Code which is part of a defined
benefit pension plan maintained by the Company or a Related Entity.
(iii) TOTAL COMPENSATION. For the purpose of determining the maximum
allocation permitted by Sections 4.4(a) (and notwithstanding the definition
of Compensation used elsewhere in this Plan), Total Compensation shall
mean, with respect to any Limitation Year, the Participant's wages,
salaries for professional services and other amounts paid for personal
services actually rendered (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of percentage of profits,
commissions on insurance premiums, tips and bonuses). Total Compensation
does not include deferred compensation, stock options and other
distributions which receive special tax benefits; provided, however, that
effective January 1, 1998 Total Compensation shall include any 401(k)
Contributions to this Plan and any amounts not included in the
Participant's gross income by reason of Code Section 125.
SECTION 4.5 LIMITATION ON 401(K) CONTRIBUTIONS. Each Plan Year, the
Plan must satisfy the requirements of this Section. The Plan Administrator
shall determine if the requirements of this Section are satisfied pursuant to
Treasury Regulation Section 1.401(k)-1, the provisions of which are
incorporated by this reference.
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(a) ACTUAL DEFERRAL PERCENTAGE TEST. For each Plan Year, the amount of
401(k) Contributions and Matching Contributions made to the Plan shall
satisfy one of the following tests:
(i) the Actual Deferral Percentage for the Highly Compensated Group
for the Plan Year is not more than the Actual Deferral Percentage of the
Non-Highly Compensated Group for the preceding Plan Year multiplied by
1.25; or
(ii) the excess of the Actual Deferral Percentage for the Highly
Compensated Group for the Plan Year over that of the Non-Highly Compensated
Group for the preceding Plan Year is not more than two percentage points
and the Actual Deferral Percentage for the Highly Compensated Group for the
Plan Year is not more than the Actual Deferral Percentage of the Non-Highly
Compensated Group for the preceding Plan Year multiplied by 2.
(b) ACTUAL DEFERRAL PERCENTAGE. The Actual Deferral Percentage for the
Highly Compensated Group or the Non-Highly Compensated Group for a Plan Year
is the average of the Actual Deferral Percentage of each Participant in such
group.
(c) ADJUSTMENTS TO MEET THE ACTUAL DEFERRAL PERCENTAGE TEST.
(i) If an Excess Contribution is made during a Plan Year by a Highly
Compensated Employee, the Plan Administrator shall, before the last day of
the following Plan Year, distribute the amount of the Excess Contribution
for such Plan Year (and any income or loss attributable thereto for the
Plan Year). 401(k) Contributions on which Matching Contributions under
Section 4.2(b) are not made will be first distributed as Excess
Contributions prior to distribution of 401(k) Contributions on which
Matching Contributions are made. An "Excess Contribution" for any Plan
Year is the excess of the amount of 401(k) Contributions and Matching
Contributions actually paid over to the Trust on behalf of a Highly
Compensated Employee for such Plan Year over the maximum amount of such
contributions permitted by the limitation of this Section. Distribution of
Excess Contributions for any Plan Year shall be made on the basis of the
amount of 401(k) Contributions made by and Matching Contributions made on
behalf of such Highly Compensated Employees.
(ii) Any Matching Contribution which relates to a Participant's Excess
Contribution for such Plan Year or otherwise distributable under the terms
of the Plan may be forfeited in accordance with Sections 401(k)(8)(E) and
411(a)(3)(G) of the Code. Forfeitures of Matching Contributions that occur
during the Plan Year pursuant to this Section 4.5(c)(ii) shall be treated
in one or more of the following ways: (A) included in, reduce and be
considered part
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of the Company's Matching Contribution for Participants in the Non-Highly
Compensated Group for the Plan Year in which such forfeiture arises,
(B) held in a suspense account and applied toward the Company's
Matching Contribution for subsequent Plan Years or (C) used to pay the
reasonable expenses of the Plan.
(iii) The Company in its sole discretion may make qualified non-
elective contributions (as defined in Treasury Regulation
Section 1.401(k)-1(g)(13)(ii)) to correct any Excess Contributions
as permitted by Treasury Regulation Section 1.401(k)-1(f)(1).
(iv) Distribution of Excess Contributions under this Section will not
require the consent of the Participant or his Spouse and will not violate
any outstanding Qualified Domestic Relations Order.
(v) The Plan Administrator, in its sole discretion during the Plan
Year may limit the amount of 401(k) Contributions made by Highly
Compensated Employees in order to meet the requirements of this Section
4.5.
(d) COORDINATION WITH SECTION 4.3. The amount of Excess Contributions
will be determined after the maximum deferrals under Section 4.3(a) and
returning any such excess deferrals.
(e) AGGREGATION. If two or more plans which include cash or deferred
arrangements are aggregated for purposes of Code Section 410(b) or 401(a)(4),
the cash or deferred arrangements included in such plans shall be treated as
one arrangement for purposes of this Section 4.5. If any Highly Compensated
Employee is simultaneously an active participant under two or more cash or
deferred arrangements of Related Entities, for purposes of determining the
Actual Deferral Percentage with respect to such employee, all such cash or
deferred arrangements shall be treated as one arrangement for purpose of this
Section 4.5.
SECTION 4.6 ROLLOVER CONTRIBUTIONS AND TRANSFERS.
(a) Rollover Contribution means any rollover amount or rollover
contribution which qualifies as an "eligible rollover distribution" as
described in Code Section 402(c)(4).
(b) An Employee, whether or not a Participant, may file a request in
writing with the Plan Administrator to accept his Rollover Contribution.
The Plan Administrator, in accordance with a uniform and nondiscriminatory
policy, shall determine whether or not such Rollover Contribution shall be
accepted. Any such request shall state the amount of the Rollover
Contribution, the nature of the property constituting the Rollover
Contribution, and include a statement that such contribution qualifies as a
Rollover Contribution as defined
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in this Section. In addition, the Plan Administrator may require the
Participant to submit such other evidence and documentation as the Plan
Administrator, in the Plan Administrator's sole discretion, determines
necessary to insure that the contribution qualifies as a Rollover
Contribution.
(c) The Employee shall at all times have a nonforfeitable right in
100% of his Rollover Account.
(d) If a qualified plan and exempt trust (under Code Sections 401(a)
and 501(a), respectively) established by an employer other than the Company
permits the transfer of the benefit of an Employee previously employed by
such employer to be delivered from such trust to this Plan and Trust, the
Plan Administrator, upon the written request of the Participant, may accept
such transfer. However, effective January 1, 1998, a Employee may not make
a transfer of any assets which are subject to any "protected benefits"
described in Code Section 411(d)(6) which protected benefits are not
already provided for or contained in the Plan, or have not been waived.
Such transfer shall be treated as a Transfer for all purposes of the Plan
and Trust. Any amounts transferred to the CCA Plan, Market USA Plan and
the Plan prior to January 1, 1998 and held in a Transfer Account shall have
the rights to any protected benefits not otherwise provided for or
contained in this Plan.
(e) An Employee who has not yet become a Participant in the Plan and
who makes a Rollover Contribution or Transfer under paragraph (d) shall be
treated as a Participant in the Plan only with respect to amounts credited
to his Rollover Account and Transfer Account, and shall not have any other
rights as a Participant unless and until the satisfies the requirements for
participation under Section 3.1.
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ARTICLE V
ACCOUNTS
SECTION 5.1 ACCOUNT VALUES. As of each Valuation Date, the value of
each of a Participant's Accounts shall be determined as follows:
(a) PROFIT SHARING AND MATCHING ACCOUNTS:
(i) the value of such Account as of the last preceding Valuation Date;
(ii) minus the amount of any distributions made from such Account
since the last preceding Valuation Date;
(iii) minus the amount, if any, which became a Forfeiture from such
Account since the last preceding Valuation Date;
(iv) plus the amount of a previous Forfeiture which is required to be
restored to such Account during such period as provided in Section 3.4(d);
(v) plus or minus such Account's share of the net income, loss,
appreciation and/or depreciation in the value of that portion of the Trust
allocable to such Accounts since the last preceding Valuation Date in
accordance with Section 5.2; and
(vi) plus any Company contributions (including Forfeitures) allocable
to such Account.
(b) 401(K), ROLLOVER AND TRANSFER ACCOUNTS:
(i) the value of such Account on the last preceding Valuation Date;
(ii) minus the amount of any distributions or withdrawals made since
the last preceding Valuation Date;
(iii) plus or minus such Accounts share of the net income, loss,
appreciation and/or depreciation in the value of that portion of the Trust
allocable to such Accounts, as determined in accordance with Section 5.2;
and
(iv) plus any 401(k) Contributions, Rollover Contributions or
transfers made to such Account since the last preceding Valuation Date.
SECTION 5.2 ALLOCATION OF INVESTMENT INCOME. As of each Valuation
Date, the Plan's share of any net appreciation or net depreciation in the
value of each Investment Fund shall be
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allocated among the Accounts of Participants in the same proportion that the
value of such portion of each of the Participant's Account as is invested in
such Investment Fund bears to the total value of the portions of the Accounts
of all Participants as are invested in such Investment Fund, determined as of
the immediately preceding Valuation Date, reduced in each case by the amount
of any distributions and transfers from such Accounts allocable to such
Investment Fund for the benefit of such Participant since the immediately
preceding Valuation Date and increased in each case by the aggregate
Transfers, Profit Sharing, Matching, 401(k) and Rollover Contributions
credited to such Investment Fund since the immediately preceding Valuation
Date. All determinations made by the Trustee with respect to the value of
Participants' Accounts shall be made in accordance with generally accepted
principles of trust accounting, and such determinations made by the Trustee
and any determinations made by the Plan Administrator based thereon, shall be
conclusive and binding upon any person having an interest under the Plan.
SECTION 5.3 QUARTERLY STATEMENT OF ACCOUNTS. A statement of the
value of each Participant's Accounts shall be prepared as of each calendar
quarter and delivered, as soon as practicable thereafter, to each Participant.
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ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 ELIGIBILITY. A Former Participant shall be eligible to
receive a distribution as provided in Sections 6.2 through 6.5.
Distributions shall be payable as provided in Sections 6.6 through 6.7, as
applicable.
SECTION 6.2 RETIREMENT. An Active or Inactive Participant who
becomes a Former Participant because of his retirement on or after his Normal
Retirement Date or his Early Retirement Date, shall, as of his Normal
Retirement Date or Early Retirement Date, be fully vested in the value of his
Accounts and shall be eligible to receive the value of such Accounts.
Distribution of his Accounts shall commence as soon as practicable following
his actual retirement date.
SECTION 6.3 DISABILITY. An Active or Inactive Participant who
becomes a Former Participant because of a Disability, shall, as of the date
on which he is deemed to be disabled, be fully vested in the value of his
Accounts and shall be eligible to receive the value of such Accounts.
Distribution of his Accounts shall commence as soon as practicable following
the date he is determined to be disabled.
SECTION 6.4 DEATH. An Active or Inactive Participant who becomes a
Former Participant because of his death shall, as of the date of his death,
be fully vested in the value of his Accounts and his Beneficiary shall be
eligible to receive the value of such Accounts. Distribution of his Accounts
shall commence as soon as practicable following the Participant's death.
