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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, 1998 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from ______to______
Commission file number: 0-20758
HA-LO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
ILLINOIS 36-3573412
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5980 TOUHY AVE., NILES, ILLINOIS 60714
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(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code:
(847)647-2300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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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 $460,562,817 as of March 16, 1999
(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 16, 1999, the
registrant had issued and outstanding an aggregate of 48,477,748 shares of its
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's 1998 Annual Report to
Shareholders and of the proxy statement for the Annual Meeting of Shareholders
to be held on May 11, 1999 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 is a full service, innovative brand marketing organization whose
diverse marketing disciplines, or competency groups, are centered around its
client's brand. Brand marketing builds the value of the brand by connecting it
with target audiences to achieve strategic marketing objectives.
The Company's competency groups are organized into three operating
segments: promotional products, marketing services and telemarketing. The
marketing services segment includes promotion marketing, brand strategy and
identity, presence marketing and consumer event marketing. Each one of the
segments has similar products and services, production processes, types of
customers, distribution methods and regulatory environments.
COMPETENCY GROUPS INCLUDE:
PROMOTIONAL PRODUCTS, offered by HA-LO, physically connect the
brand with identified target markets and individuals through repeated exposure
to merchandise that builds brand awareness, enhances brand recognition and
creates brand loyalty.
PROMOTION MARKETING, offered by UPSHOT, connects the brand with
the consumer at strategic points of contact through consumer and retail
promotion, merchandising and sponsorship activation.
BRAND STRATEGY AND IDENTITY, offered by LAGA, connects a company
product, service or image with a target audience by creating, revitalizing, or
leveraging a brand through brand identity, design, and integrated communication
programs.
PRESENCE MARKETING, offered by HA-LO Sports & Entertainment and
Events By HA-LO, connects the brand with the target audience through sports and
corporate sponsorships, licensing, corporate meetings, events and sales
incentive programs.
RELATIONSHIP MARKETING, offered by UPSHOT and Market USA, connects
the brand with the target audience through consumer events - including a new
product sampling and brand awareness programs - and through a range of
telemarketing services.
INDUSTRY
PROMOTIONAL PRODUCTS. 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 $11.9 billion in 1997, a compound annual growth rate of 12.9%. 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 the Company, which maintain showrooms to
assist customers in selecting from an array of available products.
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Currently the Company has an industry market share of approximately 4%. Many of
the larger distributors are also manufacturers (or affiliates of manufacturers)
of products traditionally used in the promotional products industry.
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.
MARKETING SERVICES. The promotion marketing component focuses on
developing strategies and implementing creative marketing plans to directly
connect brands with people. Marketing solutions may include consumer and retail
promotions, event sponsorships, direct marketing, merchandising and promotional
products.
The brand strategy and identity component focuses on the design of
impactful, motivating product package design solutions. Package design includes
new brand creation, revitalizing or repositioning existing brands, and the
development of branding systems and the creation of corporate identity programs.
TELEMARKETING. The telemarketing industry is highly fragmented and
competitive, and includes both captive and independent companies. Although the
industry is comprised of in-house operations, many large companies increasingly
are focusing on their core competencies and outsourcing their non-core
functions. The advantages of telemarketing, which include high response rates,
low cost per transaction, direct interaction with customers and the ability to
immediately respond to customer inquires, make it an attractive alternate to
other forms of direct marketing.
PRODUCTS AND SERVICES
PROMOTIONAL PRODUCTS. Approximately 79% of the Company's revenue is
generated from distribution of 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 has over 50 showrooms throughout the United States, Canada and Europe in
which it displays more than 300,000 promotional products available from the
Company's network of over 2,500 vendors. 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. The
Company also provides corporate fulfillment services, which enable a customer to
purchase a large quantity of promotional
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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 AlliedSignal, Ford Motor Company,
General Electric, Guinness Import Company, IBM, Siemens, Security Link from
Ameritech, Sports Illustrated, Swissotel and U.S. Cellular.
MARKETING SERVICES. The Company's ability to operate as a brand
marketing organization differentiates it from the more than 15,000 other
companies in the promotional product industry. The Company's marketing services
are composed of:
PROMOTION MARKETING - UPSHOT is a promotion marketing agency
specializing in connecting the brand with the consumer at strategic points
of contact through brand marketing services such as new product launches,
rejuvenating brands, promotional advertising, merchandising, and event
marketing. For a major telecommunications company, UPSHOT developed a
flexible new merchandising system for national retail accounts like Radio
Shack to support the different company brands while simplifying the buying
and selling of wireless service. For a leading beverage company, UPSHOT
created an image based program including in-store merchandising, radio and
print to celebrate African-American musicians who helped shape contemporary
entertainment.
BRAND STRATEGY AND IDENTITY - LAGA is a brand strategy and
identity agency specializing in connecting a company product, service or
image with a target audience. By creating a brand, revitalizing a brand or
leveraging a brand through brand identity programs, package design,
structural design, integrated communications, corporate identity,
interactive communications, market research and nomenclature development.
LAGA designed the packaging for a new cereal that became the manufacturer's
most successful new product launch in history.
PRESENCE MARKETING - Events by HA-LO is a corporate event
production company specializing in orchestrating corporate meetings,
seminar events and incentive programs. For example, Events by HA-LO
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 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 helps customers achieve
their business goals and objectives using sports and entertainment
marketing opportunities. HA-LO Sports provides services such as development
and negotiation of sponsorship arrangements and athlete and celebrity
endorsements, event creation and operation and sponsorship sales.
TELEMARKETING. Telemarketing is a component of relationship
marketing. The Company creates, manages and conducts outbound and inbound
telemarketing programs for large corporate clients, primarily in the insurance
and financial service industries. Market USA provides script development,
telephone-based direct sales, database analysis and management, consultation and
program design, as well as customer lead acquisition services, to clients.
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GROWTH STRATEGY
The Company's goal is to create a high quality brand marketing
organization building upon its core strengths in promotional products by
assembling a team of experts who are dedicated to building each client's brand
and becoming its client's competitive edge. Specific elements of the Company's
growth strategy include:
INTERNAL GROWTH. The Company believes that there are significant
opportunities available to expand the business through internal growth.
EXPAND EXISTING CUSTOMER RELATIONSHIPS. The Company seeks to grow
by further penetrating its existing clients through its ability to provide
additional brand building services and its ability to service companies on
a national and international basis.
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 products and programs and to
introduce to its customers the Company's other brand building disciplines.
In addition, as customers seek to outsource their marketing needs and
centralize purchases, the Company believes it has a substantial opportunity
to obtain a greater share of its customers' total marketing budget.
GROWTH OF THE PROMOTIONAL PRODUCT DIVISION. The Company seeks to
continue to grow its promotional product business by adding more sales
representatives, opening additional showrooms and increasing the
productivity of its current sales force. 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 place.
STRATEGIC ALLIANCES. The Company believes that it is uniquely
positioned to enter into strategic alliances with major corporations
whereby the Company becomes a strategic provider of marketing services and
promotional products to the customer.
ACQUISITION GROWTH. The Company believes that there are significant
opportunities for growth through acquisition of promotional product and
marketing service companies. Some of the key criteria evaluated in the
acquisition process include the effectiveness of management, quality of clients,
strategic locations and return on invested capital.
PROMOTIONAL PRODUCTS. The Company believes that there are
significant opportunities in the fragmented promotional products industry
both in the United States and Europe to acquire high-quality companies,
which provide the Company with additional sales representatives ,
established customers and may enable the Company to enter new geographic
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markets quickly. 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.
MARKETING SERVICES. The Company has established itself as a leader
in the brand marketing industry by acquiring marketing companies that are
leaders in their individual industry segments. The Company believes that
there are opportunities to acquire other marketing disciplined companies to
either enhance existing services or to add additional services both in the
United States and Europe.
BUSINESS STRATEGIES
PENETRATE CLIENT BASE THROUGH MULTI-DISCIPLINE APPROACH. 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 marketing
functions. In addition to its core promotional product offerings, the Company
also offers brand marketing and telemarketing services.
LEVERAGE EXPENSE STRUCTURE. The Company's organizational structure
leverages fixed overhead costs across its operating divisions by centralizing
primary corporate functions such as accounting, human resources and information
systems. Additionally, the Company leverages costs in the promotional product
business by: (i) centralizing warehousing and information systems, (ii)
compensating its sales force almost exclusively on a commission basis, (iii)
minimizing inventory carrying costs by handling a substantial majority of its
sales via direct shipment from the vendor to the customer. The Company believes
that the high proportion of its variable expenses relative to its fixed costs
results in less fluctuation in its profitability.
EXPAND PROMOTIONAL 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.
WORLDWIDE 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. During 1998,
the Company announced the acquisition of a promotional products distributor in
Europe which was completed in early 1999. The Company will continue actively
seeking international acquisitions to further establish a foundation for
obtaining more international business. The Company currently has operations in
Belgium, Canada, England, France, Holland, Hong Kong and Italy.
PURCHASING
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In its promotional products business 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 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.
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 including sales representatives and it is continually refining its
approach to hiring, training and motivating qualified employees and personnel.
The Company believes that it will retain and attract high quality employees
through a combination of its performance-based compensation structure, financing
capabilities, corporate visibility and the ability to provide a full range of
marketing services to its clients.
The Company employs approximately 1,500 people in its promotional
products business including approximately 750 core sales representatives.
Additionally, the Company employs approximately 300 people in marketing services
and 2,700 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.
CUSTOMERS
The Company's promotional product customers include manufacturing,
pharmaceutical financial service, broadcasting, consumer product and
communications companies as well as professional sports teams. Selected
customers of the Company include Abbott Laboratories, AlliedSignal, Ameritech
Corporation, Ford Motor Company, General Electric, General Mills, J.E. Seagram &
Sons and Sony. For the year ended December 31, 1998, 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 28, 1999, the Company had a backlog of firm orders of approximately
$46,085,000 as compared to a backlog of $28,838,000 at February 27, 1998,
substantially all of which the Company believes will be shipped by the second
quarter of 1999.
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PATENTS AND TRADEMARKS
The Company believes the "HA-LO" name is important to its business.
The Company has registered the following trademarks: "HA-LO"-Registered
Trademark- "HA-LO Advertising Specialties"-Registered Trademark-, "HA-LO
Marketing and Promotions"-Registered Trademark-, "Events by HA-LO"-Registered
Trademark- and "HA-LO Sports"-Registered Trademark-.
COMPETITION
The promotional products industry is highly fragmented and competitive
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 marketing services disciplines that the Company operates in are
highly fragmented and competitive, and some of the Company's competitors have
substantially greater financial and other resources than the Company. These
divisions also compete 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 telephone-based direct marketing industry in which Market USA
operates also is highly fragmented and competitive. 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.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
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<CAPTION>
Name Age Position with the Company
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<S> <C> <C>
Lou Weisbach 50 Chairman of the Board, President and
Chief Executive Officer
Linden D. Nelson 38 Director, Vice Chairman of the Board
and Chief Executive Officer of
Creative Concepts in Advertising, Inc.
Richard A. Magid 40 Director, Treasurer, Chief Operating
Officer and Assistant Secretary
Gregory J. Kilrea 35 Chief Financial Officer
David C. Robbins 46 Director, Executive Vice President
Michael Linderman 50 Executive Vice President - Promotional Products
Barbara G. Berman 54 Vice President - Retail Accounts and Secretary
David Blumenthal 36 Vice President - Information Systems
Peter Blythe 37 Vice President - Marketing
Gene Eherenfeldt 63 Vice President - Sales
Sabina Filipovic 38 Vice President - Administration and
Assistant Secretary
Bradford S. Kerr 44 Chief Information Officer
Barry T. Margolin 32 Vice President - Finance and Planning,
Corporate Controller and Assistant Secretary
Michael P. Nemlich 47 Vice President - Corporate Development/
Financial Relations
Jon Sloan 38 Vice President - National Accounts
</TABLE>
Officers are elected annually and serve at the discretion of the Board
of Directors. Mr. Okner, a member of the Board of Directors, is the
father-in-law of Mr. Robbins. There are no other family relationships between
any directors and executive officers of the Company.
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Mr. Weisbach has been the President and Chief Executive Officer of the
Company since January 1, 1988. From 1972 through 1987, he operated the
predecessor of the Company as a sole proprietorship.
Mr. Nelson has served as the Vice Chairman of HA-LO and Chief Executive
Officer of Creative Concepts in Advertising, Inc. since its acquisition by HA-LO
in January, 1997. Mr. Nelson was the Chairman and Chief Executive Officer of
Creative Concepts in Advertising since its inception in July, 1979 through
December, 1996.
Mr. 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.
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. 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. Linderman was appointed Executive Vice President - Promotional
Products in September 1998. From August 1997 through September 1998 he served as
Executive Vice President of Norwood Promotional Products, Inc. From December
1990 through August 1997, he was President of Key Industries, Inc. a promotional
products supplier which was acquired by Norwood in 1994.