SECTION 6.5 TERMINATION FOR OTHER REASONS. An Active or Inactive
Participant whose employment with any and all Related Entities is terminated
for any reason other than retirement, Disability or death, shall, as of the
date of such termination:
(a) be fully vested in the value of his 401(k), Matching, Transfer and
Rollover Accounts, and
(b) be vested in that portion of the value of his Profit Sharing
Accounts, as determined in accordance with the following table:
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<TABLE>
<CAPTION>
Years of Service Vested Portion
----------------- ---------------
<S> <C>
Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
</TABLE>
(c) Such Participant shall be eligible to receive the value of the
vested portion of his Accounts. Distribution of his Accounts shall commence
as soon as practicable following such date of termination; provided however,
a Participant's vested Accounts may not be paid until the Participant's
Normal Retirement Date without his written consent if the value exceeds
$5,000.
SECTION 6.6 DISTRIBUTION OF ACCOUNTS.
(a) FORM OF DISTRIBUTION. Subject to the following provisions of this
Article VI, the vested balances of a Participant's Plan Accounts will be
distributable to or for his benefit by one of the following methods as
elected by the Participant:
(i) LUMP SUM. By payment in a lump sum.
(ii) INSTALLMENTS. By payment in annual or more frequent,
substantially equal installments.
(iii) DIRECT ROLLOVER FROM PLAN. Notwithstanding any provision of the
Plan to the contrary that would otherwise limit a distributee's election
under this Article, a "distributee" may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any portion of an
"eligible rollover distribution" paid directly to an eligible retirement
plan specified by the distributee in a "direct rollover". The Plan
Administrator may establish such rules and procedures regarding direct
rollovers as long as such rules and procedures are in compliance with
Treasury Regulation Section 1.401(a)(31)-1T. For purposes of this
Section 6.6(a)(iv), the following definitions shall apply:
(1) "Eligible rollover distribution" means any distribution of
all or any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include (1) any
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; (2) any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and (3) the portion
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of any distribution that is not includable in gross income.
(2) "Eligible retirement plan" means an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an annuity
plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to a surviving Spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
(3) "Distributee" means a Participant or a Participant's Spouse.
A Participant's Spouse or former Spouse who is the Alternate Payee
under a Qualified Domestic Relations Order, is also a distributee with
regard to the interest of such Spouse or former Spouse.
(4) "Direct rollover" means a payment by the Plan to the eligible
retirement plan specified by the distributee.
(b) ELECTION OF DISTRIBUTION. The Participant shall select the method
by which his vested Accounts will be distributed to him. Notwithstanding the
foregoing, if the distributable balance of the Participant's Accounts is $200
or less, then the Trustee shall distribute the Participant's vested Accounts
in a lump sum, and the Participant shall have no right to select the manner
in which he will receive his distribution from the Plan. If the distributable
balance of the Participant's Accounts is $5,000 or less and the Participant
fails to elect a form of distribution when payable, the Trustee shall
distribute the Participant's vested Accounts in a lump sum.
(c) DEATH BENEFITS. Where the distribution of a Participant's Accounts
has commenced, and such Participant dies before the entire amount in his
Accounts has been distributed, the remaining portion of his Accounts shall be
distributed at least as rapidly as the distribution option in effect as of
the date of his death; provided, however, that the Plan Administrator may
accelerate payments under such payment option after consulting with his
Beneficiary. If the Participant dies prior to the time distribution of his
Accounts has commenced, his entire Accounts shall be paid by December 31 of
the Plan Year in which occurs the fifth anniversary of the Participant's
death in such manner as the Participant designates in such Participant's
beneficiary designation or as designated by the Beneficiary.
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SECTION 6.7 TIME FOR DISTRIBUTION. Distribution of a Participant's
vested Accounts will normally be made or commenced as soon as practicable
following the Participant's date of termination, but not later than the 60th
day next following the close of the Plan Year during which the Participant
attains age 65 years or, if later, during which his date of termination
occurs, except as otherwise permitted under circumstances described in Treas.
Reg. Section 1.401(a)-14(d). If the value of the Participant's Accounts at
the time of any distribution is over $5,000, the Participant (but not his
Beneficiary in the event of the Participant's death) must consent in writing
to receive the distribution. However, a Participant may not elect to defer
distribution beyond the date described above. Moreover, distributions must
commence as required under Code Section 401(a)(9) and the regulations
thereunder including the minimum incidental death benefit rules under Prop.
Treas. Reg. 1.401(a)(9)-2.
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ARTICLE VII
LOANS AND WITHDRAWALS
SECTION 7.1 LOANS. While the primary purpose of the Plan is to
accumulate funds for the Participants when they retire, the Plan
Administrator may in its sole discretion permit loans to Participants from
their vested Profit Sharing, Matching, 401(k), Transfer and Rollover
Accounts. Any loans to Participants shall be made in accordance with the
terms of a loan policy adopted by the Plan Administrator. The amount of any
loan together with the accrued interest under this Plan and all other
qualified employer plans shall be within the following limits:
(a) If the vested balance of the Participant's Accounts is between $0
and $99,999, the Participant may borrow up to one-half the vested balance of
his Accounts;
(b) If the vested balance of the Participant's Accounts is $100,000 or
more, the Participant may borrow up to lesser of:
(i) one-half the vested balance of his Accounts; or
(ii) $50,000, reduced by the excess (if any) of:
(1) the highest outstanding balance of loans under the Plan and
all other qualified Company plans during the one year period ending on
the day before the date on which such loan was made, over
(2) the outstanding balance of such outstanding loans on the date
on which such loan was made.
SECTION 7.2 HARDSHIP WITHDRAWALS. A Participant may withdraw the
401(k) Contributions credited to his 401(k) Account, but not the earnings
thereon, in a situation where the Plan Administrator, in its sole discretion,
determines that such a withdrawal will alleviate a condition of "severe
financial hardship" of a Participant as defined below. A Participant seeking
such a withdrawal must apply to the Plan Administrator and provide the Plan
Administrator with such evidence as it requires to make its determination.
The Plan Administrator will respond to each such request in writing as to its
approval or denial as soon as practical after receipt of all requested
information from the Participant. Any such withdrawals shall be made in
accordance with the terms of a withdrawal policy adopted by the Plan
Administrator from time to time.
Severe financial hardship withdrawals may be made for the following
specified purposes:
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(a) costs directly related to the purchase of the Participant's
principal residence;
(b) payment of post-secondary tuition and related educational fees of
the Participant or members of his immediate family;
(c) medical care expenses for the Participant or members of his
immediate family, which are not otherwise covered by insurance;
(d) burial or mortuary expenses for an immediate family member of the
Participant;
(e) payments necessary to prevent the eviction of the Participant from
his principal residence or foreclosure on a mortgage on that residence; or
(f) any amount determined by the Internal Revenue Service to constitute
an immediate and heavy financial need.
In determining the amount required to meet a severe financial hardship,
the Plan Administrator may take into account the anticipated federal and
state income and excise taxes with respect to the withdrawal.
SECTION 7.3 AGE 59-1/2 AND OVER WITHDRAWALS. A Participant who is
age 59-1/2 or older may elect to withdraw all or any part of the vested
balance of his Accounts (as of the Valuation Date coincident with or
immediately preceding the filing of the withdrawal request). The withdrawal
request shall be made in the manner approved by the Plan Administrator and
subject to any further rules imposed by the Plan Administrator.
SECTION 7.4 WITHDRAWAL OF ROLLOVERS. A Participant may elect to
withdraw all or any part of the balance of his Rollover Account for any
reason (as of the Valuation Date coincident with or immediately preceding the
filing of the withdrawal request). The withdrawal request shall be made in
the manner approved by the Plan Administrator and subject to any further
rules imposed by the Plan Administrator.
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ARTICLE VIII
ADMINISTRATION OF THE PLAN
SECTION 8.1 PLAN ADMINISTRATOR AND NAMED FIDUCIARY. The authority
and responsibility to control and manage the operations and administration of
the Plan shall reside in the Plan Administrator. For purposes of ERISA, the
Company or the committee appointed by the Company shall be the "Named
Fiduciary" and also the "Plan Administrator" with respect to this Plan. The
Plan Administrator shall have the sole authority to appoint and remove the
Trustee, and the investment manager, if any, provided for under the Trust.
The Plan Administrator shall be responsible for the day-to-day administration
of the Plan. The Trustee shall have the sole responsibility for the
administration of the Trust and the management of the assets held under the
Trust, all as specifically provided in the Trust. The Plan Administrator
warrants that any directions given, information furnished, or action taken by
it shall be in accordance with the provisions of the Plan or the Trust, as
the case may be, authorizing or providing for such direction, information or
action. The Plan Administrator and Company do not guarantee the Trust in any
manner against investment loss or depreciation in asset value.
SECTION 8.2 COMPENSATION AND EXPENSES. The Plan Administrator shall
not receive compensation for its services. However, a person to whom
administrative duties shall have been delegated by the Plan Administrator who
is not an employee of a Related Entity may receive compensation for the
performance of such duties. All usual and reasonable expenses of the Plan
Administrator may be paid in whole or in part by the Company, and any
expenses not paid by the Company shall be paid out of the principal or income
of the Trust.
SECTION 8.3 RECORDS. The Plan Administrator shall keep a record of
all of their proceedings and shall keep all such books of account, records
and other data as may be necessary or advisable in their judgment for the
administration of this Plan.
SECTION 8.4 RECORDS OF TRUST. The Plan Administrator shall keep on
file in such form as it may deem convenient and proper, all reports of the
Trust received from the Trustee. The Plan Administrator shall be responsible
for seeing that each Participant is advised, as soon as possible after the
close of each Plan Year, of the value of his Accounts as of the last day of
such Plan Year.
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SECTION 8.5 CLAIMS PROCEDURE.
(a) A Participant or Beneficiary shall make claim for a benefit by
filing a signed written request identifying the benefit requested with the
Plan Administrator. Within 90 days from the receipt of such claim, the Plan
Administrator shall notify in writing the individuals submitting the claim of
the Plan Administrator's decision. If special circumstances related to
processing the claim require an extension of time, the Plan Administrator
may, upon written notice to the claimant within 90 days of the filing of the
claim, extend the time for a written decision for no more than an additional
90 days. If the claim is denied, such notice shall state the following:
(i) the specific reasons for denial;
(ii) specific references to pertinent Plan provisions;
(iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such
material or information is needed; and
(iv) an explanation of the Plan's review procedure.
(b) For a period of 60 days after the receipt of such notice, the
claimant or his duly authorized representative may:
(i) review pertinent documents; and
(ii) submit a written request to the Plan Administrator for review of
the denial. A claimant submitting such a request shall be allowed to
submit issues and comments in writing to the Plan Administrator.
(c) The Plan Administrator shall afford to any claimant so requesting
review, a full and fair review of the decision denying the claim and may, in
its sole discretion, hold a hearing to review the issues raised by the
claimant. Within 60 days after receipt of the request for review, unless
special circumstances such as the need to hold a hearing require an extension
of time in which case a decision shall be rendered as soon as possible, the
Plan Administrator shall render a decision on review in writing to the
claimant, which decision shall include specific reasons for the decision,
written in a manner calculated to be understood by the claimant, and specific
references to the pertinent Plan provisions on which the decision is based.
Any extension shall not exceed 120 days from receipt of such request for
review. Such extension shall be made only upon prior written notice thereof
to the claimant, within 60 days after the receipt of such request for review.
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(d) No denial of benefits with respect to a claimant shall be deemed to
be effective from a legal standpoint until the claimant has exhausted the
claims procedure provided under the Plan.
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ARTICLE IX
TRUSTEE
SECTION 9.1 TRUSTEE'S RESPONSIBILITIES. The Trustee shall be
appointed by the Company to administer the Trust and shall serve at the
pleasure of the Company. The Trustee, from time to time acting, shall have
such rights, powers and duties as provided herein and as the Trust shall from
time to time provide.
SECTION 9.2 TRUST. All contributions under this Plan shall be paid
to the Trust. All assets of the Trust are to be held, invested, and
reinvested by the Trustee and all property and funds of the Trust, including
income from investments and from all other sources, shall be retained for the
exclusive benefit of the Participants and Beneficiaries as provided in the
Plan and shall be used to pay benefits to persons entitled thereto hereunder
or to pay expenses of administration of the Plan and Trust to the extent not
paid by the Company. The Trustee shall invest and reinvest the assets of the
Trust at its discretion in accordance with the provisions of the Trust and
shall not be limited by any laws of the United States or of any State
thereof, except to the extent that such investment or reinvestment would
result in the loss of the qualified status of the Plan under the Code or
result in noncompliance with ERISA.
SECTION 9.3 NO REVERSION TO COMPANY. No part of the corpus or income
of the Trust shall revert to the Company or be used for, or diverted to,
purposes other than for the exclusive benefit of Participants and their
Beneficiaries except as provided in Section 4.2(f).
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 INALIENABILITY. Except with respect to any indebtedness
owing to the Trust or as otherwise provided by law, no benefit under the Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge prior to actual receipt thereof by
the payee; and any attempt to so anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge prior to such receipt shall be void; nor
shall the Trust be in any manner liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person entitled to any
benefit hereunder. The preceding sentence shall also apply to the creation,
assignment or recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order unless such order is
deemed to be a Qualified Domestic Relations Order.
SECTION 10.2 INCOMPETENCY. Each person entitled to a payment
hereunder shall be conclusively presumed to be mentally competent until the
date on which the Plan Administrator receives a written notice in a form
satisfactory to the Plan Administrator that such person is incompetent and
that a guardian, conservator or other person legally vested with the care of
his estate has been appointed. However, if the Plan Administrator shall
determine that any person entitled to a payment is unable to care for his
affairs because of any disability or infirmity, then such payment may be paid
to the person or persons who, in the opinion of the Plan Administrator, is
caring for and supporting the person entitled to the payment or to the
institution in which the person entitled to the payment is residenced or
which is providing for his care unless a prior claim therefor shall have been
made by a duly appointed guardian or conservator, and any such payment so
made shall be a complete discharge of the liability of the Plan therefor. If
a guardian or conservator of the estate of the person entitled to the payment
shall be appointed by a court of competent jurisdiction, payments shall be
made to such guardian or conservator, and such payment so made shall be a
complete discharge of any liability therefor of the Plan.
SECTION 10.3 MISSING PAYEES. If the Plan Administrator is unable
after reasonable search to locate any person entitled to benefits hereunder
resulting from a Former Participant's participation herein, then the Plan
Administrator shall mail by registered or certified mail, postage prepaid, to
the last known address of such person, a notice to the effect that such
person is entitled to receive benefits hereunder, and (i) if such notice is
returned by the Post Office as being undeliverable because the addressee
cannot be located at the address indicated and if neither the Company nor the
Plan Administrator shall obtain any knowledge of such person's whereabouts
within one year from the date such
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notice is mailed, or (ii) if within such one-year period there is no response
to such notice informing the Plan Administrator of such person's whereabouts,
then in either of such events, at the end of such period, such Former
Participant's interest in the Plan shall be cancelled and the amount thereof
shall be treated as a Forfeiture in the Plan Year in which such cancellation
occurs. If the person entitled to the Former Participant's cancelled
Accounts subsequently makes a valid claim with respect to such reallocated
amounts, the Former Participant's Accounts shall be restored. Any
application of payments made in accordance with this Section shall constitute
a complete acquittance and discharge of every liability of the Plan
Administrator, the Trustee, the Company and the Trust to such Former
Participant, his Beneficiaries and his and their executors, administrators
and estates.
SECTION 10.4 NON-GUARANTEE OF EMPLOYMENT. Nothing contained in this
Plan shall be construed as a contract of employment between the Company and
any employee, or as a right to any employee to be continued in the employment
of the Company or as a limitation of the right of the Company to discharge
any employee with or without cause.
SECTION 10.5 NO RIGHT TO TRUST. No Employee shall have any right to,
or interest in, any part of the Trust upon termination of his employment or
otherwise except as provided from time to time under this Plan, and then only
to the extent of the benefits payable to such Employee out of the assets in
the Trust. All payment of benefits as provided for in this Plan shall be
made solely out of the assets in the Trust and neither the Company nor the
Trustee shall be liable therefor in any manner.
SECTION 10.6 NON-LIABILITY PROVISIONS. Subject to any limitation on
the application of this Section 10.6 pursuant to ERISA, none of the Company,
the Plan Administrator or the Trustee guarantees the Trust in any manner
against loss or depreciation, and none of them shall be liable for any act or
failure to act which is made in good faith pursuant to the provisions of the
Plan. The Company shall not be responsible for any act or failure to act of
the Trustee. The Plan Administrator shall not be responsible for any act or
failure to act of the Company or the Trustee. The Plan Administrator shall
be indemnified by the Company, or from the assets of the Trust, against any
and all liabilities arising by reason of any act or failure to act made in
good faith pursuant to the provisions of the Plan, including expenses
reasonably incurred in the defense of any claim relating thereto.
SECTION 10.7 APPLICABLE LAW. Except as otherwise provided for under
ERISA, all questions pertaining to the construction of the Plan shall be
determine in accordance with the laws of the State of Delaware.
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SECTION 10.8 LITIGATION BY PARTICIPANTS. To the extent permitted by
law, if any person beneficially interested in the Trust shall bring suit or
proceeding against the Trustee or the Trust, or if any dispute shall arise as
to the person or persons to whom payment or delivery of any funds shall be
made by the Trustee, the cost to the Trustee of defending the action, where
the result is adverse to the complainant or pursuant to court authorization,
shall be charged to the Accounts of the Participant whose interest is at
issue, and only the excess, if any, shall be included in the expenses of the
Trust.
SECTION 10.9 TAX RELEASES. Prior to making any payment or
distribution hereunder to any person, the Trustee may require such releases
or other documents from any lawful taxing authority, may require such
indemnity from the payee or distributee as the Trustee shall reasonably deem
necessary for its protection, and may deduct from the amount to which such
person may be entitled, such amount as, in its discretion, the Trustee deems
proper to protect the Trustee and the Trust against liability on account of
death, succession, estate, inheritance, income or other taxes and out of the
money so deducted may discharge any such liability and pay the balance to the
person or persons entitled thereto.
SECTION 10.10 INSPECTION OF RECORDS. No person shall have any right to
inspect any books and records of the Company or to inspect any records of the
Trustee with respect to any other person's rights hereunder.
SECTION 10.11 PRONOUNS. Masculine pronouns used herein shall refer to
men or women or both and nouns and pronouns when stated in the singular shall
include the plural and when stated in the plural shall include the singular
wherever appropriate.
SECTION 10.12 QUALIFIED DOMESTIC RELATIONS ORDER. In addition to
payments made under Article VI on account of a Participant's termination of
employment, payments may be made to an Alternate Payee prior to, coincident
with, or after Participant's termination of employment if made pursuant to a
Qualified Domestic Relations Order. In any event, however, payments to an
Alternate Payee pursuant to a Qualified Domestic Relations Order may not
commence prior to the earlier of (a) the date on which the Participant
corresponding to the Qualified Domestic Relations Order is entitled to a
distribution under the Plan; or (b) the later of (1) the date on which such
Participant attains age 50 or (2) the earliest date on which such Participant
could begin receiving benefits under the Plan if the Participant had
separated from service. In addition, this Plan specifically authorizes
distributions to an Alternate Payee under a Qualified Domestic Relations
Order regardless of whether the Participant has attained the earliest
retirement age (as defined above and in Section 414(p) of the Code) only if:
(A) the order specifies distribution at the earlier date or permits an
agreement between the Plan and
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the Alternate Payee, and (B) the Alternate Payee consents to a distribution
prior to the Participant's earliest retirement age if the present value of
the Alternate Payee benefits under the Plan exceeds $5,000. Nothing in this
Section 10.12 shall permit a Participant a right to receive distribution at a
time otherwise not permitted under the Plan, nor shall it permit the
Alternate Payee to receive a form of payment not permitted under the Plan.
The Plan Administrator shall establish reasonable procedures to
determine the qualified status of domestic relations orders and to administer
distributions under such qualified orders, including, in its sole discretion,
the establishment of segregated accounts for Alternate Payees.
SECTION 10.13 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS.
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will
be provided in accordance with Section 414(u) of the Code. Loan repayments
will be suspended under this Plan as permitted under Section 414(u)(4) of the
Code.
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ARTICLE XI
AMENDMENTS
SECTION 11.1 AMENDMENTS. The Trust and the Plan may be amended at any
time and from time to time by action of the Company; PROVIDED, HOWEVER, that
no such amendment shall impair the rights of any person with respect to such
person's beneficial interest in the Trust Fund, as it is then constituted,
nor vest in the Company any right, title or interest in or to the assets of
the Trust, nor be effective unless the Plan, as so amended, shall be for the
exclusive benefit of the employees of the Company and their Beneficiaries,
except such amendment or amendments as, in the opinion of counsel, may be
necessary or advisable to meet the requirements of any statute of the United
States or regulation promulgated thereunder; and PROVIDED, FURTHER, that no
amendment changing the rights and duties of the Trustee shall become
effective without the Trustee's written consent. The Company has delegated
the authority to amend the Plan to the Plan Administrator with respect to
amendments administrative in nature only. Amendments which would affect the
cost of benefits provided under the Plan must be approved by the board of
directors of the Company.
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ARTICLE XII
TERMINATION
SECTION 12.1 RIGHT TO TERMINATE PLAN. The Company contemplates that
the Plan shall be permanent. Nevertheless, in recognition of the fact that
future conditions and circumstances cannot now be entirely foreseen, the
Company reserves to the Plan Administrator the right to terminate either the
Plan or both the Plan and the Trust.