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.
Mr. Blumenthal was appointed Vice President - Information Systems in
March of 1996. From March of 1995 through March of 1996, he was Director of
Information Systems. He started with HA-LO in 1981 and has held various
positions with the Company and its predecessor.
Mr. Blythe was appointed as an officer in July of 1998. He has been
serving as the Vice President - Marketing since April of 1997. From March 1993
through February 1997 he was Vice President and Account Executive for NatWest
Markets, the corporate and investment banking arm of National Westminster Bank
plc. where he was responsible for managing client relationships and developing
new accounts.
Mr. Eherenfeldt was appointed as an officer in July of 1998. He has
been serving as Vice President - Sales since July 1996. Prior to joining HA-LO
he was an independent manufacturers representative.
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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. 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 Conesco. 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. 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.
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
Mr. Sloan was appointed Vice President - National Accounts in July of
1998. Prior to that he held several sales positions at the Company and at
Creative Concepts in Advertising (CCA), which was acquired by the Company in
January 1997. Prior to joining CCA in 1994, he was a Partner in 1045 Park, a New
York based apparel company.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Niles,
Illinois, a suburb of Chicago. The Company has made arrangements to occupy a new
leased headquarters facility, currently under construction, in late 2000. The
Company's other facilities include sales offices and showrooms, warehouses,
administrative offices and call centers located throughout the United States,
Canada, Europe and Hong Kong. The majority of these facilities are leased.
Due to recent acquisitions, the Company leases more than one office in
certain cities and is in the process of consolidating certain offices to achieve
greater efficiencies. Management believes, with the addition of the new
headquarters, its facilities are adequate for its current operations, however,
additional facilities may be required to support continued growth.
ITEM 3. LEGAL PROCEEDINGS
None
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 1998.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Reference is made to "Note 16. Market for the Registrant's Common
Equity and Related Stockholder Matters" of the Company's financial statements
included in the Company's Annual Report to Shareholders for 1998 ("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 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 set forth in the Annual Report which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks relating to fluctuations in
currency exchange rates, interest rates and changes in the market value of
certain marketable securities. As required by new Securities and Exchange
Commission (SEC) rules, the Company has calculated the sensitivity of operating
results to hypothetical changes in exchange rates, interest rates and security
values as if these changes had actually occurred during 1998.
The Company is subjected to a risk from currency translation
fluctuations due to their operations in Europe and Canada. Had the US dollar
been 10% less favorable compared to foreign currencies during 1998 the Company
would have recognized a reduction in net income of approximately $300,000 or
about 1.2% of total net income. Additionally, the hypothetical drop in the value
of the US dollar to foreign currencies would have resulted in a $3.3 million
reduction in net assets, about 1.4%, of the total reported at year end. The
effect on cash flow in 1998 would have been immaterial. Management does not
believe the risk of unfavorable currency fluctuations is significant, and have
not entered into any foreign exchange contracts for the purpose of hedging
against this risk.
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The Company is exposed, through short-term investments and borrowings,
to the risk of unfavorable changes in interest rates. Had interest rates during
1998 been 10% less favorable, net income would have been negatively affected by
approximately $100,000. The Company also owns certain marketable securities that
are subject to fluctuations in value on the stock market. Had the value of the
stocks declined by 10%, during 1998, the Company could have realized
approximately $200,000 of net losses upon sale of the securities. Management
does not believe that the risk of unfavorable fluctuations in interest rates or
stock values is significant to the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Balance Sheets as of December 31, 1998 and 1997,
Consolidated Statements of Income, Consolidated Statements of Shareholders'
Equity, and Consolidated Statements of Cash Flows for the three years ended
December 31, 1998, 1997 and 1996 and Notes to Financial Statements set forth in
the Annual Report, and the Report of Arthur Andersen LLP included in the Annual
Report, are incorporated herein by reference.
Selected Quarterly Operating Results (Unaudited) set forth in the
Annual report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 regarding Executive Officers is
included in the "Executive Officers of the Registrant" section of Item I.
The information regarding Directors is incorporated by reference
from the "Election of Directors", "Executive Compensation" and "Security
Ownership of Management" and "Beneficial Ownership Reporting Compliance"
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 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.
<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, 1998)
(i) Report of Independent Public Accountants;
(ii) Consolidated Balance Sheets at December 31, 1998 and
1997;
(iii) Consolidated Statements of Income for each of the years
ended December 31, 1998, 1997 and 1996;
(iv) Consolidated Statements of Shareholders' Equity for each
of the years ended December 31, 1998, 1997 and 1996;
(v) Consolidated Statements of Cash Flows for each of the
years ended December 31, 1998, 1997 and 1996; and
(vi) Notes to Financial Statements.
2. Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are omitted because such schedules are not required or the
information required has been presented in the aforementioned
financial statements.
3. Exhibits
The exhibits to this report are listed in the Exhibit Index
included elsewhere herein.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth
quarter of 1998.
<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 30, 1999
HA-LO INDUSTRIES, INC.
Registrant
By: /s/ 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 30, 1999:
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
Richard A. Magid Secretary
/s/ THOMAS HERSKOVITS Director
---------------------
Thomas Herskovits
/s/ JORDON R. KATZ Director
---------------------
Jordon R. Katz
<PAGE>
/s/ MARSHALL J. KATZ Director
---------------------
Marshall J. Katz
/s/ SEYMOUR N. OKNER Director, Chairman of
--------------------- the Board of
Seymour N. Okner Market USA, Inc. and
Marusa Marketing, Ltd.
/s/ NEIL A. RAMO Director
---------------------
Neil A. Ramo
/s/ ROBERT SOSNICK Director
---------------------
Robert Sosnick
<PAGE>
HA-LO INDUSTRIES, INC.
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- --------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (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)
4.1 Specimen of Stock Certificate for Common Stock. (1)
4.2 * New specimen of Stock Certificate for Common Stock.
10.4 Employment Agreement, dated as of September 30, 1996, between the
Company, Market USA, Inc. and Seymour N. Okner. (6,11)
10.5 * Employment Agreement, dated January 3, 1997, between the Company and
Jon Sloan. (11)
10.6 * Real Property Put and Option Agreement, dated January 3, 1997, among
Maple Lane Acquisition Limited Liability Company, Linden D. Nelson,
and Creative Concepts in Advertising, Inc.
10.7 * First Amendment to Real Property Put and Option Agreement, dated
December, 1998, among Maple Lane Acquisition Limited Liability
Company, Linden D. Nelson, and Creative Concepts in Advertising,
Inc.
10.8 HA-LO Industries, Inc. Key Employee Incentive Plan. (1,11)
10.9 Exclusive Premium Purchasing Agreement, dated January 11, 1995,
between Montgomery Ward & Co., Incorporated and the Company. (4)
10.12 Form of Indemnity Agreement between the Company and each of its
directors and officers. (1,11)
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.(8,11)
10.18 Amendment of October 1996 to Bonus Shares Agreement, dated February
1, 1995, between the Company and David C. Robbins. (8,11)
10.19 Employment Agreement, dated as of January 3, 1997, between the
Company and Linden D. Nelson. (8,11)
10.20 Employment Agreement, dated as of April 15, 1996, between the
Company and Gregory J. Kilrea. (8,11)
10.21 Employment Agreement, dated as of April 15, 1996, between the
Company and Michael Nemlich. (8,11)
10.23 HA-LO Industries, Inc. Stock Plan (as amended and restated) (4,11)
10.24 Sales Representative Agreement, dated July 21, 1993, between the
Company and Neil Ramo. (3,11)
10.25 Second Amendment to the HA-LO Industries, Inc. Stock Plan (as
amended and restated), adopted October 28, 1995. (5)
<PAGE>
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., Inc. and the
Company. (5)
10.33 Credit Agreement, dated as of January 31, 1997, among the Company,
American National Bank 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)
10.35 * First Amendment to Credit Agreement, dated August 8, 1997, among
the Company, American National Bank and Trust Company of Chicago,
individually as Agent, and the Lenders which are or become parties
thereto.
10.36 * Second Amendment to Credit Agreement, dated January 20, 1999, among
the Company, American National Bank and Trust Company of Chicago,
individually as Agent, and the Lenders which are or become parties
thereto.
10.37 * Third Amendment to Credit Agreement, dated March 1, 1999, among the
Company, American National Bank and Trust Company of Chicago,
individually as Agent, and the Lenders which are or become parties
thereto.
10.38 * Guaranty Agreements dated March, 1999, by Promotional Marketing,
L.L.C., Lipson Associates, Inc., Premier Promotions and Marketing,
Inc., and Lee Wayne Corporation.
10.39 Amended and Restated HA-LO Industries, Inc. 1997 Stock Plan. (9,11)
10.40 1997 Employment Agreement between the Company and Lou Weisbach.
(10,11)
10.41 Employment Agreement dated January 1, 1998 between the Company and
Richard Magid. (10,11,12)
10.42 * Agreements by and between the Company and certain employees dated
November, 1997, regarding change of control. (11)
10.43 Agreements by and between the Company and David Robbins dated
November, 1997, regarding change of control. (10,11)
10.44 Agreements by and between the Company and Barbara Berman dated
November, 1997, regarding change of control. (10,11)
10.45 1998 Restatement of the HA-LO 401(k) Savings Plan. (10,11)
10.46 HA-LO Industries, Inc. Executive Deferred Compensation Plan (as
amended and restated) effective February 1, 1997.(10,11)
10.47 Executive Incentive Compensation Plan for Various Employees.(10,11)
10.48 * Agreement dated June 29, 1998 between the Company and Montgomery
Ward & Co., Inc.
10.49 * Second Amendment to Exclusive Premium Purchasing Agreement dated
June 29, 1998 between Montgomery Ward & Co., Inc. and the Company.
10.50 * Warrants, dated January 10, 1996, from the Company to Montgomery
Ward & Co., Inc., ValueVision International Inc. and Merchant
Development Corporation.
10.51 * First Amendment to Warrant dated June 29, 1998 between Montgomery
Ward & Co., Inc. and the Company (relative to Exhibit 10.50)
10.52 * Warrants, dated January 10, 1996, from the Company to Montgomery
Ward & Co., Inc., ValueVision International Inc. and Merchant
Development Corporation
10.53 * First Amendment to Warrant dated June 29, 1998 between Montgomery
Ward & Co., Inc. and the Company (relative to Exhibit 10.52).
<PAGE>
10.54 * Agreement dated January 26, 1999 between the Company and Montgomery
Ward & Co., Inc.
10.55 * First Amendment to the 1998 Restatement of the HA-LO 401(k) Savings
Plan, effective January 1, 1999. (11)
10.56 * Second Amendment to the 1998 Restatement of the HA-LO 401(k) Savings
Plan, effective January 1, 1999. (11)
13. * Annual Report to Shareholders for 1998 of registrant (for the
information of the Securities and Exchange Commission and not to be
deemed "filed" with the Commission, except for the portions
expressly incorporated by reference in this report).
21 * List of subsidiaries of registrant 23.1 * Consent of independent
public accountants.
23.1 * Consent of Independent Public Accountants
27.1 * Financial Data Schedule - 1998
27.2 * Financial Data Schedule - 1997 and 1996
- ----------
(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) Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement (No. 333-66849) on Form S-8, as amended,
filed by the Company under the Securities Act of 1933, as amended.
(10) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
(11) Management contract or compensatory plan or arrangement.
(12) Erroneously listed as being dated January 1, 1997 in the Exhibit
List to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
* Filed herewith.
<PAGE>
EXHIBIT 4.2
COMMON STOCK COMMON STOCK
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR CERTAIN
THE STATE OF ILLINOIS DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 404429 10 2
CHICAGO, ILLINOIS, OR NEW YORK, NEW YORK
[HA-LO LOGO]
HA - LO INDUSTRIES, INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
HA - LO INDUSTRIES, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED.
THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED AND REGISTERED BY THE
TRANSFER AGENT AND REGISTRAR.
WITNESS THE FACSIMILE SEAL AND THE SIGNATURES OF ITS DULY AUTHORIZED
OFFICERS.
DATED
[SIGNATURE] [SEAL] [SIGNATURE]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK TRANSFER AGENT
(CHICAGO, ILLINOIS) AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
HA-LO INDUSTRIES, INC.
The record holder of this Certificate may obtain from the Secretary of
the Corporation, upon request and without charge, a full statement of the
designations, relative rights, preferences and limitations of the shares of
each class authorized to be issued; the designations, relative rights,
preferences and limitations of each series of preferred shares authorized to
be issued so far as the same have been fixed; and the authority of the Board
of Directors to designate and fix the relative rights, preferences and
limitations of other series.
- ------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with
right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT - ____________________ Custodian ___________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act __________________________________
(State)
Additional abbreviations may also be used though not
in the above list.