SECTION 12.2 MERGER OR CONSOLIDATION OF PLAN AND TRUST. Neither the
Plan nor the Trust may be merged or consolidated with, nor may its assets or
liabilities be transferred to, any other plan or trust, unless each
Participant would (if the Plan then terminated) receive a benefit immediately
after the merger, consolidation, or transfer which is equal to or greater
than the benefit he would have been entitled to receive immediately before
the merger, consolidation, or transfer (if the Plan had then terminated).
SECTION 12.3 TERMINATION OF PLAN AND TRUST. If the Plan Administrator
decides to terminate the Plan and Trust partially or completely, it shall be
terminated as of the date specified in certified copies of resolutions of the
Plan Administrator, delivered to the Trustee. Upon such partial or complete
termination of the Plan and Trust, after payment of all expenses and
proportional adjustment of Accounts of affected Participants to reflect such
expenses, Trust profits or losses, and allocations of any previously
unallocated funds to the date of such termination, such affected Participants
shall be entitled to receive the vested portion of the amounts then credited
to their respective Accounts.
SECTION 12.4 EFFECT OF TERMINATION ON VESTING. In the event of a
complete or partial termination of the Plan, as those terms are defined in
the Code and related regulations and/or rulings, such affected Employees
shall, notwithstanding any other provision of the Plan, be 100%
nonforfeitable vested as of the effective date of such termination in the
value of their Accounts after adjustments for related expenses and/or
unallocated Trust profits, losses or contributions have been made.
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ARTICLE XIII
TOP HEAVY PLANS
SECTION 13.1 TOP HEAVY PLAN REQUIREMENTS. Notwithstanding anything
hereinabove to the contrary, if the Plan is a Top Heavy Plan as determined
pursuant to this Article XIII for any Plan Year then the Plan shall meet the
requirements of this Article XIII for any such Plan Year.
SECTION 13.2 TOP HEAVY PLAN DEFINITIONS:
(a) AGGREGATION GROUP means:
(i) MANDATORY AGGREGATION GROUP. Each plan of any Related Entity in
which a Key Employee is a participant, and each other plan of any Related
Entity which enables any plan of a Related Entity in which a Key Employee
is a participant to meet the nondiscrimination and participation
requirements of Sections 401(a)(4) or 410 of the Code.
(ii) PERMISSIVE AGGREGATION GROUP. All plans of a Related Entity
included in the Mandatory Aggregation Group and any other plan sponsored by
a Related Entity which the Company elects to include as part of the group
and which continues to satisfy the nondiscrimination and participation
requirements of Sections 401(a)(4) and 410 of the Code.
In determining which plans of a Related Entity are part of an Aggregation
Group, only plan years with Determination Dates which fall within the same
calendar year shall be aggregated.
(b) DETERMINATION DATE means, as to any Plan Year, the last day of the
preceding Plan Year.
(c) KEY EMPLOYEE means any Employee or former Employee, who during the
Plan Year or during any of the preceding 4 Plan Years is any of the following:
(i) an officer of any Related Entity. An individual shall be
considered an officer only if he:
(1) is in the regular and continuous employ of a Related Entity;
(2) has been designated as an officer pursuant to election or
appointment by the board of directors or other person or governing
body having authority to elect or appoint officers of a Related
Entity;
(3) is an administrative executive; and
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<PAGE>
(4) has compensation (as determined applying the definition of
compensation set forth in Section 415(c)(3) of the Code) equal to 1.5
times the Code Section 415 dollar limit for defined contribution
plans. The number of persons to be considered officers in any Plan
Year and the identity of the person to be so considered shall be
determined pursuant to the provisions of Section 416(i) of the Code;
(ii) one of the 10 Employees who:
(1) owns or who is considered to own under the attribution rules
set forth in Section 318 of the Code both more than a 1/2% interest
and the largest interest in a Related Entity; and
(2) has, during the Plan Year of ownership, annual Plan Year
compensation from a Related Entity more then the compensation which is
set forth in Section 415(c)(l)(A) of the Code for the calendar year in
which such Plan Year ends;
(iii) a person who is both an Employee and the owner of a greater than
5% capital or profits interest in the Company, and any person who owns, or
who, under Section 318 of the Code, is considered as owning more than 5% of
the outstanding stock of the Company or of stock possessing more than 5% of
the total combined voting power of all stock of such entity; and
(iv) a person who is both an Employee whose annual compensation (as
determined applying the definition of compensation set forth in Section
415(c)(3) of the Code) from all Related Entities exceeds $150,000 and who
is a greater than 1% owner of the Company, with ownership determined
pursuant to Section 13.2(c)(3) by substituting "1%" for "5%" at each place
where "5%" is set forth therein.
(v) For purposes of this Section 13.2(c), when applying the
constructive ownership rules under Section 318 of the Code, "5%," shall be
substituted for "50%" in Section 318(a)(2)(C) of the Code. The
determination of who is a Key Employee will be made in accordance with
Section 416(i)(1) of the Code and the Code regulations.
The Beneficiary of any deceased Participant who was a Key Employee shall be
considered a Key Employee for the same period as the deceased Participant
would have been so considered.
(d) KEY EMPLOYEE RATIO means the ratio for any Plan Year, as of the
Determination Date with respect to such Plan Year,
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determined by comparing the amount described in Section 13.2(d)(i) with the
amount described in Section 13.2(d)(ii) after deduction from both such
amounts the amount described in Section 13.2(d)(iii).
(i) The amount described in this Section 13.2(d)(i) is the sum of:
(1) the aggregate of the present value of all accrued benefits of
Key Employees under all qualified defined benefit plans included in
the Aggregation Group;
(2) the aggregate of the balances in all of the accounts standing
to the credit of Key Employees under all qualified defined
contribution plans included in the Aggregation Group; and
(3) the aggregate amount distributed from all plans in such
Aggregation Group to or on behalf of any Key Employee during the
period of 5 Plan Years ending on the Determination Date.
(ii) The amount described in this Section 13.2(d)(ii) is the sum of:
(1) the aggregate of the present value of all accrued benefits of
all Participants under all qualified defined benefit plans included in
the Aggregation Group;
(2) the aggregate of all balances in all of the accounts standing
to the credit of all Participants under all qualified defined
contribution plans included in the Aggregation Group; and
(3) the aggregate amount distributed from all plans in such
Aggregation Group to or on behalf of any Participant during the period
of 5 Plan Years ending on the Determination Date.
(iii) The amount described in this Section 13.2(d)(iii) is the sum of:
(1) all Rollover Contributions and trustee transfers which are
initiated by an Employee and made from a plan maintained by one
unrelated employer to a plan maintained by another unrelated employer
to the Plan; and
(2) any amount that is included in Section 13.2(d)(ii) hereof
for, on behalf of, or on account of, a person who is a Non-Key
Employee as to the Plan Year of
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reference but who was a Key Employee as to any earlier Plan Year.
For purposes of determining the Key Employee Ratio, accrued benefits
and account balances attributable to employee contributions, other
than amounts attributable to deductible Employee contributions, shall
be taken into consideration. The account balances and accrued
benefits of a Participant who has not performed any services for a
Related Entity at any time during the 5 year period ending on the
Determination Date will be disregarded.
(e) NON-KEY EMPLOYEE means any Participant in the Plan (including a
Beneficiary of such Participant) who is not a Key Employee.
(f) SUPER TOP HEAVY means this Plan for any Plan Year in which this Plan
would be deemed a "Top Heavy Plan" if "90%" were substituted for "60%"
wherever it appears in Section 13.2(g).
(g) TOP HEAVY PLAN. This Plan shall be deemed "Top Heavy" as to any
applicable Plan Year if, as of the Determination Date with respect to such
Plan Year, any of the following conditions are met:
(i) The Plan is not part of an Aggregation Group and the Key Employee
Ratio under the Plan exceeds 60%.
(ii) The Plan is part of an Aggregation Group, there is no Permissive
Aggregation Group of which the Plan is a part, and the Key Employee Ratio
of the Mandatory Aggregation Group of which the Plan is a part exceeds 60%.
(iii) The Plan is part of an Aggregation Group, there is a Permissive
Aggregation Group of which the Plan is a part, and the Key Employee Ratio
of the Permissive Aggregation Group of which the Plan is a part exceeds
60%.
SECTION 13.3 RIGHT TO PARTICIPATE IN ALLOCATION OF COMPANY
CONTRIBUTIONS. Notwithstanding any other provision of this Plan, any person
who was a Participant at any time during a Plan Year in which this Plan was a
Top Heavy Plan shall share in the allocations of Company contributions
provided for in this Plan for such Plan Year if he remained in the employ of
a Related Entity through the end of the Plan Year with respect to which such
allocation applies.
SECTION 13.4 MINIMUM COMPANY CONTRIBUTION ALLOCATION. The allocation
made under this Plan to the Account of each Participant who is entitled to an
allocation pursuant to the provisions of Section 13.3 and who is a Non-Key
Employee for any Plan Year in which this Plan is a Top Heavy Plan or a Super
Top Heavy Plan shall not be less than the lesser of:
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(a) 3% of the total compensation as defined in Section 415 of the Code
but limited to $150,000 as limited by Code Section 401(a)(17) of each such
Participant for such computation period; or
(b) The percentage of compensation so allocated under this Plan to the
Account of the Key Employee for whom such percentage is the highest for such
Plan Year.
This Section 13.4 shall not apply to any Participant to the extent the
Participant is covered under any other plan sponsored by a Related Entity
provided the minimum allocation or benefit requirement applicable to Top
Heavy Plans will be met in the other plan or plans. For the purposes of
determining whether or not the provisions of this Section 13.4 have been
satisfied:
(i) contributions or benefits under Chapter 2 of the Code (relating to
tax on self-employment income), Chapter 21 of the Code (relating to Federal
Insurance Contributions Act), Title 11 of the Social Security Act, or any
other Federal or state laws are disregarded; and
(ii) Company contributions made under any salary reduction or similar
arrangement shall be disregarded.
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ARTICLE XIV
INVESTMENT OF ACCOUNTS
SECTION 14.1 INVESTMENT FUNDS. Notwithstanding the general and
specific powers granted the Trustee under the Trust Agreement, the Trustee
shall invest all or a portion of the Participant's Accounts among such
Investment Funds in the Trust as may be approved by the Company from time to
time in the amounts and manner set forth in this Article XIV.
SECTION 14.2 PARTICIPANT'S CHOICE OF INVESTMENT FUNDS.
(a) Each Participant shall have the right to direct in such manner as
approved by the Plan Administrator, that the value of his Accounts be
invested among the various Investment Funds from time to time offered by the
Plan Administrator. The Plan Administrator shall establish such rules and
procedures as it may deem desirable for the administration of such elections.
(b) All Profit Sharing, 401(k), Matching, Rollover Contributions and
transfers shall be invested in accordance with the most recent investment
election made by the Participant.
(c) The Trustee shall comply with such investment directions of
Participants' made in accordance with this Section until such persons give
timely investment direction to the Plan Administrator. Notwithstanding any
provision in this Article, a Participant's investment direction shall be
subject to any transfer restrictions imposed by an Investment Fund, the Plan
Administrator or the Trustee. All transfers among the Investment Funds shall
be effective as soon as may be practicable under the then circumstances and
neither the Trustee, the Plan Administrator nor any investment manager shall
be liable for any loss that may be incurred by any Participant as a result of
any delay in transferring Accounts among the Investment Funds.