FOR VALUE RECEIVED, _________________________ HEREBY SELL, ASSIGN AND
TRANSFER UNTO
Please insert Social Security or Other
Identifying Number of Assignee
_____________________________________________________________________________
_____________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
______________________________________________________________________SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________________
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED,______________________ X __________________________________________
X __________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE,
IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: _______________________________________________
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is made and entered
into as of this 3rd day of January, 1997, by and among CREATIVE CONCEPTS IN
ADVERTISING, INC., a Michigan corporation (the "Employer"), HA-LO INDUSTRIES,
INC., an Illinois corporation ("HA-LO"), and JON SLOAN (hereafter "Executive").
WHEREAS, Employer is engaged in the business of the sale and
distribution of advertising specialty and similar products and
services;
WHEREAS, the Employer provides services to a wide range of customers
engaged in various business endeavors throughout the United States and Canada,
and during the course of such services, Employer has established customer bases,
customer lists and ongoing relationships with their customers;
WHEREAS, as of the date hereof (the "Effective Date"), HA-LO has
acquired, by and through a unitary transaction, all of the outstanding shares of
capital stock of the Employer pursuant to and in accordance with the terms and
conditions of that certain Agreement and Plan of Merger and Plan of
Reorganization dated as of
, 1996 (the "Plan of Merger");
WHEREAS, Executive's agreement to enter into this Employment Agreement
was a material inducement to HA-LO to enter into the Plan of Merger and
consummate the transactions thereunder;
WHEREAS, Executive has had and will continue to be granted direct and
substantial exposure to the customers and prospective customers of the Employer,
and during the term of this Employment Agreement, Executive may have direct and
substantial exposure to the customers and prospective customers of Employer,
HA-LO, HA-LO's wholly and partially-owned subsidiaries and affiliates, and other
entities owned or controlled, in whole or in part, by HA-LO (such entities are
hereafter collectively "Related Entities");
NOW, THEREFORE, in consideration of the foregoing premises, HA-LO's
consummation of the transactions under the Plan of Merger, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
mutually acknowledged, Executive, Employer and HA-LO, intending to be legally
bound, hereby agree as follows:
1. RECITALS. Each of the above recitals is incorporated in this
Employment Agreement and shall be binding upon the parties hereof. Reference is
hereby made to the Plan of Merger. This Employment Agreement supersedes any and
all previous agreements, understandings and commitments relating to Executive's
employment with the Employer. Executive understands and agrees that each such
agreement, understanding and commitment relating to his continued employment
with the Employer is revoked and cancelled, with no further rights or
obligations on the part of either party thereto.
<PAGE>
2. EMPLOYMENT; DUTIES. The Employer hereby agrees to employ Executive,
and Executive hereby accepts such employment, as the Vice-President of Sales of
Employer, on the terms and subject to the conditions set forth herein. During
the "Term" (as hereafter defined), Executive shall devote his full business time
and best efforts to the performance of all duties pertaining to the Employer as
shall be assigned to him from time-to-time, and shall not engage in any other
business activity nor be gainfully employed other than pursuant to this
Agreement. Such duties shall be of an executive nature and consistent in scope
and responsibility with the title of Vice-President of Sales. The performance of
Executive's duties hereunder shall be subject to the supervision, advice and
direction of the President and Board of Directors of Employer.
3. COMPENSATION. As consideration for Executive's services hereunder,
the Employer shall pay to Executive an aggregate annual base salary of not less
than Seventy-Five Thousand Dollars ($75,000) (less applicable withholdings)
("Salary"), in equal semi-monthly installments. HA-LO agrees that, subject to
satisfaction of performance criteria made applicable to him, the Employer shall
cause HA-LO to offer Executive the right to participate in the HA-LO Industries,
Inc. Stock Plan (the "Stock Plan", a true and correct copy of which has been
furnished to the Executive and by this reference expressly incorporated herein
and made a part hereof), for its management employees, as a group.
4. ADDITIONAL COMPENSATION. As additional consideration for Executive's
services hereunder, the Employee shall pay Executive an amount equal to one
percent (1%) of the "gross receipts of Employer" (as herein defined) with
respect to sales programs which Executive directly oversees or administers on
behalf of the Employer, including but not limited to the General Electric and
Allied Signal programs. The term "gross receipts of Employer" shall mean the
gross revenues by Employer applicable returns. The term "programs" shall mean
all the gross revenues actually received by Employer or related entitles from
its clients or customers, such as General Electric and Allied Signal. Additional
compensation shall be payable by Employer to Executive within thirty days
following the conclusion of each quarter (March 31, June 30, September 30 and
December 31).
5. FRINGE BENEFITS. Subject to applicable law, and the rules and
policies adopted by HA-LO's and Employer's Board from time-to-time, Employer
shall provide Executive with such non-performance related fringe benefits
(including, but not limited to, group health and dental coverage, group life and
disability insurance, and the right to participate in qualified pension and
welfare benefit plans), as are provided generally to the employees of Employer,
as a group.
- 2 -
<PAGE>
6. EXPENSE REIMBURSEMENT. Subject to the rules, policies and
regulations of the Employer in effect from time to time and applicable to its
employees, Executive shall be entitled to reimbursement by the Employer for all
reasonable and customary travel, business entertainment and other
business-related expenses incurred by him in carrying out his duties under this
Employment Agreement.
7. TERMINATION.
(a) TERMINATION. The term of this Employment Agreement (the
"Term") and Executive's employment hereunder shall commence as of the
date hereof and terminate at the earlier of (i) the third (3rd)
anniversary of the date hereof, or (ii) the first to occur of any of
the following events: (1) the mutual agreement of the Employer and
Executive to so terminate this Employment Agreement, (2) the death or
"disability" (as hereafter defined) of Executive, or (3) HA-LO's
written election to cause the Employer to terminate this Employment
Agreement and Executive's employment hereunder "for Cause" (as
hereafter defined).
(b) DISABILITY DEFINED. As used in this Employment Agreement,
the term "disability" shall mean any mental, physical or emotional
disability or condition which is reasonably expected to last for a
continuous period of one hundred twenty (120) days or more, and which
may reasonably be expected to prevent Executive from fully performing
his duties hereunder. A disability shall be determined by a physician
selected by the Employer who shall be a specialist in internal
medicine.
(c) "FOR CAUSE" DEFINED. As used in this Employment Agreement,
the term "for Cause" shall mean any one or more of the following: (1)
Executive's theft, embezzlement, fraud or misappropriation of funds, or
conspiracy with others to cause same, (2) any breach of fiduciary duty,
abuse of trust or other material act of dishonesty by Executive, or
Executive's violation of any other material law or ethical rule
relating to his employment, (3) Executive's commission of or
participation in a felony or other crime involving moral turpitude, (4)
Executive's refusal to comply with the lawful directives rules or
policies of HA-LO's or Employer's Board, (5) an indictment or
information is issued against HA-LO or Employer alleging criminal
liability due to actions taken or failed to be taken by Executive
without the consent of HA-LO's or Employer's Board, which indictment or
information is not dismissed with prejudice within one hundred twenty
(120) days thereafter, or (6) upon Executive's breach of any material
representation or material covenant set forth in this Employment
Agreement and failure to substantially cure same within thirty (30)
days following written notice by Employer or HA-LO.
- 3 -
<PAGE>
(d) EFFECT UPON TERMINATION. In the event the Term of this
Employment Agreement is terminated by reason of death, disability or
termination for Cause, all rights, duties and obligations of the
parties pursuant to this Employment Agreement shall terminate, except
to the extent of Executive's Salary and Additional Compensation accrued
through the date of termination, and Executive's accrued and vested
benefits (after giving effect to the cause of such termination) under
the Stock Plan. In the event Executive's employment shall terminate by
reason of the expiration of the Term, Executive shall not be entitled
to severance pay notwithstanding any contrary policies and practices of
HA-LO or Employer.
(e) SURVIVAL OF COVENANTS. Upon termination of the Term of
this Employment Agreement for any reason (except termination by HA-LO
or Employer other than for cause), the provisions of this Section 7,
and the terms and conditions of Sections 8 through 12 of this
Employment Agreement, shall remain in full force and effect, and shall
be binding on and enforceable against Executive, Employer and HA-LO as
though such termination had not occurred. Executive hereby acknowledges
that his agreement to the survival of the terms and conditions of
Sections 8 through 12 of this Employment Agreement constitute a
material inducement to HA-LO to enter into this Employment Agreement.
8. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
warrants to and with Employer and HA-LO that Executive is not bound by or
subject to, and that he has not entered into, any covenants, agreements or
restrictions which would be breached or violated by Executive's execution of
this Employment Agreement or by Executive's performance of his duties hereunder.
Without limiting the generality of the foregoing, Executive is not subject or
party to any continuing covenants, agreements or restrictions, whether or not
limited in time or geographical scope, arising out of any prior work engagement
involving Executive and another party. Executive further represents and warrants
to and with Employer and HA-LO that, as of the date hereof, he has not breached
or violated any representation, warranty, covenant or agreement set forth in
this Employment Agreement, and as of the date hereof there does not exist any
breach or violation of any representation, warranty, covenant or agreement set
forth in this Employment Agreement.
9. CONFIDENTIALITY. Executive acknowledges that by virtue of the
corporate offices he previously maintained with the Employer, the corporate
offices he maintains pursuant to the terms of this Employment Agreement, he has
been and will continue to be granted access to, and has learned and may continue
to learn of, information regarding the Related Entities which is of a
confidential, private or sensitive nature (e.g., business strategies and goals,
financial projections and objectives, advertising campaigns and strategies,
graphic designs and other
- 4 -
<PAGE>
materials, use and utilization of tradenames, trademarks, patents, copyrights
and other registrable properties, pricing systems, product and service costs,
product and service designs, product and service margins, customer lists and
records, customer information, purchaser lists and records, purchaser
information, mark-ups and margins, marketing techniques, supplier and vendor
information, product content, and, generally, such other confidential
information, trade secrets and proprietary information) which give, or may give,
the Related Entities an advantage in the marketplace against competitors (all of
the foregoing, together with such other data and information intended by its
holder to constitute an asset or property the rights in or to which are
protectable as against third parties, are hereafter collectively referred to as
"Proprietary Information"). Executive agrees that during the Term and
thereafter, for any reason whatsoever, Executive shall hold and keep secret all
Proprietary Information previously known to him or at any time hereafter
disclosed to or learned by him, and Executive shall not directly or indirectly
disclose such Proprietary Information to any person, firm, court, governmental
agency or corporation, or in any manner use the same, except in connection with
the business and affairs of the Employer and HA-LO.
10. NON-COMPETITION. Executive covenants that during the Term and for a
period of two (2) years thereafter, Executive shall not, directly or indirectly,
in the United States, 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, or any other capacity, in any way
conduct or engage in any business directly competitive with the business of the
Employer the nature of which business Executive shall have general oversight
responsibility on behalf of Employer as of the date of the termination of the
Term or for a period of six (6) months prior thereto, it being the understanding
of the parties that the Executive shall generally be charged with the oversight
of the sales operation of the Employer.
11. NON-SOLICITATION. Executive hereby covenants and agrees that during
the Term and for a period of two (2) years thereafter, he shall not, directly or
indirectly, 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, or in any other capacity, in any way call upon or
solicit, any person or entity which then is, or at any time prior thereto was, a
customer or Prospective Customer of the Employer or HA-LO. For purposes of this
Employment Agreement, the term "Prospective Customer" shall mean any person,
firm, partnership, corporation or other entity to which the Employer or HA-LO
has made a written presentation or proposal, or presented written materials at a
meeting, within the six (6) month period immediately prior to the date upon
which this Employment Agreement terminates.
- 5 -
<PAGE>
12. NON-DISTURBANCE. Executive hereby covenants and agrees that during
the Term and for a period of two (2) years thereafter, he shall not, directly or
indirectly, 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, or in any other capacity solicit or otherwise
interact with any employee or agent of the Employer or HA-LO which solicitation
or contact may reasonably lead such employee or agent to terminate his
employment with the Employer or HA-LO.
13. REMEDIES.
Executive acknowledges that compliance with the restrictive covenants
set forth in Sections 8 through 12 herein is necessary to protect the business,
goodwill and Proprietary Information of the Related Entities, and that a breach
of these restrictions may irreparably and continually damage such entity, for
which monetary damages may not be adequate. Consequently, Executive agrees that,
in the event that he violates or breaches any of these covenants, the Employer
and/or HA-LO shall be entitled to both (1) a temporary, preliminary or permanent
injunction in order to prevent the continuation of such harm, and (2) monetary
damages insofar as they can be determined. Nothing in this Employment Agreement,
however, shall be construed to prohibit an aggrieved entity from also pursuing
any other remedy, the parties having agreed that all remedies are to be
cumulative. The parties expressly agree that the Employer or HA-LO may, in their
sole discretion, choose to enforce the restrictive covenants in Sections 8
through 12 hereof, in part, or to enforce any of said restrictive covenants to a
lesser extent than that set forth herein.