IN WITNESS WHEREOF, HA-LO Industries, Inc. has caused this Plan to be
executed by its duly authorized officer on this ___ day of December, 1997.
HA-LO INDUSTRIES, INC.
By: ____________________________________
Its:____________________________________
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HA-LO INDUSTRIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 1, 1997
AND PREVIOUSLY KNOWN AS THE
HA-LO ADVERTISING SPECIALTIES, INC.
1990 KEY EMPLOYEE WEALTH ACCUMULATION PLAN)
<PAGE>
<TABLE>
HA-LO INDUSTRIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 1, 1997 AND PREVIOUSLY KNOWN AS THE
HA-LO ADVERTISING SPECIALTIES, INC. 1990 KEY EMPLOYEE WEALTH ACCUMULATION PLAN)
TABLE OF CONTENTS
<S> <C>
ARTICLE I - INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Adoption and Name of Plan. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purposes of Plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "Top Hat" Pension Benefit Plan.. . . . . . . . . . . . . . . . . . . . . 1
1.4 Plan Unfunded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Effective Date.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Administration.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . 2
2.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Number and Gender. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III - PARTICIPATION AND ELIGIBILITY. . . . . . . . . . . . . . . . . . . . 5
3.1 Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Commencement of Participation. . . . . . . . . . . . . . . . . . . . . . 5
3.3 Cessation of Active Participation. . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV - DEFERRALS AND MATCHING CONTRIBUTIONS. . . . . . . . . . . . . . . . . 6
4.1 Deferrals by Participants. . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Effective Date of Participation Agreement. . . . . . . . . . . . . . . . 6
4.3 Modification or Revocation of Election by Participant. . . . . . . . . . 6
4.4 Matching Contributions.. . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V - VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS . . . . . . . . . . . 8
5.1 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Election of In-Service Distribution. . . . . . . . . . . . . . . . . . . 8
5.3 Earnings Elections.. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VI - ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Establishment of Bookkeeping Accounts. . . . . . . . . . . . . . . . . . 10
6.2 Subaccounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Hypothetical Nature of Accounts. . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII - PAYMENT OF ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Distribution After Deferral Period or Termination of Employment. . . . . 11
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<PAGE>
7.2 Time of Distribution and Valuation.. . . . . . . . . . . . . . . . . . . 11
7.3 Form of Payment or Payments. . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Accelerated Distribution.. . . . . . . . . . . . . . . . . . . . . . . . 12
7.5 Designation of Beneficiaries.. . . . . . . . . . . . . . . . . . . . . . 12
7.6 Amendments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.7 No Beneficiary Designation.. . . . . . . . . . . . . . . . . . . . . . . 12
7.8 Unclaimed Benefits.. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.9 Hardship Withdrawals.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.10 Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII - ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 General Powers of Administration.. . . . . . . . . . . . . . . . . . . . 15
8.3 Indemnification of Committee.. . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX - DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Claims.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Claim Decision.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.3 Request for Review.. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.4 Review of Decision.. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.5 Discretionary Authority. . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE X - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.1 Plan Not a Contract of Employment. . . . . . . . . . . . . . . . . . . . 18
10.2 Non-Assignability of Benefits. . . . . . . . . . . . . . . . . . . . . . 18
10.3 Amendment and Termination. . . . . . . . . . . . . . . . . . . . . . . . 18
10.4 Unsecured General Creditor Status Of Employee. . . . . . . . . . . . . . 18
10.5 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.6 Governing Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.7 Binding Effect.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.8 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 1, 1997 AND PREVIOUSLY KNOWN AS THE
HA-LO ADVERTISING SPECIALTIES, INC. 1990 KEY EMPLOYEE WEALTH ACCUMULATION PLAN)
ARTICLE I
INTRODUCTION
1.1 ADOPTION AND NAME OF PLAN.
The Company adopts the amended and restated HA-LO Industries, Inc.
Executive Deferred Compensation Plan which was previously known as the
HA-LO Advertising Specialties, Inc. 1990 Key Employee Wealth
Accumulation Plan.
1.2 PURPOSES OF PLAN.
The purposes of the Plan are to provide deferred compensation for a select
group of management or highly compensated Employees of the Company.
1.3 "TOP HAT" PENSION BENEFIT PLAN.
The Plan is an "employee pension benefit plan" within the meaning of ERISA
Section 3(2). The Plan is maintained, however, only for a select group of
management or highly compensated employees and, therefore, is exempt from
Parts 2, 3 and 4 of Title 1 of ERISA. The Plan is not intended to qualify
under Code Section 401(a).
1.4 PLAN UNFUNDED.
The Plan is unfunded. All benefits will be paid from the general assets of
the Company, which will continue to be subject to the claims of the
Company's creditors. No amounts will be set aside for the benefit of Plan
Participants or their Beneficiaries.
1.5 EFFECTIVE DATE.
The amended and restated Plan is effective as of the Effective Date.
1.6 ADMINISTRATION.
The Plan shall be administered by the Committee.
1
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ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS.
For purposes of the Plan, the following words and phrases shall have the
respective meanings set forth below, unless their context clearly requires
a different meaning:
"ACCOUNT" means the bookkeeping account maintained by the Company on behalf
of each Participant pursuant to Article VI that is credited with
Deferrals and Matching Contributions made on behalf of each
Participant pursuant to Article IV and the earnings and losses on
such amounts as determined in accordance with Article V. As of
any Valuation Date, a Participant's benefit under the Plan shall
be equal to the amount credited to his Account as of such date.
"BASE SALARY" means the base rate of cash compensation paid by the Company
to or for the benefit of a Participant for services rendered or
labor performed.
"BASE SALARY DEFERRAL" means the amount of a Participant's Base Salary
which the Participant elects to have withheld on a pre-tax basis
and credited to his Account pursuant to Section 4.1.
"BENEFICIARY" means the person or persons designated by the Participant in
accordance with Section 7.5.
"BOARD" means the board of Directors of the Company.
"BONUS COMPENSATION" means the amount awarded to a Participant for a Plan
Year under any bonus arrangement maintained by the Company.
"BONUS DEFERRAL" means the amount of a Participant's Bonus Compensation
which the Participant elects to have withheld on a pre-tax basis
and credited to his account pursuant to Section 4.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the administrative committee appointed by the Board to
administer the Plan in accordance with Article VIII.
2
<PAGE>
"COMMISSIONS" means remuneration paid by the Company to a Participant based
on sales of the Company's products and/or services made by the
Participant or individuals under his supervision.
"COMMISSION DEFERRAL" means the amount of a Participant's Commissions which
the Participant elects to have withheld on a pre-tax basis and
credited to his Account pursuant to Section 4.1.
"COMPANY" means HA-LO Industries, Inc. and any successor thereto.
"DEFERRAL" means a Base Salary Deferral, Bonus Deferral and/or a Commission
Deferral.
"DEFERRAL PERIOD" means the period of time for which a Participant elects
to defer receipt of the Deferrals credited to such Participant's
Account as specified in Section 5.2. Deferral Periods shall be
measured on the basis of Plan Years, beginning with the Plan Year
that commences immediately following the Plan Year for which the
applicable Deferrals are credited to the Participant's Account.
"DIRECTOR" means a director of the Company.
"EFFECTIVE DATE" means February 1, 1997.
"EMPLOYEE" means any common-law employee of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"MATCHING CONTRIBUTION" means the contribution made by the Company for a
Participant based on a Deferral made by the Participant.
"PARTICIPANT" means each Employee who has been selected for participation
in the Plan and who has become a Participant pursuant to Article
III.
"PARTICIPATION AGREEMENT" means the written agreement pursuant to which the
Participant elects the amount of his Base Salary, Bonus
Compensation, and/or Commissions to be deferred pursuant to the
Plan, the Deferral Period, the deemed investment of amounts
credited to his Account, and such other matters as the Committee
shall determine from time to time.
"PLAN" means the HA-LO Industries, Inc. Executive Deferred Compensation
Plan, as amended from time to time.
3
<PAGE>
"PLAN YEAR" means the twelve-consecutive month period commencing January 1
of each year ending on December 31. Notwithstanding the
foregoing, for purposes of making any election under the Plan
which is to be made as of the first day of the Plan Year, the
Effective Date shall be deemed a first day of a Plan Year.
"RETIREMENT DATE" means the date a Participant voluntarily terminates his
employment with the Company:
on or after he has attained at least 65 years of age;
on or after he has attained 55 years of age and completed at
least 10 Years of Service; or
with the Committee's consent.
"VALUATION DATE" means the last business day of each calendar month and
each special valuation date designated by the Committee.
"YEAR OF SERVICE" means a twelve (12) month period that an Employee is
employed by the Company, including any period during which the
Employee is on an authorized leave of absence.
2.2 NUMBER AND GENDER.
Wherever appropriate herein, words used in the singular shall be considered
to include the plural and words used in the plural shall be considered to
include the singular. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender.
2.3 HEADINGS.
The headings of Articles and Sections herein are included solely for
convenience, and if there is any conflict between such headings and the
rest of the Plan, the text shall control.
4
<PAGE>
ARTICLE III
PARTICIPATION AND ELIGIBILITY
3.1 PARTICIPATION.
Participants in the Plan are those Employees who are (a) subject to the
income tax laws of the United States, (b) members of a select group of
highly compensated or management Employees of the Company, and (c) selected
by the Committee, in its sole discretion, as Participants. The Committee
shall notify each Participant of his selection as a Participant. Subject
to the provisions of Section 3.3 a Participant shall remain eligible to
continue participation in the Plan for each Plan Year following his initial
year of participation in the Plan.
3.2 COMMENCEMENT OF PARTICIPATION.
Except as provided in the following sentence, an Employee shall become a
Participant effective as of the first day of the Plan Year following the
date on which his Participation Agreement becomes effective. A newly
eligible Employee (because of hire or promotion) who completes a
Participation Agreement within thirty (30) days of the date on which his
employment commences shall become a Participant as of the date on which his
Participation Agreement becomes effective under Section 4.2.
3.3 CESSATION OF ACTIVE PARTICIPATION.
Notwithstanding any provision herein to the contrary, an individual who has
become a Participant in the Plan shall cease to be a Participant hereunder
effective as of any date designated by the Committee. In the event of such
cessation, the last sentence of Section 4.1 shall apply as if such
cessation had been a termination of employment. Any such Committee action
shall be communicated to such Participant prior to the effective date of
such action.
5
<PAGE>
ARTICLE IV
DEFERRALS AND MATCHING CONTRIBUTIONS
4.1 DEFERRALS BY PARTICIPANTS.
Before the first day of each Plan Year, a Participant may file with the
Committee a Participation Agreement pursuant to which such Participant
elects to make Deferrals. The minimum Deferral for a Plan Year is Two
Thousand Dollars ($2000.00). Deferrals must be in whole percentages and
cannot exceed the following limits: (a) seventy five percent (75%) of Base
Salary, (b) seventy five percent (75%) of Commissions, and one hundred
percent (100%) of Bonus Compensation. Any Participant election shall be
subject to rules prescribed by the Committee. Deferrals will be credited to
the Account of each Participant at the time they would have been paid to
the Participant in cash but for the election to defer. If a Participant's
employment has terminated when a Deferral would otherwise be credited to
his Account, the amount which would have been deferred will be paid to him
in cash.