14. REVISION. In the event that any of the provisions, covenants,
warranties or agreements in Sections 7 through 10, inclusive, of this Employment
Agreement are held to be in any respect an unreasonable restriction upon or are
otherwise invalid, for whatsoever cause, then the court so holding shall reduce
and is so authorized to reduce, the territory to which it pertains and/or the
period of time in which it operates, or the scope of activity to which it
pertains or effect any other change to the extent necessary to render any of the
restrictions of this Employment Agreement enforceable.
15. GENERAL PROVISIONS.
(a) SEVERABILITY. Each of the terms and provisions of this
Employment 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.
- 6 -
<PAGE>
(b) BINDING AGREEMENT. This Employment Agreement shall be
binding upon the parties, their heirs, successors, personal
representatives and assigns. The Employer or HA-LO may assign this
Agreement to their successors in interest to the business, or part
thereof, of the Employer or HA-LO, provided that the assignee assumes
all of the liabilities of the assignor hereunder. Executive may not
assign any of his obligations or duties hereunder.
(c) CONTROLLING LAW AND JURISDICTION. This Employment
Agreement shall be governed by and interpreted and construed according
to the laws of the State of Michigan. Executive, Employer and HA-LO all
hereby consent to the sole and exclusive jurisdiction of the state
and/or federal courts in Michigan, in the event that any disputes arise
under this Employment Agreement.
(d) ENTIRE AGREEMENT. This instrument contains the entire
agreement of the parties with regard to the subject matter hereof, and
may not be changed orally, but only by an agreement in writing signed
by the parties hereto.
(e) FAILURE TO ENFORCE. The failure to enforce any of the
provisions of this Employment 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 Employment Agreement.
(f) HEADINGS. All numbers and Section headings are for
reference only and are not intended to qualify, limit or otherwise
affect the meaning or interpretation of any such Section.
(a) 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 HA-LO at 5980
West Touhy Avenue, Niles, Illinois, 60174, Attention: Chief Executive
Officer, to Employer at and to Executive at the last address
shown in Executive's personnel file.
(b) 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.
- 7 -
<PAGE>
16. OPTIONS. Pursuant to the HA-LO Stock Plan, the Executive shall
receive ( ) options to purchase HA-LO common stock under the
Plan to be granted as of the date hereof which shall in all cases be
subject to the terms and conditions of the Plan; the options granted
shall, generally, vest 50% upon the first anniversary date hereof and 50%
on the second anniversary date of the date hereof, shall terminate ten
years from the date hereof and shall have an exercise price equal to the
arithmetic mean between the bid price and the ask price for HA-LO shares
of common stock as quoted by the NASDAQ as of the date hereof.
17. EXTENSION TO TERM. Employer and HA-LO shall have the option to
continue the term of this Employment Agreement for additional three (3) year
terms upon the same terms and conditions set forth herein.
WHEREFORE, the parties have executed this Agreement on the date and
year first above written.
CREATIVE CONCEPTS HA-LO INDUSTRIES, INC.
IN ADVERTISING, INC.
By: By:
------------------------------------ --------------------------
Its: Its:
-------------------------------- -------------------------
-----------------------------
Jon Sloan
- 8 -
<PAGE>
Exhibit 10.6
REAL PROPERTY PUT AND OPTION AGREEMENT
THIS REAL PROPERTY PUT AND OPTION AGREEMENT (this "Agreement") is made
and entered into as of the 3rd day of January, 1997, among MAPLE LANE
ACQUISITION LIMITED LIABILITY COMPANY, a Delaware limited liability company,
whose address is 31535 Southfield Road, Beverly Hills, Michigan 48025 ("Maple
Lane LLC"), LINDEN D. NELSON, having an address at 31535 Southfield Road,
Beverly Hills, Michigan 48025, and CREATIVE CONCEPTS IN ADVERTISING, INC., a
Michigan corporation, whose address is 31535 Southfield Road, Beverly Hills,
Michigan 48025 ("CCA"), based upon the following:
A. On even date herewith, Maple Lane LLC has transferred and conveyed
to CCA certain real property located in the City of Troy, Oakland County,
Michigan, as is more particularly described on Exhibit A attached hereto and
made a part hereof, together with the rights of way, roadways, easements and
appurtenances associated therewith (the "Property"), pursuant to the terms of a
Real Property Purchase Agreement between Maple Lane LLC and HA-LO Acquisition
Corporation of Michigan, Inc. ("HA-LO Michigan"), dated of even date herewith
(the "Purchase Agreement").
B. The Purchase Agreement was executed and delivered pursuant to the
terms of a certain Agreement and Plan of Merger and Plan of Reorganization dated
as of October 29, 1996 (the "Merger Agreement"), among HA-LO Industries, Inc.,
HA-LO Michigan, CCA, the shareholders of CCA and certain entities and
individuals affiliated with CCA.
C. Pursuant to the Purchase Agreement, Maple Lane LLC and HA-LO
Michigan agreed that at the closing of the sale of the Property to CCA, Maple
Lane LLC and CCA would enter into an agreement granting CCA the right to require
that Maple Lane LLC repurchase the Property and granting Maple Lane LLC the
right to repurchase the Property.
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<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. THE PUT. CCA shall have the right, exercisable at any time after the
date which is two (2) years and one (1) day following the date of this Agreement
(the "Initial Date") and before that date which is one hundred twenty (120) days
after the Initial Date (the "Put and Option Period"), to require that Maple Lane
LLC repurchase the Property and all then existing improvements thereon or
associated therewith (the "Improved Property") from CCA (the "Put"). The Put
shall be exercised, if at all, by CCA delivering written notice of its exercise
to Maple Lane LLC prior to the expiration of the Put and Option Period.
2. THE OPTION. Maple Lane LLC shall have the right (the "Option"),
exercisable at any time during the Put and Option Period, to purchase the
Improved Property. The Option shall be exercised, if at all, by Maple Lane LLC
delivering written notice of its exercise to CCA prior to the expiration of the
Put and Option Period.
3. REPURCHASE PRICE. The purchase price to be paid by Maple Lane LLC to
CCA upon the purchase of the Improved Property (the "Repurchase Price") shall be
equal to the sum of (i) One Million Dollars ($1,000,000), and (ii) all
construction and development expenses approved by Maple Lane LLC (which approval
shall not be unreasonably withheld or delayed) incurred to construct the office
building and warehouse improvements to be constructed by CCA for use as its
headquarters building (the "Improvements") on the Property in accordance with
plans and specifications approved by Maple Lane LLC in the exercise of its
reasonable discretion (the "Approved Plans"), together with interest on the
amounts set forth in (i) and (ii) above, at the rate available to HA-LO
Industries, Inc., under its primary credit facility, unless CCA obtains a
specific credit facility for construction of the improvements, in which event
the interest rate under that credit facility shall apply. For the
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<PAGE>
purposes of this Agreement, (a) so long as Linden D. Nelson remains a member of
the Board of Directors of CCA, Maple Lane LLC shall be deemed to have approved
all construction and development expenses incurred in connection with the
construction of the Improvements unless Linden D. Nelson reasonably objects to
and votes against such expenditures at a meeting of the Board of Directors of
CCA, and (b) Maple Lane LLC shall be deemed to have approved all construction
and development expenses contemplated under the Approved Plans.
4. CONDITION OF TITLE. Within ten (10) business days following CCA's
exercise of the Put or Maple Lane LLC's exercise of the Option, CCA shall
deliver to Maple Lane LLC a commitment for policy of title insurance in the form
required under the Purchase Agreement, but identifying Maple Lane LLC as the
purchaser. It shall be a condition to Maple Lane LLC's obligation to purchase
the Property that such commitment for policy of title insurance not disclose any
restrictions, liens or encumbrances other than those as are identified on the
policy of title insurance issued to CCA upon the closing of the purchase of the
Property by CCA or which shall be removed upon the conveyance of the Improved
Property to Maple Lane LLC or are permitted under this Paragraph 4. CCA further
covenants and agrees not to burden the Property with any easements,
restrictions, or other encumbrances that will not be discharged upon the
reconveyance of the Property to Maple Lane LLC, without Maple Lane LLC's prior
written consent, which shall not be unreasonably withheld or delayed and shall
be deemed granted with respect to easements that are necessary for the
development of the Property in accordance with the Approved Plans.
5. CONDITION OF PROPERTY. Except for the construction of the
Improvements in accordance with the Approved Plans, the Property shall be
delivered to CCA in the condition existing as of the date of this Agreement.
Maple Lane LLC acknowledges and agrees that at
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<PAGE>
Closing it shall acquire the Property in an "AS-IS, WHERE-IS" physical
condition, with all faults and defects. NO REPRESENTATION OR WARRANTY, WRITTEN,
ORAL, EXPRESS OR IMPLIED, AS TO THE PHYSICAL CONDITION OR STATE OF REPAIR OF THE
PROPERTY OR ANY PART THEREOF, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF
MERCHANTABILITY OR WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, HAVE BEEN OR
WILL BE MADE BY CCA.
6. THE CLOSING. The closing of the sale of the Property to Maple Lane
LLC (the "Closing") shall occur on a date mutually selected by CCA and Maple
Lane LLC (the "Closing Date"), but in no event more than ninety (90) days
following the exercise of the Put or the Option, as applicable.
7. PAYMENT OF REPURCHASE PRICE; DOCUMENTS TO BE EXECUTED AND DELIVERED
AT THE CLOSING. At the Closing:
(a) Maple Lane LLC shall pay the Repurchase Price to CCA by means of
certified or cashier's check or wire transfer;
(b) CCA shall deliver to Maple Lane LLC a Warranty Deed executed on
behalf of CCA in the form required under the Purchase Agreement (but with CCA as
the Grantor) and a Real Property Transfer Valuation Affidavit on the statutory
form;
(c) CCA and Maple Lane LLC shall execute a closing statement setting
forth the calculation of the Repurchase Price and all adjustments and prorations
between Maple Lane LLC and CCA with respect to the Property;
(d) CCA shall execute and deliver to Maple Lane LLC, a non-foreign
affidavit or a qualifying statement sufficient in form and substance to relieve
Maple Lane LLC of any and all obligations to deduct, withhold or pay any amount
of tax pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended
(the "Code"), or a statement from CCA
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<PAGE>
authorizing Maple Lane LLC to deduct and withhold taxes as required by Section
1445 of the Code;
(e) Maple Lane LLC and CCA shall enter into a Lease of the Improved
Property containing the business terms attached to this Agreement as Exhibit C,
and containing such other terms and, in such form, as the parties shall mutually
agree, the parties agreeing that when such lease form is complete, the parties
will amend this Agreement so as to attach such form of lease hereto as Exhibit
C-1;
(f) CCA shall deliver to Maple Lane LLC a certificate of CCA in which
CCA represents and warrants to Maple Lane LLC the matters set forth in Paragraph
6 of the Purchase Agreement (modified to reflect the fact that CCA is a Michigan
corporation rather than a Delaware limited liability company); and
(g) CCA and Maple Lane LLC shall each execute and deliver such further
documents and instruments as shall be reasonably required to carry out the
intent of this Agreement.
8. CONSTRUCTION OF IMPROVEMENTS; INSURANCE: CCA shall maintain all-risk
property insurance with an extended coverage endorsement, insuring the
Improvements for their full replacement cost until the expiration of the Put
Period and the Option Period. During construction of the Improvements, CCA shall
also maintain such other insurance covering the Improvements, including
Builder's Risk insurance, as Maple Lane LLC shall reasonably require.
9. REPORTING COMPLIANCE. Each party hereby agrees to provide to the
person responsible for closing the transaction contemplated hereunder, prior to
or at closing, all information required to be reported by such person under
Section 6045 of the Code, if such reporting is required under the Treasury
Regulations promulgated (or other governmental
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<PAGE>
determinations made) pursuant to such Section 6045.
10. POSSESSION. CCA shall deliver and Maple Lane LLC shall accept
possession of the Improved Property upon the Closing Date.
11. TAXES, PRORATED ITEMS AND CLOSING COSTS. (a) All taxes and
assessments, including all unpaid assessments and all assessments payable in
installments, which have become a lien upon the Property and are due and payable
as of the Closing Date shall be paid in full by CCA. Current taxes shall be
prorated and adjusted as of the Closing Date in accordance with the due date
basis of the municipality or taxing unit in which the Property is located.
(b) The state and county transfer tax that will be payable upon the
transfer of title from CCA to Maple Lane LLC shall be CCA's obligation.
12. CASUALTY AND CONDEMNATION. In the event the Put or the Option are
exercised and there shall have been any casualty or condemnation affecting the
Property prior to the Closing, then the Repurchase Price shall be reduced by any
casualty or condemnation proceeds received by CCA and CCA shall assign to Maple
Lane LLC all of CCA's rights, claims, and other interests associated with any
such casualty or condemnation. CCA further agrees that Maple Lane LLC shall have
the right to participate in and approve (which approval shall not be
unreasonably withheld or delayed) any settlement of any insurance claims or
condemnation proceedings arising prior to the expiration of the Put and Option
Period (or the Closing of the Put or Option are exercised).
13. USE OF WORDS. The pronouns and relative words herein used shall be
read interchangeably in masculine, feminine or neuter, singular or plural, as
the respective case may be.
14. NOTICES. All notices, requests, demands, approvals, consents,
waivers or
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<PAGE>
other communications hereunder shall be in writing and shall be deemed to have
been duly given upon receipt or refusal to accept receipt if delivered or mailed
by registered or certified mail, postage prepaid, or by nationally recognized
overnight delivery service, addressed as follows:
<TABLE>
<S> <C>
If to Maple Lane LLC: Maple Lane Acquisition Limited Liability Company
31535 Southfield Road
Beverly Hills, Michigan 48025
Attention: Mr. Linden D. Nelson
with a required Kenneth H. Gold, Esquire
copy to: Miro Weiner & Kramer
Suite 100, 500 North Woodward Avenue
P.O. Box 908
Bloomfield Hills, Michigan 48303-0908
If to CCA: Creative Concepts in Advertising, Inc.
c/o HA-LO Industries, Inc.
5980 West Touhy Avenue
Niles, Illinois 60714
Attention: Mr. Gregory J. Kilrea, CFO
with a required Marc S. Roth, Esquire
copy to: Marc S. Roth & Associates, Ltd.
176 Ambrogio Drive
Gurnee, Illinois 60031-9939
- and -
Barry J. Shkolnik, Esquire
Neal, Gerber & Eisenberg
Two North LaSalle Street, Suite 2200
Chicago, Illinois 60602
</TABLE>
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Michigan relating solely to contracts
to be solely performed within the State of Michigan by residents thereof; I.E.,
without regarding to Michigan's choice of laws principles.
16. CONTENTS OF AGREEMENT. This Agreement sets forth the entire
understanding
7
<PAGE>
of the parties hereto with respect to the transaction contemplated hereby and
may not be amended except by a written instrument executed by the parties
hereto. Any previous agreements or understandings between the parties regarding
the subject matter hereof are merged into and superseded by this Agreement. Each
Exhibit attached to this Agreement is incorporated in this Agreement by
reference.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. Delivery by facsimile of
this Agreement or an executed counterpart hereof shall be deemed a good and
valid execution and delivery hereof.
18. SUCCESSORS AND ASSIGNS. Prior to the expiration of the Put Period
and the Option Period, (i) CCA shall not sell, transfer or convey any portion of
the Property or assign its rights hereunder except to an entity owned or
controlled by, or under common control with, or controlling, CCA and (ii) Maple
Lane LLC shall not transfer or assign its rights hereunder except to an entity
owned or controlled by Linden D. Nelson. Except as specifically set forth
herein, all of the terms, conditions, and covenants to be observed and performed
by the parties hereto shall be applicable to and binding upon their respective
heirs, administrators, executors, successors, and permitted assigns.
19. COVENANTS RUNNING WITH THE LAND. The terms, covenants, conditions
and other provisions contained in this Agreement shall run with the land and be
binding upon the Property.
20. SEVERABILITY. Wherever possible, each term of this Agreement shall
be interpreted in such manner as to be effective, valid and enforceable under
applicable law. However, if any particular term is prohibited by, invalid or
unenforceable under, applicable law, then such term shall be ineffective only to
the extent of such prohibition, invalidity, or
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<PAGE>
unenforceability, and shall not invalidate the remainder of such term or any of
the other terms in this Agreement.
21. NO PARTNERSHIP. Notwithstanding anything to the contrary contained
in this Agreement, the relationship of the parties hereunder is solely that of
seller and purchaser, and nothing contained in this Agreement is intended or
shall be deemed to create a partnership or joint venture relationship between
Maple Lane LLC and CCA.
22. CAPTIONS. All titles and captions contained in this Agreement are
for reference purposes only and shall not be deemed to have any substantive
effect.
23. MEMORANDUM OF AGREEMENT. Each party agrees that if requested by the
other party, it shall consent to and execute any notice or memorandum of this
Agreement to be recorded in the property records in the county in which the
Property is located.
24. EXECUTION BY LINDEN D. NELSON. Linden D. Nelson is executing this
Agreement solely for the purpose of guaranteeing the obligation of Maple Lane
LLC to repurchase the Property following the exercise of the Put by CCA.
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<PAGE>
The parties hereto have executed this Real Property Put and Option
Agreement as of the date first above written.
MAPLE LANE ACQUISITION LIMITED
LIABILITY COMPANY,
a Delaware limited liability company
By:
-----------------------------------
Its:
-------------------------------
--------------------------------------
LINDEN D. NELSON
CREATIVE CONCEPTS IN ADVERTISING, INC.,
a Michigan corporation
By:
-----------------------------------
Its:
-------------------------------
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<PAGE>
Exhibit 10.7
FIRST AMENDMENT TO
REAL PROPERTY PUT AND OPTION AGREEMENT
THIS FIRST AMENDMENT TO REAL PROPERTY PUT AND OPTION AGREEMENT (this
"Amendment") is made and entered into as of the ___ day of December, 1998, among
MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY, a Delaware limited liability
company, whose address is 31535 Southfield Road, Beverly Hills, Michigan 48025
("Maple Lane LLC"), LINDEN D. NELSON, having an address at 31535 Southfield
Road, Beverly Hills, Michigan 48025 ("Nelson"), and CREATIVE CONCEPTS IN
ADVERTISING, INC., a Michigan corporation, whose address is 31535 Southfield
Road, Beverly Hills, Michigan 48025 ("CCA").
RECITALS:
A. Maple Lane LLC, Nelson and CCA have heretofore entered into that certain
Real Property Put and Option Agreement dated as of January 6, 1997 (the
"Agreement").
B. Pursuant to the Agreement, at such time as the parties agree on the
lease form contemplated therein, the parties have agreed to amend the Agreement
to attach such lease form to the Agreement as Exhibit C-1.
C. The parties have agreed on such lease form.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Attached hereto as Exhibit A is a form of lease that has
been agreed upon by the parties. The parties hereto hereby agree that the
Agreement is hereby amended to attach such lease form to the Agreement as
Exhibit C-1.
2. As amended hereby, the Agreement shall continue in full
force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MAPLE LANE ACQUISITION LIMITED
LIABILITY COMPANY, a Delaware
limited liability company
By:
----------------------------
Its:
-------------------------
-------------------------------
LINDEN D. NELSON
CREATIVE CONCEPTS IN ADVERTISING,
INC., a Michigan corporation
By:
-----------------------------
Its:
-------------------------
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<PAGE>
EXHIBIT A
Lease
(Exhibit C-1 to Real Property Put and Option Agreement)
<PAGE>
LEASE
BETWEEN
LANDLORD: MAPLE LANE ACQUISITION, L.L.C.
AND
TENANT: CREATIVE CONCEPTS IN ADVERTISING, INC.
DATED:
<PAGE>
LEASE
THIS LEASE (this "Lease") is entered into as of the ______ day of
__________________,199__, by and between MAPLE LANE ACQUISITION, L.L.C., a
Michigan limited liability company ("Landlord"), and
[CREATIVE CONCEPTS IN ADVERTISING, INC.], a ____________________ corporation
("Tenant")
SECTION I
BASIC LEASE PROVISIONS
LANDLORD: NAME: MAPLE LANE ACQUISITION, L.L.C., a Michigan limited
liability company
ADDRESS:
------------------------------------------------------
TENANT: NAME: CREATIVE CONCEPTS IN ADVERTISING, INC., a
-------------------------------
ADDRESS:
-------------------------------------------------------
DEMISED
PREMISES: The land as described in Exhibit A attached hereto
(the "Site") and the improvements now or hereafter
located thereon in Oakland County, Michigan, commonly
known as 1499 Maple Lane, Troy, Michigan (said Site
and improvements being hereinafter collectively
referred to as the "Demised Premises"), subject,
however, to (a) all liens, easements, covenants,
restrictions and encumbrances affecting title as of
the Commencement Date (as hereinafter defined) and
(b) all present and future zoning and other
governmental laws, regulations, rules, restrictions,
and ordinances.
ORIGINAL LEASE
TERM: Five (5) years
RENEWAL TERMS: Two (2) options to renew for terms of five (5) years each.
COMMENCEMENT
DATE:
ORIGINAL EXPIRATION
DATE: Five (5) years after the Commencement Date.
ANNUAL BASE
RENT: Fair Market Rent (as hereinafter defined).
2
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USE OF DEMISED
PREMISES: Executive and administrative offices, warehouse and production
facilities, and, with Landlord's consent, which shall not be
unreasonably withheld, any other lawful use.
EXHIBITS
ATTACHED: A - Legal Description of Demised Premises
SECTION 2
GRANT AND TERM
2.1 DEMISED PREMISES
Landlord, in consideration of the rents to be paid and the covenants,
promises and agreements to be performed by Tenant, does hereby lease to Tenant
and Tenant hereby rents from Landlord, the Demised Premises described in Section
1.
2.2 ORIGINAL TERM
The original term of this Lease shall be for the Original Lease Term stated
in Section 1, commencing on the Commencement Date stated in Section 1 and
expiring on the Original Expiration Date stated in Section 1, unless delayed or
sooner terminated as herein set forth.
2.3 RENEWAL TERMS
A. Provided that both at the time of the exercise of the options
hereinafter set forth and at the time of the commencement of the applicable
Renewal Term (as hereinafter defined this Lease is in full force and effect and
provided, further, that Tenant is not then in default hereunder beyond any
applicable notice and grace periods, then Tenant is hereby granted the options
to renew the Term for two (2) additional periods of five (5) years each (each, a
"Renewal Term"). The first Renewal Term ("First Renewal Term") shall commence at
the expiration of the Original Lease Term and the second Renewal Term ("Second
Renewal Term") shall commence immediately after the expiration of the First
Renewal Term and shall expire on the fifth (5th) anniversary of the expiration
date of the First Renewal Term. Tenant shall exercise each option to renew, if
at all, by delivering notice of such election (each such notice, a "Renewal
Notice") to Landlord not less than twelve (12) months but not more than eighteen
(18) months prior to the expiration of the immediately preceding Term. In the
event that Landlord does not receive a Renewal Notice prior to the expiration of
such time period (time being of the essence with respect thereto), then such
option to renew the Term shall, upon the expiration of such time period, become
null and void and be of no further force or effect and Tenant shall, at the
request of Landlord, execute an instrument in form and substance acceptable to
Landlord confirming such facts. If Tenant fails to execute such instrument
within ten (10) days after receipt thereof from Landlord, then such failure
shall be a default by Tenant hereunder. In the event Tenant fails
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<PAGE>
to timely exercise its option to renew the Term in respect of the First Renewal
Term, Tenant shall have no option to renew the Term in respect of the Second
Renewal Term. Each Renewal Term shall be upon the same terms and conditions of
this Lease except that Tenant shall have no option to renew this Lease beyond
the expiration of the Second Renewal Term.
B. Upon the exercise by Tenant of its option in respect of a Renewal Term
in accordance with this Section, (a) the term "Lease Term", as used in this
Lease, shall mean the Original Lease Term as extended for the First Renewal Term
and, if applicable, the Second Renewal Term, and (b) the term "Expiration Date"
shall mean the date of expiration of the then applicable Renewal Term.
C. Any termination, cancellation or surrender of this Lease shall terminate
any right of renewal for the Renewal Term in respect of the portion of the
leased premises as to which this Lease is terminated, cancelled or surrendered.
SECTION 3
CONDITION OF DEMISED PREMISES
Tenant represents that it has examined the Leased Premises and is fully
aware of the condition thereof and Tenant acknowledges that it is leasing the
Demised Premises in its "As Is" condition as of the Commencement Date. Tenant
acknowledges that neither Landlord nor any person purporting to act for Landlord
has made any representations concerning the physical condition of any buildings
or structures, or any portions thereof constituting a part of the Demised
Premises. Notwithstanding the foregoing, nothing contained herein shall be
deemed a waiver of any of Tenant's rights under (a) any indemnity made by
Landlord herein, (b) that certain Environmental Indemnity Agreement, dated
January ___, 1997 (the "Indemnity Agreement"), made by Linden D. Nelson, or (c)
that certain Real Property Purchase Agreement, dated January 2, 1997 (the
"Purchase Agreement"), between Landlord and HA-LO Acquisition Corporation of
Michigan, Inc. (to which Tenant is the successor-by-merger).