4.2 EFFECTIVE DATE OF PARTICIPATION AGREEMENT.
A Participant's Participation Agreement shall become effective on the first
day of the Plan Year to which it relates. The Participation Agreement of
Employees who are first eligible during a Plan Year shall become effective
as of the first day of the month following completion of a Participation
Agreement provided the Participation Agreement is completed within thirty
(30) days of the date the Employee first becomes eligible. Participation
Agreements shall relate only to compensation earned after such agreement is
completed and executed. If a Participant fails to complete a Participation
Agreement before the first day of the Plan Year in which Participant shall
earn the compensation to which the Participation Agreement relates, the
Participant shall be deemed to have elected not to make Base Salary
Deferrals, Bonus Deferrals, and/or Commission Deferrals for such Plan Year.
4.3 MODIFICATION OR REVOCATION OF ELECTION BY PARTICIPANT.
A Participant may not change the amount of his Base Salary, Bonus, or
Commission Deferrals during a Plan Year unless the Committee determines
that he has suffered a severe, sudden and unforeseeable hardship as is more
fully described in Section 7.9. Under no circumstances may a Participant's
Participation Agreement be made, modified or revoked retroactively.
6
<PAGE>
4.4 MATCHING CONTRIBUTIONS.
For each Plan Year, the Account of each Participant shall be credited with
a Matching Contribution equal to the lesser of fifty percent (50%) of a
Participant's Deferral for such Plan Year or Two Thousand Dollars
($2000.00).
7
<PAGE>
ARTICLE V
VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS
5.1 VESTING.
A Participant shall be 100% vested at all times in the amount of his
Account which is attributable to his Deferrals. The amount of his Account
attributable to Matching Contributions for each Plan Year shall vest in
accordance with the following schedule:
<TABLE>
<CAPTION>
Number of Plan Years that have ended Vested percentage of
after the Plan Year for which the Account attributable to
Matching Contribution was made that Matching Contribution for
the participant is still employed such Plan Year
------------------------------------ -------------------------
<S> <C>
0 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
</TABLE>
In addition, to the extent it is not already vested, Matching Contributions
shall be fully vested upon a Participant's Retirement Date or his death
while employed. All provisions of the Plan relating to the distribution of
a Participant's Account shall mean only the vested portion of such Account.
Since the Plan is unfunded, the portion of a Participant's Account which is
not vested and therefore not distributed with the vested portion of his
Account shall remain property of the Company and not be allocated to
Accounts of other Participants or otherwise inure to their benefit.
5.2 ELECTION OF IN-SERVICE DISTRIBUTION.
If a Participant desires an in-service distribution of all or a percentage
of his Deferrals for a Plan Year, he must so elect on his Participation
Agreement. In the case of any such election, the Deferral Period must be
for at least five (5) years. If the Participant elects an in-service
distribution and is entitled to such a distribution pursuant to such
election prior to the events listed in Section 7.1, distribution pursuant
to such election shall not include Matching Contributions and earnings on
such contributions and must be in a lump sum.
8
<PAGE>
5.3 EARNINGS ELECTIONS.
Amounts credited to a Participant's Account shall be credited with earnings
and losses based on hypothetical investments elected by the Participant. A
Participant may elect different investment allocations for new
contributions and existing Account balances. Only whole percentages may be
elected, the minimum percentage for any allocation is ten percent (10%),
and the total elections must allocate one hundred percent (100%) of all new
contributions and one hundred percent (100%) of all existing Account
balances. Investment elections may be changed once per calendar quarter,
effective as of the first day of such quarter, by written direction given
at least seven (7) days before the start of such quarter. The hypothetical
investment alternatives and the procedures relating to the election of such
investments, other than those set forth in this Section 5.3, shall be
determined by the Committee from time to time. A Participant's Account
shall be adjusted as of each Valuation Date to reflect investment gains and
losses.
9
<PAGE>
ARTICLE VI
ACCOUNTS
6.1 ESTABLISHMENT OF BOOKKEEPING ACCOUNTS.
A separate bookkeeping Account shall be maintained for each Participant.
Such account shall be credited with the Deferrals made by the Participant
pursuant to Section 4.1 and Matching Contributions made by the Company
pursuant to Section 4.4, credited (or charged, as the case may be) with the
hypothetical investment results determined pursuant to Section 5.3, and
charged with distributions made to or with respect to a Participant.
6.2 SUBACCOUNTS.
Within each Participant's bookkeeping Account, separate subaccounts shall
be maintained to the extent necessary for the administration of the Plan.
6.3 HYPOTHETICAL NATURE OF ACCOUNTS.
The Account established under this Article VI shall be hypothetical in
nature and shall be maintained for bookkeeping purposes only, so that
Deferrals and Matching Contributions can be credited to the Participant and
so that earnings and losses on such amounts so credited can be credited (or
charged, as the case may be). Neither the Plan nor any of the Accounts (or
subaccounts) shall hold any actual funds or assets. The right of any
person to receive one or more payments under the Plan shall be an unsecured
claim against the general assets of the Company. Any liability of the
Company to any Participant, former Participant, or Beneficiary with respect
to a right to payment shall be based solely upon contractual obligations
created by the Plan. Neither the Company, the Board, nor any other person
shall be deemed to be a trustee of any amounts to be paid under the Plan.
Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or
a fiduciary relationship, between the Company and a Participant, former
Participant, Beneficiary, or any other person.
10
<PAGE>
ARTICLE VII
PAYMENT OF ACCOUNT
7.1 DISTRIBUTION AFTER DEFERRAL PERIOD OR TERMINATION OF EMPLOYMENT.
Distribution of that portion of a Participant's Account for which an
in-service distribution has been elected pursuant to Section 5.2 shall
be made at the time specified in such election unless the Participant's
employment terminates prior to such time, in which event the remaining
provisions of this Section 7.1, shall apply. Except as provided below,
a Participant's entire Account shall be distributed to him (or his
Beneficiary in the event of his death) following the earliest to occur
of the following:
(a) the Participant's death;
(b) the Participant's Retirement Date; or
(c) the Participant's other termination of employment.
7.2 TIME OF DISTRIBUTION AND VALUATION.
Upon a distributable event described in Section 7.1, the balance of a
Participant's Account shall be determined as of the Valuation Date
immediately following such event. Distribution will be made or begin to be
made as soon as practical after such valuation or 60 days following the
event, whichever shall last occur.
7.3 FORM OF PAYMENT OR PAYMENTS.
If the value of the Participant's Account as of the Valuation Date
described in Section 7.2 is at least Five Thousand Dollars ($5,000.00),
benefits payable after the Participant's Retirement Date shall be paid in
the form elected by the Participant. The form elected shall apply to the
entire Account. The election may be amended, provided that the amended
election does not increase the duration of payments in the previous
election and the election is made no later than December 31 of the calendar
year prior to his Retirement Date. The forms of distributions are:
(a) A lump sum amount; or
(b) Substantially equal monthly installments over a period of sixty
(60), one hundred twenty (120), or one hundred eighty (180)
months or substantially equal annual installments over a period
of five (5), ten (10), or fifteen (15) years.
11
<PAGE>
Earnings on the unpaid balance shall continue to be credited
to subaccounts at the appropriate earnings rate, in accordance
with the Participant's investment election.
In all cases other than those described in the first sentence of this
Section 7.3, the form of benefit shall be a lump sum. If a former
Participant is receiving an installment form of distribution and dies prior
to the distribution of his entire Account, distributions will be continued
to his Beneficiary.
7.4 ACCELERATED DISTRIBUTION.
Notwithstanding any other provision of the Plan, a Participant shall be
entitled to receive, upon written request to the Committee, a lump sum
distribution of his Account balance, valued as of the end of the month,
immediately prior to the month in which such request is made subject to a
penalty of ten percent (10%) of such balance which shall be forfeited. A
Participant who receives a distribution under this Section 7.4 shall not be
eligible to make Deferrals until the first day of the second Plan Year
which begins after such distribution. The amount payable under this
section shall be paid in a lump sum as soon as practical following the
receipt of the Participant's written request by the Committee and the
valuation of his Account.
7.5 DESIGNATION OF BENEFICIARIES.
Each participant shall have the right, at any time, to designate one (1) or
more persons or an entity as Beneficiary (both primary as well as
secondary) to whom benefits under this Plan shall be paid in the event of a
Participant's death prior to complete distribution of the Participant's
Account. Each Beneficiary designation shall be in a written form
prescribed by the Committee and will be effective only when filed with the
Committee during the Participant's lifetime. Designation by a married
Participant who is a resident of a community property state of a
Beneficiary other than the Participant's spouse shall not be effective
unless the spouse executes a written consent that acknowledges the effect
of the designation and is witnessed by a notary public, or the consent
cannot be obtained because the spouse cannot be located.
7.6 AMENDMENTS.
Except as provided below, any nonspousal designation of Beneficiary may be
changed by a Participant without the consent of such Beneficiary by the
filing of a new designation with the Committee. The filing of a new
designation shall cancel all designations previously filed.
7.7 NO BENEFICIARY DESIGNATION.
12
<PAGE>
If any Participant fails to designate a Beneficiary in the manner provided
above, or if the Beneficiary designated by a deceased Participant dies
before the Participant or before complete distribution of the Participant's
benefits, the Participant's Beneficiary shall be the person in the first of
the following classes in which there is a survivor:
(a) The Participant's surviving spouse;
(b) The Participant's children in equal shares, except that if any of
the children predeceases the Participant but leaves issue
surviving, then such issue shall take by right of representation
the share the parent would have taken if living;
(c) The Participant's estate.
7.8 UNCLAIMED BENEFITS.
In the case of a benefit payable on behalf of such Participant, if the
Committee is unable to locate the Participant or beneficiary to whom such
benefit is payable, such benefit may be forfeited to the Company, upon the
Committee's determination. Notwithstanding the foregoing, if subsequent to
any such forfeiture the Participant or beneficiary to whom such benefit is
payable makes a valid claim for such benefit, such forfeited benefit shall
be paid by the Company or restored to the Plan by the Company.
7.9 HARDSHIP WITHDRAWALS.
A Participant may apply in writing to the Committee for, and the Committee
may permit, a hardship withdrawal of all (valued as of the last day of the
month prior to the month in which the application is made) or any part of a
Participant's Account if the Committee, in its sole discretion, determines
that the Participant has incurred a severe financial hardship resulting
from a sudden and unexpected illness or accident of the Participant or of a
dependent (as defined in section 152(a) of the Code) of the Participant,
loss of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant, as determined by the Committee, in
its sole and absolute discretion. The amount that may be withdrawn shall
be limited to the amount reasonably necessary to relieve the hardship or
financial emergency upon which the request is based, plus the federal and
state taxes due on the withdrawal, as determined by the Committee. The
Committee may require a Participant who requests a hardship withdrawal to
submit such evidence as the Committee, in its sole discretion, deems
necessary or appropriate to substantiate the circumstances upon which the
request is based. A Participant who receives a distribution under this
Section 7.9 shall not be eligible to make Deferrals until the first day of
the second Plan Year which begins after such distribution.