SECTION 4
POSSESSION AND COMMENCEMENT OF TERM
4.1 POSSESSION AND COMMENCEMENT OF LEASE TERM
Landlord shall deliver actual possession of the Demised Premises to Tenant
on or before the Commencement Date. Tenant's obligation for the payment of Rent,
as defined herein, and the term of this Lease shall commence on the Commencement
Date. If permission is given to Tenant to occupy all or part of the Demised
Premises prior to the Commencement Date, Tenant covenants and agrees that such
occupancy shall be governed by all terms and conditions of this Lease, and the
Commencement Date and the Expiration
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<PAGE>
Date shall not be changed.
4.2 LANDLORD NOT LIABLE FOR DELAYS
Under no circumstances shall Landlord be liable for any delays in the
delivery of possession of the Demised Premises to Tenant on the Commencement
Date. Tenant's sole and exclusive remedy shall be the abatement of Rent until
the Demised Premises are ready for occupancy and possession is delivered to
Tenant.
4.3 MEMORANDUM
Within thirty (30) days after the delivery of possession to Tenant, Tenant
shall join with Landlord in the execution of a written memorandum confirming the
Commencement Date and Expiration Date of the Lease Term. Tenant's failure to
execute the Memorandum shall be a default by Tenant under this Lease. Landlord's
default under this Lease shall not relieve Tenant of the obligation to execute
the Memorandum within such thirty (30) day period.
SECTION 5
RENT
5.1 BASE RENT
(a) During the Original Lease Term and each Renewal Term, if applicable,
Tenant shall pay to Landlord annual fixed rent (the "Annual Base Rent") in an
amount equal to the Fair Market Rent (as hereinafter defined) as of the date
(the "Rent Appraisal Date") which is not less than sixty (60) days prior to (i)
the Commencement Date, with respect to the Original Lease Term, (ii) the
commencement of the First Renewal Term, with respect to the First Renewal Term,
and (iii) the commencement of the Second Renewal Term, with respect to the
Second Renewal Term. The Annual Base Rent shall be payable in monthly
installments, in advance, on the first day of each and every calendar month
during the Lease Term and each Renewal Term, if applicable, without notice or
demand and without any set-off, abatement or deduction whatsoever, at the office
of Landlord stated in Section 1, or at such other place as Landlord may
designate from time to time in writing. The first monthly installment of Annual
Base Rent shall be due and payable at the time of the execution of this Lease.
Such first monthly installment of Annual Base Rent shall be in the amount due
for the first month of the Original Lease Term. The first monthly installment of
Annual Base Rent shall be credited by Landlord against the first monthly
installment of Annual Base Rent due during the Lease Term. If the Lease Term
shall commence on a day other than the first day of a calendar month, or shall
end on other than the last day of a calendar month, then the monthly installment
of Annual Base Rent due for such partial month shall be pro-rated.
(b) For the purposes of this Article, the term "Fair Market Rent" shall
mean the then annual fair market rental rate that would be paid by a willing
tenant, not compelled to
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lease, and accepted by a willing landlord, not compelled to lease, for the
Demised Premises as of the pertinent date, considering (a) that Additional Rent
shall continue to be payable during each 5-year period of the Term without any
changes in this Lease relating to Additional Rent, (b) the age and quality of
the Building as of such date, (c) the length of the applicable Term, and (d)
such other factors that Landlord and Tenant reasonably agree shall be relevant
at the applicable date. Fair Market Rent shall be determined by mutual agreement
between Landlord and Tenant (based upon the above factors) and shall be set
forth in a writing to be executed by Landlord and Tenant; provided, however,
that the failure of either party to execute such writing shall not affect the
determination of Fair Market Rent.
5.2 RENT NET OF EXPENSES
Landlord and Tenant intend that the Annual Base Rent due hereunder,
together with any adjustments during the Lease Term, shall be absolutely net of
all costs, expenses, taxes (real and personal) and charges of every kind and
nature whatsoever relating to the ownership, occupancy or use of the Demised
Premises (all of which shall be paid by Tenant) so that the Annual Base Rent,
together with any adjustments, constitutes the minimum income received by
Landlord from the Lease of the Demised Premises. Tenant shall indemnify and hold
Landlord harmless from and against any such costs, expenses, taxes (real or
personal, but excluding income taxes assessed against Landlord) and charges.
5.3 ADDITIONAL RENT
All amounts due from Tenant and payable to Landlord other than Annual Base
Rent, including, without limitation, if applicable, taxes and assessments
pursuant to Section 8 hereof and insurance premiums pursuant to Section 13
hereof, shall be deemed to be Additional Rent. Upon Tenant's failure to pay any
such Additional Rent, Landlord, in addition to any other remedies, shall have
the same rights and remedies provided for Tenant's failure to pay the Annual
Base Rent. (The Annual Base Rent and the Additional Rent, are herein
collectively referred to as "Rent"). Tenant shall pay any and all sums of money
or charges required to be paid by Tenant under this Lease promptly when the same
are due, without any deduction, abatement or setoff whatsoever.
5.4 LEASE YEAR
Lease year shall mean a period of twelve (12) consecutive calendar months.
The first lease year shall begin on the Commencement Date. Each succeeding lease
year shall commence on the anniversary of the Commencement Date.
5.5 DELINQUENCY CHARGE
If Tenant shall fail to pay all or any portion of a monthly installment of
Annual Base Rent, within ten (10) days after notice from Landlord that the same
is due, Tenant shall pay a delinquency charge equal to five percent (5%) of the
unpaid amount to reimburse Landlord for the costs incurred as the result of such
late payment and not as a penalty. Such delinquency charge shall be due and
payable upon Landlord's demand.
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5.6 DEFAULT CHARGE
If Tenant shall default in any payment or expenditure other than Annual
Base Rent required to be paid or expended by Tenant under the terms hereof, then
Landlord may, at its option, make such payment or expenditure in accordance with
Section 22. In such event, the amount thereof shall be due and payable as
Additional Rent to Landlord by Tenant, together with the next monthly
installment of Annual Base Rent, together with interest thereon at a rate equal
to the sum of the then prevailing "prime interest rate" (as hereinafter deemed)
plus four percent (4%) (but in no event in excess of the highest legal rate)
from the date of such payment or expenditure by Landlord until the date of the
payment by Tenant, to cover Landlord's loss of the use of the funds and
administrative costs resulting from Tenant's failure. No such payment or
expenditure by Landlord shall be deemed a waiver of Tenant's default nor shall
it affect any other remedy of Landlord by reason of such default. Upon Tenant's
failure to pay said Additional Rent together with interest, such interest shall
continue for each month or portion thereof outstanding until the date of
payment. The "prime interest rate" for purposes of this Lease shall mean the
rate of interest announced by the majority of commercial banks doing business in
Detroit, Michigan as the "prime interest rate". The "prime interest rate" shall
be determined as of the date of Landlord's payment or expenditure.
5.7 DISPUTE OF FAIR MARKET RENT
In the event Landlord and Tenant shall be unable to agree on the Fair
Market Rent, then the determination of Fair Market Rent shall be determined by a
duly qualified real estate appraiser who shall not be affiliated with either
Landlord or Tenant and who shall be an MAI appraiser with at least ten (10)
years' experience in the determination of fair market rentals in comparable
buildings in Troy, Michigan. If Landlord and Tenant are unable to agree upon an
appraiser, then Landlord and Tenant shall each appoint an appraiser having the
qualifications set forth above and such two (2) appraisers shall select a third
appraiser. The Fair Market Rent shall then be the average of the determinations
made by the three (3) appraisers; provided, however, that if one (1) of such
determinations differs from the other two (2) by more than fifteen percent
(15%), then such determination shall not be used in the determination of Fair
Market Rent and Fair Market Rent shall be the average of the other two (2)
determinations. The fees of the appraisers shall be borne equally by Landlord
and Tenant.
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5.8 NO ABATEMENT
No abatement, diminution or reduction in Annual Base Rent or any other
charges required to be paid by Tenant pursuant hereto shall be claimed by or
allowed to Tenant for any inconvenience or interruption, cessation, or loss of
business caused directly or indirectly, by any present or future laws, or by
priorities, rationing or curtailment of labor or materials, or by war, civil
commotion, strikes or riots, or any manner or thing resulting therefrom, or by
any other cause or causes beyond the control of Landlord or Tenant, nor shall
this Lease be affected by any such causes; and, except as expressly provided in
Section 14.2 of this Lease, no diminution in the amount of the space used by
Tenant caused by legally required changes in the construction, equipment,
fixtures, operation or use of the Demised Premises shall entitle Tenant to any
abatement, diminution or reduction of the Annual Base Rent or any other charges
required to be paid by Tenant pursuant to the terms of this Lease.
Notwithstanding any other provision of this Lease, in the event (i) there is an
interruption of utility services which (x) is the result of Landlord's gross
negligence or willful misconduct and is not caused by the acts or omission of
Tenant or any employee, agent or contractor of Tenant, (y) continues for a
period of (10) Business Days after Tenant has notified Landlord of the same, and
(z) causes the Demised Premises to be uninhabitable for general, administrative
or executive office use and Tenant does not in fact use any portion of the
Demised Premises, then Tenant shall be entitled to abate the payment of all
Annual Base Rent due under the provisions of this Lease for the period
commencing on the eleventh (11th) Business Day of the existence of such
condition and ending on the date that such condition no longer exists or the
date on which Tenant occupies any portion of the Demised Premises, if earlier.
5.9 RENT RESTRICTIONS
If any of the Rent payable under the terms of this Lease shall be or become
uncollectible, reduced or required to be refunded because of any Laws (as
hereinafter defined), Tenant shall enter into such agreement(s) and take such
other steps as Landlord may request and as may be legally permissible to permit
Landlord to collect the maximum rents which from time to time during the
continuance of such legal rent restriction may be legally permissible (and not
in excess of the amounts reserved therefor under this Lease). Upon the
termination of such legal rent restriction, (a) the rents shall become and
thereafter be payable in accordance with the amounts reserved herein for the
periods following such termination and (b) Tenant shall pay to Landlord, to the
maximum extent legally permissible, an amount equal to (i) the rents which would
have been paid pursuant to this Lease but for such legal rent restriction less
(ii) the rents and payments in lieu of rents paid by Tenant during the period
such legal rent restriction was in effect.
SECTION 6
UTILITIES
Tenant agrees to pay all charges made against the Demised Premises for gas,
heat,
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water, air conditioning, electricity, sanitary and storm sewage disposition,
telephone and all other utilities during the Lease Term as the same shall become
due. Landlord shall not be liable to Tenant for the quality or quantity of any
such utilities, or for any interruption in the supply of any such utilities,
unless such interruption is the direct result of Landlord's gross negligence or
willful misconduct, in which event Landlord's liability shall be limited as set
forth in Section 5.8 hereof.
SECTION 7
INTENTIONALLY OMITTED
SECTION 8
TAXES AND ASSESSMENTS
8.1 OBLIGATION
Tenant agrees to pay directly to the applicable taxing authority all Taxes,
as defined in Section 8.2, on the Demised Premises during the Lease Term, as and
when the same become due and payable.
8.2 DEFINITION OF TAXES
"Taxes" shall be defined as: (a) all taxes (either real or personal),
assessments (general or specific), all water and sewer rents, rates and charges,
and all other municipal and governmental impositions and charges, general and
special, ordinary and extraordinary, foreseen and unforeseen, of any kind and
nature whatsoever, which may at any time during the Lease Term be assessed,
levied, confirmed, imposed upon, or become due and payable out of, or with
respect to, or which may become a lien upon the land, buildings or improvements
comprising the Demised Premises or any part thereof or any appurtenance thereto;
(b) a tax or surcharge of any kind or nature upon, against or with respect to
the parking areas or the number of parking spaces on the Demised Premises; (c)
any tax imposed on this Lease or based on a reassessment of the Demised Premises
due to a change in ownership or a transfer of all or part of Landlord's interest
in the Demised Premises; (d) any tax levied upon Landlord in full or partial
substitution for, or as a supplement to, any taxes previously included within
the definition of "Taxes"; (e) all costs and expenses incurred by Landlord
during negotiations for or contests of the amount of such taxes and assessments,
without regard to the result, including, without limitation, actual attorneys'
fees, which shall not exceed any reductions obtained; and (f) the Michigan
Single Business Tax.
8.3 PAYMENTS
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The Taxes for the years in which this Lease commences and terminates shall
be prorated on a due date basis. On the Commencement Date, Tenant shall
reimburse Landlord for the Taxes paid by Landlord for the calendar year in which
the Commencement Date occurs and allocated to the calendar months occurring
after the Commencement Date. Upon conclusion of this Lease, Landlord shall
reimburse Tenant for Taxes paid by Tenant for the calendar year in which the
Lease terminates and allocated to the calendar months occurring after the
Termination Date. In the event a refund of Taxes previously paid by Tenant is
obtained, Landlord shall, credit the portion which relates to the Demised
Premises to the next payment due under this Section. A copy of a tax bill or
assessment bill submitted by Landlord to Tenant shall at all times be sufficient
evidence of the amount of Taxes assessed or levied against the property to which
such bill or return relates. Tenant shall furnish to Landlord promptly after
payment of any Taxes, and at any time within five (5) days after Landlord's
request, receipts for the payment of the same or other evidence satisfactory to
Landlord that such payments have been made. In addition, Tenant shall furnish to
Landlord, semi-annually throughout the Term, a certificate of Tenant (or an
officer of Tenant, if Tenant is a corporation), stating that all Taxes have been
paid to date. In addition, if Tenant shall fail to pay any Taxes, or any part
thereof, Landlord shall have the right, but shall not be obligated, to pay the
same, and all amounts so paid, including, but not limited to, costs, penalties
and interest, shall constitute Additional Rent hereunder, and shall be repaid to
Landlord by Tenant immediately on rendition of a bill therefor by Landlord, and
in the event of nonpayment Landlord shall have, in addition to all other rights
and remedies, all the rights and remedies provided for herein or by law in case
of nonpayment of Annual Base Rent.
8.4 INTENTIONALLY OMITTED.
8.5 RIGHT TO CONTEST TAXES
Tenant shall have the right to contest the amount of the Taxes at Tenant's
sole cost and expense, by the appropriate proceedings diligently contested in
good faith. Notwithstanding such proceedings, Tenant shall promptly pay and
discharge such Taxes and any penalties or interest assessed thereon, unless such
proceedings and the posting of a bond or other security shall (a) operate to
prevent or stay the collection of the Taxes and secure any accruing penalties or
interest and (b) prevent Landlord's default in the payment of Taxes required
under any mortgage upon the Demised Premises. Landlord agrees to join Tenant in
such proceedings, if necessary, provided Tenant pays all costs and expenses
incurred by Landlord, including reasonable actual attorneys' fees.
8.6 TENANT'S TAXES
Tenant shall pay all real and personal property taxes levied or assessed
against Tenant's property and improvements upon or affixed to the Demised
Premises, including taxes attributable to all alterations, additions, or
improvements made by Tenant.
SECTION 9
USE OF DEMISED PREMISES
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9.1 USE OF DEMISED PREMISES
Tenant shall use and occupy the Demised Premises during the Lease Term only
for the purpose stated in Section 1, and attendant office use and for no other
purpose without the prior written consent of Landlord, which consent shall not
be unreasonably withheld. Tenant shall not use or permit any person to use the
Demised Premises or any part thereof for any use or purpose other than the use
stated in Section I or in violation of any law, statute, order, ordinance, code,
rule or regulation of any federal, state or municipal body or other governmental
agency or authority having jurisdiction thereof, including, without limitation,
occupational safety and health requirements, community right to know
requirements, requirements pertaining to the possession, generation,
transportation, treatment and disposal of hazardous substances and hazardous
wastes, or pollution standards or requirements ("Laws"), or any building and use
restrictions ("Restrictions") affecting the Demised Premises, if any. Tenant
shall comply with all such present and future Laws and Restrictions affecting
the Demised Premises and the cleanliness, safety, occupation and use of the
same, at Tenant's sole cost and expense. Tenant shall, at Tenant's expense,
obtain such approvals, permits or certificates, including, without limitation, a
certificate of occupancy, or other occupancy permit that may be required in
order for Tenant to occupy and use the Demised Premises. Landlord and Tenant
shall promptly notify each other of, and provide each other with copies of, all
notices, requests, orders, complaints or other correspondence directed to
Landlord or Tenant, as the case may be, from any federal, state or municipal
body or governmental agency or authority pertaining to any actual or alleged
violation of Laws or Restrictions.
9.2 CARE OF DEMISED PREMISES
Tenant shall keep the Demised Premises orderly, neat, safe and clean and
free from rubbish and dirt at all times. Tenant shall keep the driveways and
walkways within the Demised Premises free from trash and garbage. Tenant shall
not burn any trash or garbage at any time in or about the Demised Premises. At
the expiration or sooner termination of the Lease Term, Tenant shall surrender
the Demised Premises in as good a condition and repair as existed at the time
Tenant took possession, reasonable wear and tear excepted.
9.3 HAZARDOUS SUBSTANCES
Tenant shall not cause or permit the Demised Premises to be used to
generate, manufacture, refine, transport, treat, dispose, produce or process
hazardous substances as defined in Section 101(14) of the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
ss.9601(14), hazardous wastes as defined in Section 1004(5) of the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. ss.6903(5) or extremely
hazardous substances as defined in the Emergency Planning and Community
Right-To-Know Act of 1986, 42 U.S.C. ss.11001 eT Seq. or any other hazardous or
toxic substances or uristes as defined in any other federal, state or local
Environmental Laws (hereinafter collectively referred to as "Hazardous
Substances"). Hazardous Substances shall also include any petroleum or asbestos
containing materials. Environmental Laws mean any applicable federal, state,
county or local statutes, laws,
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regulations, rules, ordinances, or codes relating to environmental matters,
including by way of illustration and not by way of limitation, the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Resource, Conservation
and Recovery Act of 1976, the Comprehensive Environmental, Response,
Compensation and Liability Act of 1980, the Superfund Amendment and
Reauthorization Act of 1986, the Federal Hazardous Materials Transportation Act,
the Toxic Substance Control Act, and any amendments or extensions thereof, and
any rules, regulations, orders, standards or guidelines issued pursuant to any
of the aforesaid and all other applicable environmental standards or
requirements. Notwithstanding the foregoing or anything to the contrary
contained herein, Tenant shall have the right to store hazardous substances at
the Demised Premises which are typically kept by tenants engaged in businesses
similar to Tenant, provided that such storage is in compliance with all
applicable laws relating to such hazardous substances. Landlord shall remain
liable for any contamination existing at the Demised Premises on or prior to the
Acquisition Date (as hereinafter defined).
9.4 AFFIDAVIT AND QUESTIONNAIRE
Tenant shall submit to Landlord annually, or more often if reasonably
requested by Landlord or Landlord's mortgagee, a sworn affidavit signed by the
Chief Officer of Tenant, setting forth in detail, the identity, quantity and
purpose of all Hazardous Substances and any similar substances used or present
on the Demised Premises and the dates and period of time that such substances
were brought onto or retained on the Demised Premises.
9.5 ENVIRONMENTAL REPORT
Within sixty (60) days prior to the expiration of the Lease Term or any
extension of the Lease Term, if any, Tenant shall have the Demised Premises
thoroughly inspected by an environmental consultant reasonably acceptable to
Landlord for purposes of determining whether the Demised Premises is free from
all Hazardous Substances. Tenant shall deliver to Landlord a copy of the
environmental consultant's report thirty (30) days prior to the expiration of
the Lease Term. In the event the report discloses the existence of any Hazardous
Substances, with respect to which there is required any clean-up or any other
form of remediation or other response (collectively "Remediation") as a result
of Hazardous Substances that are not identified in (i) the Phase I Environmental
Site Assessment Report, prepared by AKT Environmental Consultants, Inc., dated
December ____, 1996, or (ii) the Baseline Environmental Assessment, prepared by
AKT Environmental Consultants, Inc., dated December ____, 1996, Tenant shall
perform such immediately and deliver the Demised Premises with the conditions
specified in the report "remediated", to the full satisfaction of Landlord. In
the event the conditions specified in the report require Remediation which
cannot be completed prior to the expiration of the Lease Term and Landlord
cannot, prior to such completion, lease the Demised Premises to another party,
Tenant shall be obligated to reimburse Landlord the greater of (1) the fair
market rental value of the Demised Premises, or (2) the Annual Base Rent, as
adjusted, for each day delivery of the Demised Premises to Landlord in the
required condition is delayed beyond the expiration of the Lease Term. The
Tenant shall also deliver to the Landlord a letter of credit in an amount equal
to the costs of Remediation plus either the fair market rental value of the
Demised Premises or the Annual Base Rent, as adjusted, at least ten (10) days
prior to the expiration of the Lease Term. For
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the purposes of the preceding sentence, the costs of Remediation shall be deemed
to be that amount so determined by the environmental consultant.
9.6 OBLIGATION OF TENANT
The obligations and liabilities of Tenant under Sections 9.1 through 9.5,
shall hereby survive termination of this Lease.
SECTION 10
INDEMNITY; NON-LIABILITY
10.1 INDEMNITY
(a) Tenant covenants to indemnify Landlord (except for loss or damage
resulting from the gross negligence or willful misconduct of Landlord, its
agents or employees), each superior lessor and superior mortgagee, and any
managing agent of Landlord, and their respective officers, directors,
stockholders, beneficiaries, partners, representatives, agents and employees,
and save them harmless from and against any and all claims, actions, damages,
liability, cost and expense, including reasonable attorneys' fees, in connection
with all losses, including loss of life, personal injury and/or damage to
property, arising from or out of any occurrence in, upon or at the Demised
Premises or the occupancy or use by Tenant of the Demised Premises or any part
thereof, or arising from or out of Tenant's failure to comply with any provision
of this Lease or occasioned wholly or in part by any act or omission of Tenant,
its subtenants, agents, contractors, suppliers, employees, servants, invitees or
licensees, in each case, only to the extent in excess of any insurance proceeds
collectible by Landlord or such injured party with respect to such damage or
injury (subject to the provisions of Section 13.4). The obligations of Tenant
under this Section 10.1(a) shall survive the expiration or sooner termination of
this Lease.
(b) Landlord agrees to indemnify Tenant (except for loss or damage
resulting from the gross negligence or willful misconduct of Tenant, its agents,
or employees), its officers, directors, stockholders, beneficiaries, partners,
representatives, agents and employees, and save them harmless from and against
any and all claims, actions, damages, liability, cost and expense, including
reasonable attorneys' fees, in connection with all losses, including loss of
life, personal injury and/or damage to property, arising from or out of any
occurrence in, upon or at areas of the Building not leased to or occupied by
Tenant, in each case, only to the extent in excess of any insurance proceeds
collectible by Tenant or such injured party with respect to such damage or
injury (subject to the provisions of Section 13.4), but Landlord shall have no
liability for consequential damages. The obligations of Landlord under this
Section 10.1(b) shall survive the expiration or sooner termination of this
Lease.
(c) In case any party indemnified pursuant to the foregoing terms of
Section 10.1(a) or 10.1(b), as the case may be, shall, without fault, be made a
party to any litigation commenced by or against the indemnifying party, or if
any such indemnified party shall, in its reasonable discretion, determine that
it must intervene in such litigation to
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protect its interest hereunder, including, without limitation, as to Landlord,
the incurring of costs, expenses, and attorneys' fees in connection with relief
of Tenant ordered pursuant to the Bankruptcy Code (11 USC ss. 101 et. Seq.),
then the indemnifying party shall protect and hold such indemnified party
harmless by attorneys reasonably satisfactory to such indemnified party and
shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by
such party in connection with such litigation. The provisions of this Section
10.1(c) shall survive the expiration or sooner termination of this Lease.
10.2 NON-LIABILITY
Neither Landlord nor Landlord's agents, officers, directors, shareholders,
partners or principals (disclosed or undisclosed) shall be liable to Tenant or
Tenant's agents, employees, contractors, invitees or licensees or any other
occupant of the Demised Premises for, and Tenant shall save Landlord, the lessor
under any underlying lease, any mortgagee of the Demised Premises and their
respective agents, employees, contractors, officers, directors, shareholders,
partners and principals (disclosed or undisclosed) harmless from any loss, cost,
liability, claim, damage, expense (including reasonable attorneys' fees and
disbursements), penalty or fine incurred in connection with or arising from any
injury to Tenant or to any other person or for any damage to, or loss (by theft
or otherwise) of, any of Tenant's property or of the property of any other
person, irrespective of the cause of such injury, damage or loss (including the
acts or negligence of any tenant or of any owners or occupants of adjacent or
neighboring property or caused by operations in construction of any private,
public or quasi-public work) or from any latent or patent defects in the Demised
Premises, except to the extent due to the gross negligence or willful misconduct
of Landlord or Landlord's agents, it being understood that no property, other
than such as might normally be brought upon or kept in the Demised Premises as
incidental to the reasonable use of the Demised Premises for the purposes herein
permitted will be brought upon or be kept in the Demised Premises; provided,
however, that even if due to any such gross negligence or willful misconduct of
Landlord or Landlord's agents, Tenant waives, to the full extent permitted by
law, any claim for consequential damages in connection therewith and Landlord
and Landlord's agents shall not be liable, to the extent of Tenant's insurance
coverage, for any loss or damage to any person or property even if due to the
negligence of Landlord or Landlord's agents.