13
<PAGE>
7.10 WITHHOLDING.
All Deferrals and distributions shall be subject to legally required income
and employment tax withholding.
14
<PAGE>
ARTICLE VIII
ADMINISTRATION
8.1 COMMITTEE.
The Plan shall be administered by a Committee, which shall be appointed by
and serve at the pleasure of the Board. The Committee shall be responsible
for the general operation and administration of the Plan and for carrying
out the provisions thereof. The Committee may delegate to others certain
aspects of the management and operational responsibilities of the Plan
including the employment of advisors and the delegation of ministerial
duties to qualified individuals, provided that such delegation is in
writing. No member of the Committee who is a Participant shall participate
in any matter relating to his status as a Participant or his rights or
entitlement to benefits as a Participant.
8.2 GENERAL POWERS OF ADMINISTRATION.
The Committee shall have all powers necessary or appropriate to enable it
to carry out its administrative duties. Not in limitation, but in
application of the foregoing, the Committee shall have discretionary
authority to construe and interpret the Plan and determine all questions
that may arise hereunder as to the status and rights of Employees,
Participants, and Beneficiaries. The Committee may exercise the powers
hereby granted in its sole and absolute discretion. The Committee may
promulgate such regulations as it deems appropriate for the operation and
administration of the Plan. No member of the Committee shall be personally
liable for any actions taken by the Committee unless the member's action
involves gross negligence or willful misconduct.
8.3 INDEMNIFICATION OF COMMITTEE.
The Company shall indemnify the members of the Committee against any and
all claims, losses, damages, expenses, including attorney's fees, incurred
by them, and any liability, including any amounts paid in settlement with
their approval, arising from their action or failure to act, except when
the same is judicially determined to be attributable to their gross
negligence or willful misconduct.
15
<PAGE>
ARTICLE IX
DETERMINATION OF BENEFITS,
CLAIMS PROCEDURE AND ADMINISTRATION
9.1 CLAIMS.
A person who believes that he is being denied a benefit to which he is
entitled under the Plan (the "Claimant") may file a written request for
such benefit with the Committee, setting forth his claim. The request must
be addressed to the Committee at the Company at its then principal place of
business.
9.2 CLAIM DECISION.
Upon receipt of a claim, the Committee shall advise the Claimant that a
reply will be forthcoming within ninety (90) days and shall, in fact,
deliver such reply within such period. The Committee may, however, extend
the reply period for an additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Committee shall adopt a
written opinion, using language calculated to be understood by the
Claimant, setting forth:
(a) The specific reason or reasons for such denial;
(b) The specific reference to pertinent provisions of the Plan on
which such denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect his claim and an explanation why such
material or such information is necessary;
(d) Appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) The time limits for requesting a review under Section 9.3 and for
review under Section 9.4 hereof.
9.3 REQUEST FOR REVIEW.
Within sixty (60) days after the receipt by the Claimant of the written
opinion described above, the Claimant may request in writing that the
Secretary of the Company (the "Secretary") review the determination of the
Committee. Such request must be addressed to the Secretary of the Company,
at its then principal place of business. The
16
<PAGE>
Claimant or his duly authorized representative may, but need not, review
the pertinent documents and submit issues and comments in writing for
consideration by the Secretary. If the Claimant does not request a
review of the Committee's determination by the Secretary of the Company
within such sixty (60) day period, he shall be barred and estopped from
challenging the Committee's determination.
9.4 REVIEW OF DECISION.
Within sixty (60) days after the Secretary's receipt of a request for
review, he will review the Committee's determination. After considering
all materials presented by the Claimant, the Secretary will render a
written opinion, written in a manner calculated to be understood by the
Claimant, setting forth the specific reasons for the decision and
containing specific references to the pertinent provisions of the Plan on
which the decision is based. If special circumstances require that the
sixty (60) day time period be extended, the Secretary will so notify the
Claimant and will render the decision as soon as possible, but no later
than one hundred twenty (120) days after receipt of the request for review.
9.5 DISCRETIONARY AUTHORITY.
The Committee and Secretary shall both have discretionary authority to
determine a Claimant's entitlement to benefits upon his claim or his
request for review of a denied claim, respectively.
17
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 PLAN NOT A CONTRACT OF EMPLOYMENT.
The adoption and maintenance of the Plan shall not be or be deemed to be a
contract between the Company and any person or to be consideration for the
employment of any person. Nothing herein contained shall give or be deemed
to give any person the right to be retained in the employ of the Company or
to restrict the right of the Company to discharge any person at any time;
nor shall the Plan give or be deemed to give the Company the right to
require any person to remain in the employ of the Company or to restrict
any person's right to terminate his employment at any time.
10.2 NON-ASSIGNABILITY OF BENEFITS.
No Participant, Beneficiary or distributee of benefits under the Plan shall
have any power or right to transfer, assign, anticipate, hypothecate or
otherwise encumber any part or all of the amounts payable hereunder, which
are expressly declared to be unassignable and non-transferable. Any such
attempted assignment or transfer shall be void. No amount payable
hereunder shall, prior to actual payment thereof, be subject to seizure by
any creditor of any such Participant, Beneficiary or other distributee for
the payment of any debt, judgment, or other obligation, by a proceeding at
law or in equity, nor transferable by operation of law in the event of the
bankruptcy, insolvency or death of such Participant, Beneficiary or other
distributee hereunder.
10.3 AMENDMENT AND TERMINATION.
The Board may from time to time, in its discretion, amend, in whole or in
part, any or all of the provisions of the Plan; provided, however, that no
amendment may be made which would impair the rights of a Participant with
respect to amounts already allocated to his Account. The Board may
terminate the Plan at any time. In the event that the Plan is terminated,
the balance in a Participant's Account shall be paid to such Participant or
his Beneficiary in a lump sum or in equal monthly installments as the
Committee determines.
10.4 UNSECURED GENERAL CREDITOR STATUS OF EMPLOYEE.
The payments to Participant, his Beneficiary or any other distributee
hereunder shall be made from assets which shall continue, for all purposes,
to be a part of the general, unrestricted assets of the Company; no person
shall have nor acquire any interest in any such assets by virtue of the
provisions of this Agreement. The Company's obligation hereunder shall be
an unfunded and unsecured promise to pay money in the future. To the
extent that the Participant, a Beneficiary, or other distributee acquires a
right to
18
<PAGE>
receive payments from the Company under the provisions hereof, such right
shall be no greater than the right of any unsecured general creditor of
the Company; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of
the Company. In the event that, in its discretion, the Company
purchases an insurance policy or policies insuring the life of the
Participant (or any other property) to allow the Company to recover the
cost of providing the benefits, in whole, or in part, hereunder, neither
the Participant, his Beneficiary or other distributee shall have nor
acquire any rights whatsoever therein or in the proceeds therefrom. The
Company shall be the sole owner and beneficiary of any such policy or
policies and, as such, shall possess and may exercise all incidents of
ownership therein. No such policy, policies or other property shall be
held in any trust for a Participant, Beneficiary or other distributee or
held as collateral security for any obligation of the Company hereunder.
10.5 SEVERABILITY.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
provisions hereof; instead, each provision shall be fully severable and the
Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
10.6 GOVERNING LAWS.
All provisions of the Plan shall be construed in accordance with the laws
of Illinois except to the extent preempted by federal law.
10.7 BINDING EFFECT.
This Plan shall be binding on each Participant and his heirs and legal
representatives and on the Company and its successors and assigns.
10.8 ENTIRE AGREEMENT.
This document and any amendments contain all the terms and provisions of
the Plan and shall constitute the entire Plan, any other alleged terms or
provisions being of no effect.
19
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
the ____ day of April, 1997.
HA-LO INDUSTRIES, INC.
By:
-----------------------------
Title:
--------------------------
20
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: LOU WEISBACH
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- -------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- -------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting EPS,
such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- -------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: LOU WEISBACH
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- -------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
/ / Cash Bonus Award may be converted to stock options of equivalent
value.
AWARD FORMULA
- -------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 20%
100% 40%
105% 53%
110% 67%
115% 80%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- --------------
<S> <C>
90% 0
95% 10,000
100% 20,000
105% 26,667
110% 33,333
115% 40,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: LINDEN NELSON
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- -------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- -------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting EPS,
such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- -------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: LINDEN NELSON
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- -------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
/ / Cash Bonus Award may be converted to stock options of equivalent
value.
AWARD FORMULA
- -------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 20%
100% 40%
105% 53%
110% 67%
115% 80%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- --------------
<S> <C>
90% 0
95% 10,000
100% 20,000
105% 26,667
110% 33,333
115% 40,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: DAVID ROBBINS
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENT
- --------------------------------------------------------------------------------
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Award will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is
less than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: DAVID ROBBINS
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Award will be integrated with any prior stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0
95% 7,500
100% 15,000
105% 20,000
110% 25,000
115% 30,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: BARBARA BERMAN
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENT
- --------------------------------------------------------------------------------
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: BARBARA BERMAN
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- --------------------
<S> <C>
90% 0
95% 5,000
100% 10,000
105% 13,333
110% 16,667
115% 20,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: RICHARD MAGID
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- --------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is
less than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: RICHARD MAGID
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 15%
100% 30%
105% 40%
110% 50%
115% 60%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- -------------
<S> <C>
90% 0
95% 7,500
100% 15,000
105% 20,000
110% 25,000
115% 30,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: GREG KILREA
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- --------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is
less than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: GREG KILREA
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 15%
100% 30%
105% 40%
110% 50%
115% 60%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- -------------
<S> <C>
90% 0
95% 7,500
100% 15,000
105% 20,000
110% 25,000
115% 30,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: BARRY MARGOLIN
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- --------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: BARRY MARGOLIN
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 10%
100% 20%
105% 27%
110% 33%
115% 40%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- -------------
<S> <C>
90% 0
95% 5,000
100% 10,000
105% 13,333
110% 16,667
115% 20,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: SABINA FILIPOVIC
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- --------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: SABINA FILIPOVIC
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 10%
100% 20%
105% 27%
110% 33%
115% 40%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- -------------
<S> <C>
90% 0
95% 5,000
100% 10,000
105% 13,333
110% 16,667
115% 20,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: GENE EHRENFELDT
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- --------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: GENE EHRENFELDT
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 10%
100% 20%
105% 27%
110% 33%
115% 40%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- -------------
<S> <C>
90% 0
95% 5,000
100% 10,000
105% 13,333
110% 16,667
115% 20,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: DAVID BLUMENTHAL
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- --------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: DAVID BLUMENTHAL
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 10%
100% 20%
105% 27%
110% 33%
115% 40%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- -------------
<S> <C>
90% 0
95% 5,000
100% 10,000
105% 13,333
110% 16,667
115% 20,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: MICHAEL NEMLICH
You have been selected to participate in the Executive Incentive Compensation
Plan effective beginning 1997. The following are highlights of the plan.
AWARD COMPONENTS
- --------------------------------------------------------------------------------
/ / Cash Bonus Award
- Percent of base salary.
/ / Stock Options Award
- Stated number of nonqualified stock options.
- Granted at FMV.
- 3-year vesting schedule (1/3 per year).
- 10-year exercise period.
COMPANY PERFORMANCE MEASURE
- --------------------------------------------------------------------------------
/ / Actual EPS in relations to Target EPS.
/ / Target EPS determined by Plan Committee.
- TARGET EPS FOR 1997 IS SET AT 78 CENTS.
- May be adjusted for capital changes (stock splits, stock
dividends, etc.)
- May be adjusted due to circumstances materially affecting
EPS, such as acquisitions.
/ / Actual EPS is determined before non-recurring charges and is
inclusive of cash bonus awards.
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS
- --------------------------------------------------------------------------------
/ / Awards will be prorated based on Target Award and minimum and
maximum limits set by the Plan Committee.
/ / Current minimum limit: no award is paid out if Actual EPS is less
than or equal to 70 cents (90% of Target EPS).
Page 1 of 2
<PAGE>
HA-LO INDUSTRIES, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR: MICHAEL NEMLICH
AWARD MINIMUMS, MAXIMUMS, & ADJUSTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
/ / Current maximum limit: Target Award is doubled if Actual EPS
exceeds or equal to 90 cents (115% of Target EPS).
/ / Awards will be integrated with any prior bonus or stock option
arrangements.
AWARD FORMULA
- --------------------------------------------------------------------------------
/ / CASH BONUS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF CASH BONUS AS A % OF
TARGET EPS BASE SALARY
- -------------------------- --------------------
<S> <C>
90% 0%
95% 10%
100% 20%
105% 27%
110% 33%
115% 40%
</TABLE>
/ / STOCK OPTIONS AWARD (Target Award is in BOLD)
<TABLE>
<CAPTION>
ACTUAL EPS AS A PERCENT OF NUMBER OF
TARGET EPS STOCK OPTIONS
- -------------------------- -------------
<S> <C>
90% 0
95% 5,000
100% 10,000
105% 13,333
110% 16,667
115% 20,000
</TABLE>
The company may amend, from time to time, or terminate this plan in its
discretion. This should not be construed as a contract of employment.
Page 2 of 2
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES 1997 Highlights
1997 HIGHLIGHTS
- - Recurring pre-tax net income increased to $27.0 million, an increase of 74%
over 1996.
- - Sales increased 20% in 1997 and reached an all-time high of $414 million.
- - Continued aggressive growth strategy by completing eight acquisitions,
including two in Europe.
- - Further enhanced HA-LO brand awareness by obtaining additional exclusive
product arrangements, developing proprietary product lines and increasing
overall corporate visibility.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (a):
Net Sales $ 413,791 $ 344,422 $ 283,080 $ 195,003 $ 145,652
Net Income 13,882 7,426 4,269 4,837 3,580
Pro forma Net Income (b) N/A 8,241 4,070 3,673 2,411
Pro forma Net Income Per Share,
Diluted (b) 0.64 0.39 0.23 0.23 0.15
Weighted Average Shares Outstanding,
Diluted 21,712 21,148 17,361 16,030 15,819
BALANCE SHEET DATA (END OF YEAR) (a):
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 (c) 81,386 57,114 46,865 20,383 16,798
</TABLE>
(a) ALL PERIODS PRESENTED INCLUDE ACQUISITIONS ACCOUNTED FOR USING THE
POOLING-OF-INTERESTS ACCOUNTING METHOD.
(b) CERTAIN COMPANIES ACQUIRED AND ACCOUNTED FOR USING THE POOLING-OF-INTERESTS
ACCOUNTING METHOD HAD ELECTED TO BE TREATED AS S CORPORATIONS AND WERE
THEREFORE NOT SUBJECT TO FEDERAL INCOME TAXES PRIOR TO THEIR ACQUISITION BY
THE COMPANY. PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER SHARE AMOUNTS
INCLUDE AN UNAUDITED PROVISION/BENEFIT FOR FEDERAL AND STATE TAXES AT AN
EFFECTIVE RATE OF 40%.
(c) INCLUDES DIVIDENDS OF $2,890,000, $3,912,000, $5,715,000, $1,276,000 AND
$785,000 DECLARED BY ACQUIRED COMPANIES IN 1997, 1996, 1995, 1994 AND 1993,
RESPECTIVELY, PRIOR TO THEIR ACQUISITION BY THE COMPANY.
3
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis
of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
The following table sets forth for the years indicated the percent of net sales
represented by each line item presented below from the Company's Consolidated
Statements of Income.
<TABLE>
<CAPTION>
PERCENT OF NET SALES
-------------------------------
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 2.4% 1.4%
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Revenues 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 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 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 gorwth 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.
4
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis
of Financial Condition and Results of
Operations
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.
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.
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 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 as a percentage of net sales for 1996 was 29.1% ($100.2
million) for 1996 compared to 27.1% ($76.7 million) in 1995. The increase is due
primarily to a continued focus on profitable growth.
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 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.
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.
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. The Company
anticipates that the available funds from this facility will be adequate to
satisfy its operating cash needs for the foreseeable future.
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.
Overall, the Company believes that availability from its credit facility 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 years presented.
5
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Financial Statements
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.
6
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
ASSETS 1997 1996
- ----------------------------------------------------------
<S> <C> <C>
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.
7
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Financial Statements
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.
8
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Financial Statements
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
9
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
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.
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>
15-39
Buildings years
Furniture, fixtures and equipment 5-10 years
Computer and telephone equipment 5-7 years
Vehicles 5 years
Life of
Leasehold Improvements lease
</TABLE>
Property and equipment at December 31 are composed of the following:
<TABLE>
<CAPTION>
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>
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.
10
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
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.
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.
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
11
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
Company also makes advances to its sales representatives, which are applied
against commissions to be earned.
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>
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.
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.
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,
12
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
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 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%
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.
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.
13
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
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.
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.
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.
14
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
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>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) 1997 1996 1995
- -------------------------------------------------------
<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.
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.
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
15
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
Compensation Committee of the Company's Board of Directors. Pursuant to the
plans, an aggregate
16
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
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>
17
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES 12/31/97 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>
13. BUSINESS SEGMENT INFORMATION:_______________________________________________
Segment information by industry for the years ended December 31, 1997, 1996, and
1995 follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<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.
18
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
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.
19
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial
Statements
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------- ----------------------------------------------
(IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNTS) MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- ---------------------------------------------------------------------------------------------------------------------
<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>
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
250 shareholders of record as of March 23, 1998. The following table sets forth
the range of high and low bid quotations 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>
20
<PAGE>
HA-LO Industries, Inc. and Subsidiaries 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
20
<PAGE>
Exhibit 21
SUBSIDIARIES OF HA-LO INDUSTRIES, INC.
The following is a list of all direct and indirect subsidiaries of the
registrant as of March 27, 1998. The state or other jurisdiction of
incorporation or organization is indicated in parentheses following each
subsidiary's name. The names of the divisions or other business units of each
subsidiary are indented and listed below the relevant subsidiary's name.
1132832 Ontario, Corp. (Ontario)
1132831 Ontario, Corp. (Ontario)
Creadis Group, Inc. (British Columbia)
Creative Concepts in Advertising, Inc. (Michigan)
Fletcher, Barnhardt & White (North Carolina)
Flow Plastics, Inc. (New York)
HMK International Holdings, Inc. (Netherlands)
HA-LO Belgium, N.V. (Belgium)
Bavelco, B.V.B.A. (Belgium)
HA-LO Sports, Inc. (Illinois)
Joking, Spa. (Italy)
Lees Keystone, Inc. (New York)
Market USA, Inc. (Illinois)
Marusa Marketing, Ltd. (Canada)
Wolff Marketing Group, Inc. (New York)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-64878 on Form S-8, 33-89820 on Form S-8,
33-99946 on Form S-8, 333-00358 on Form S-3, 333-03928 on Form S-8, 333-10481
on Form S-4, and 333-19301 on Form S-3.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR
THE TWELVE-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,717,027
<SECURITIES> 0
<RECEIVABLES> 132,581,558
<ALLOWANCES> 2,732,000
<INVENTORY> 24,346,962
<CURRENT-ASSETS> 162,109,062
<PP&E> 34,667,491
<DEPRECIATION> 13,493,000
<TOTAL-ASSETS> 210,627,081
<CURRENT-LIABILITIES> 84,238,462
<BONDS> 43,625,649
0
0
<COMMON> 62,154,879
<OTHER-SE> 19,231,484
<TOTAL-LIABILITY-AND-EQUITY> 210,627,081
<SALES> 413,790,880
<TOTAL-REVENUES> 413,790,880
<CGS> 279,984,344
<TOTAL-COSTS> 279,984,344
<OTHER-EXPENSES> 108,787,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,878,147
<INCOME-PRETAX> 23,140,994
<INCOME-TAX> 9,259,004
<INCOME-CONTINUING> 13,881,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,881,990
<EPS-PRIMARY> .67
<EPS-DILUTED> .64
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 AND THE RESTATED
CONSOLIDATED INCOME STATEMENTS FOR THE TWELVE-MONTH PERIODS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 5,261,647 3,341,726
<SECURITIES> 2,908,370 3,549,717
<RECEIVABLES> 78,576,712 70,875,653
<ALLOWANCES> 2,980,000 2,880,000
<INVENTORY> 11,579,571 9,346,968
<CURRENT-ASSETS> 99,522,083 85,737,373
<PP&E> 25,378,812 18,477,992
<DEPRECIATION> 10,409,000 7,320,803
<TOTAL-ASSETS> 128,681,517 107,780,223
<CURRENT-LIABILITIES> 41,792,800 46,387,387
<BONDS> 28,005,680 12,111,586
0 0
0 0
<COMMON> 50,528,303 45,930,838
<OTHER-SE> 6,576,896 933,723
<TOTAL-LIABILITY-AND-EQUITY> 128,681,517 107,780,223
<SALES> 344,421,740 283,080,302
<TOTAL-REVENUES> 344,421,740 283,080,302
<CGS> 244,259,294 206,346,036
<TOTAL-COSTS> 244,259,294 206,346,036
<OTHER-EXPENSES> 85,438,236 67,801,897
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 938,155 2,148,848
<INCOME-PRETAX> 13,786,055 6,783,521
<INCOME-TAX> 5,544,603<F1> 2,713,349<F1>
<INCOME-CONTINUING> 8,241,452<F1> 4,070,172<F1>
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,241,452<F1> 4,070,172<F1>
<EPS-PRIMARY> .41<F1> .24<F1>
<EPS-DILUTED> .39<F1> .23<F1>
<FN>
<F1>Certain companies acquired and accounted for using the pooling-
of-interests accounting method had elected to be treated as S
Corporations and were therefore not subject to Federal income taxes
prior to their acquisition by the Company. Net income and net income
per share amounts include an unaudited provision for Federal and state
taxes at an effective rate of 40% for these companies.
</FN>
</TABLE>