10.3 LIABILITY INSURANCE
Tenant shall procure and keep in effect during the Lease Term, for the
benefit of Landlord and any mortgagee of the Demised Premises, liability
insurance affording the coverage and in the amount as is customarily carried by
either Tenant or HA-LO Industries, Inc. with respect to properties similar to
the Demised Premises owned or leased by it. Such insurance policies shall name
Landlord and any mortgagee of the Demised Premises as additional insureds by
specific endorsement. Tenant shall also maintain all other insurance and/or
other amounts required by law or by Landlord's mortgagee.
10.4 TENANT'S CONTRACTOR'S INSURANCE
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Tenant shall require any contractor performing work on the Demised Premises
to take out and keep in force, at no expense to Landlord, (a) comprehensive
general liability insurance, including contractor's liability coverage,
contractual liability coverage, completed operations coverage, broad form
property damage endorsement and contractor's protective liability coverage, to
afford protection to the limit, for each occurrence, of not less than Three
Million Dollars ($3,000,000.00) with respect to personal injury or death and
Five Hundred Thousand Dollars ($500,000.00) with respect to property damage; and
(b) worker's compensation or similar insurance in form and amounts required by
law. The liability insurance shall name Landlord and any mortgagee of the
Demised Premises, or any portion thereof, as additional insureds by specific
endorsement.
10.5 DELIVERY OF POLICY AND SPECIAL ENDORSEMENT
The insurance policies required by this Section 10 shall contain provisions
or special endorsements satisfactory to Landlord and Landlord's mortgagee, if
any, prohibiting cancellation, alterations, changes, amendments, modifications,
deletions or reductions in coverage either at the instance of Tenant or the
insurance company issuing the policy, without at least thirty (30) days prior
written notice having been given to Landlord at the address stated above.
Original insurance certificates and copies of insurance policies and all
renewals thereof, together with receipts evidencing payment in full of the
premiums thereon, shall be delivered promptly to Landlord and in no event less
than thirty (30) days prior to expiration of such insurance.
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SECTION 11
MAINTENANCE AND REPAIRS
11.1 MAINTENANCE AND REPAIRS
Tenant shall, at its sole cost and expense, at all times during the Lease
Term, maintain and repair and keep neat and in good appearance, repair and
condition the Demised Premises and all parts thereof, including, but not limited
to, the roof, foundations, exterior, interior, ceiling, electrical system,
plumbing system, HVAC system, storm sewers, sanitary sewers, water main, the
driveways, walkways, parking area, lighting facilities, landscaping and land,
which are part of the Demised Premises. The plumbing system, including the
sewage facility, serving the Demised Premises shall not be used for any purpose
other than for which it was constructed and Tenant shall not introduce any
matter therein which results in blocking such system. Tenant shall, at its sole
risk, cost and expense, promptly make all needed repairs, replacements and
restorations, interior and exterior, ordinary and extraordinary, structural and
non-structural, foreseen and unforeseen, in and to the Demised Premises
(including, but not limited to, the roof and foundations) and equipment and
personal property now or hereafter erected upon or installed in or forming a
part of the Demised Premises, including, without limitation, vaults, sidewalks,
curbs, water, sewer and gas connections, meters, pipes and mains, and all other
fixtures and equipment now or hereafter belonging to, adjoining or connected
with the Demised Premises or used in its operation. All such repairs,
restorations and replacements shall be of good quality sufficient for the proper
maintenance and operation of the Demised Premises and shall be constructed and
installed in compliance with all Laws and insurance requirements. To the extent
possible, repairs, restorations and replacements shall be at least equivalent in
quality to the original work or the property replaced, as the case may be.
Tenant shall, at its sole cost and expense, contract with contractors approved
by Landlord, which approval shall not be unreasonably withheld or delayed, for
the performance of all maintenance and repairs required of Tenant under this
Lease. Tenant shall perform such maintenance and repair so as to maintain the
Demised Premises in a first-class condition. Such maintenance and repair
obligations shall include items deemed to be capital improvements for tax
purposes. The maintenance and repair obligations of Tenant hereunder shall
survive termination of this Lease.
11.2 COMPLIANCE WITH LAWS
During the Lease Term, Tenant, at its sole cost and expense, shall make any
repairs, additions, modifications or alterations to the Demised Premises,
regardless of the nature thereof, which are required by any Laws or Restrictions
(as defined in Section 9. 1) or required by the insurance carrier to maintain
the insurance required under this Lease.
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SECTION 12
TENANT'S ALTERATIONS
12.1 ALTERATIONS
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Tenant shall not make any alterations, additions, modifications or
improvements ("Alterations") to the Demised Premises which Alterations cost in
excess of $100,000.00, in the aggregate, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. If such
Alterations require consent by or notice to the holder of any mortgage on the
Demised Premises, Tenant, notwithstanding anything to the contrary contained in
this Article, shall not proceed with the Alterations until such consent has been
received, or such notice has been given, as the case may be, and all applicable
conditions and provisions of any such mortgage with respect to the proposed
Alterations have been met or complied with at Tenant's expense; and Landlord, if
it consents to the Alterations, will request such consent or give such notice,
as the case may be. Landlord will not unreasonably withhold its consent with
respect only to nonstructural Alterations which do not modify the exterior of
the Building, do not adversely affect the architectural design or systems as
described in Section 11.1, will not result in a violation of or require a change
in any certificate of occupancy applicable to the Demised Premises, and do not
involve any demolition work or which do not change the character of the Demised
Premises. Tenant shall notify Landlord in writing and obtain prior written
consent of Landlord for any Alterations which involve asbestos-based fire
retardants, ceiling tiles, pipes or other asbestos-containing materials. All
alterations made by Tenant to the Demised Premises, other than Tenant's trade
fixtures, shall become the property of Landlord and shall remain upon and be
surrendered with the Demised Premises at the termination of this Lease, without
molestation or injury unless Landlord consents in writing to Tenant's removal of
such alterations and Tenant repairs any damage or injury caused thereby in a
good and workmanlike manner. Notwithstanding anything to the contrary herein,
Landlord, at its option, may at the expiration of the Lease Term require Tenant,
at Tenant's sole cost and expense, to remove any Alterations (other than
Tenant's trade fixtures) made by Tenant during the Lease Term and to promptly
repair any damage or injury caused thereby in a good and workmanlike manner. All
alterations made by Tenant or the removal thereof shall be made free of all
liens and encumbrances and in compliance with all Laws and Restrictions. Tenant,
at its expense, shall (a) obtain all necessary governmental permits and
certificates for the commencement and prosecution of the Alterations and for
final approval thereof upon completion, (b) deliver copies thereof to Landlord,
and (c) cause the Alterations to be performed in compliance therewith and in
compliance with all insurance requirements and all applicable requirements of
mortgagees, and in good and first class workmanlike manner, using materials and
equipment at least equal in quality and class to the original installations of
the Demised Premises. Notwithstanding anything to the contrary contained in this
Lease, Tenant, at its expense, after reasonable prior notice to Landlord, may
contest, by appropriate proceedings prosecuted diligently and in good faith, the
validity or applicability of any lien filed against the Demised Premises,
provided that: (i) Landlord shall not be subject to criminal penalty or to
prosecution for a crime, nor shall the Demised Premises or any part thereof be
subject to being condemned or vacated, nor shall the certificate(s) of occupancy
for the Demised Premises be suspended or threatened to be suspended by reason of
such contest; (ii) before the commencement of such contest, Tenant shall provide
Landlord, each superior lessor and superior mortgagee, any managing agent of
Landlord, and their respective officers, directors, shareholders, beneficiaries,
partners, representatives, agents and employees with an indemnity reasonably
satisfactory to such parties against the cost of liability resulting from or
incurred in connection with such contest; (iii) such contest shall not
constitute or result in any violation of the terms of any superior lease or
superior mortgage,
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or if any such superior lease and/or superior mortgage shall condition such
contest upon the taking of action or furnishing of security by Landlord, such
action shall be taken and such security shall be furnished at the expense of
Tenant; and (iv) Tenant shall keep Landlord regularly advised as to the status
of such proceedings. Without limiting the application of the above, Landlord
shall be deemed subject to prosecution for a crime if Landlord, superior lessor,
superior mortgagee or any of their officers, directors, partners, shareholders,
agents or employees may be charged with a crime of any kind whatever. Pending
the resolution of such contest, Tenant shall be required to post a bond in the
amount required to discharge such lien. Tenant shall indemnify, defend and hold
Landlord harmless from and against any such liens, encumbrances and violations
of Laws and Restrictions or claims relating thereto. The existence of any lien
or encumbrance or without the posting of a bond insuring against collection of
the same from Demised Premises, violation of Laws or Restrictions, shall
constitute a default hereunder. The repair obligations of Tenant hereunder shall
survive the termination of this Lease.
12.2 CONSTRUCTION LIENS
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the reversionary or other estate or interest of Landlord in and to the
Demised Premises. If Tenant shall suffer or permit any construction liens to be
filed against the Demised Premises or any part thereof by reason of work, labor,
services or materials supplied or claimed to have been supplied to Tenant or
anyone holding the Demised Premises or any part thereof through or under Tenant,
Tenant shall cause the same to be discharged of record within twenty (20) days
after the date of filing the same. If Tenant shall fail to discharge such
construction lien within such period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge the
same either by paying the amount claimed to be due or by procuring the discharge
of such lien by deposit in court or by giving security or in such other manner
as is, or may be, prescribed by law. Any amount paid by Landlord for any of the
aforesaid purposes, and all actual legal and other expenses of Landlord,
including actual counsel fees, incurred in connection with the discharge of any
such lien, together with all necessary disbursements in connection therewith,
and together with interest thereon at a rate per annum equal to the Prime Rate
publicly announced by Comerica Bank from time to time, plus four percent (4%),
but in no event higher than the legal limit, from the date of payment, shall be
repaid by Tenant to Landlord on demand, and if unpaid may be treated as
Additional Rent. Nothing herein contained shall imply any consent or agreement
on the part of Landlord to subject Landlord's estate to liability under any
construction lien law.
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SECTION 13
PROPERTY INSURANCE, REBUILDING
AND WAIVER OF SUBROGATION
13.1 PROPERTY INSURANCE
13.1.1 Tenant shall, during the Lease Term, carry at its expense insurance
for the benefit of Landlord and any mortgagee of the Demised Premises, or a
portion thereof, against fire, vandalism, malicious mischief and such other
perils as are from time to time included in a standard extended coverage
endorsement and, at the option of any superior mortgagee, special extended
coverage endorsements, insuring the Demised Premises for not less than the full
replacement and reconstruction cost, valued on a replacement cost basis of the
Building and improvements which are a part of the Demised Premises. If Tenant
fails to maintain such insurance coverage, Landlord may, at its option, procure
such insurance for the account of Tenant and the cost thereof shall be paid by
Tenant to Landlord upon delivery to Tenant of bills therefor. The insurer or
insurers shall be such as are the issuers of the insurance policies currently in
effect at Tenant's or HA-LO Industries, Inc.'s other owned or leased properties
similar to the Demised Premises. The policies or certificates of all such
insurance and all renewals thereof, together with receipts evidencing payment in
full of the premiums thereon, shall be delivered promptly to Landlord and in no
event less than thirty (30) days prior to the expiration of such insurance. The
terms and conditions of all policies and endorsements thereto shall be in the
form and content of the policies of insurance currently maintained by Tenant or
HA-LO Industries, Inc. with respect to other owned or leased properties similar
to the Demised Premises. All of the required policies of insurance shall contain
provisions satisfactory to Landlord prohibiting cancellation, alterations,
changes, amendments, modifications, deletions or reductions in coverage, either
at the instance of the Tenant or of the insurance company issuing the policy,
without at least thirty (30) days prior written notice having been given to
Landlord at the address of Landlord stated above, and shall name Landlord as a
loss payee and any mortgagee of the Demised Premises as a loss payee under the
standard mortgage loss payable endorsement. Tenant shall not, without the prior
written consent of Landlord, cancel, alter, change, amend, modify, delete or
reduce the coverage of any required policy of insurance. In the event of loss or
damage, the proceeds of the insurance shall be paid to Landlord and such
mortgagee alone, to be used to rebuild in accordance with Section 13.2 hereof.
Landlord is authorized to adjust and compromise such loss without the consent of
Tenant, to correct, receive and receipt for such proceeds in the name of
Landlord and Tenant and to endorse Tenant's name upon any check in payment
thereof. The power granted hereby shall be deemed to be coupled with an interest
and shall be irrevocable.
13.1.2 During the Lease Term, Landlord shall carry rental interruption
insurance, in an amount equal to Tenant's Annual Base Rent for twelve (12) full
months under this Lease plus the total of the estimated costs to Tenant of
Taxes, utilities and insurance premiums for such twelve (12) month period.
Tenant shall, from time to time, reimburse Landlord for the total cost of such
insurance, such reimbursement to be made within fifteen (15) days after
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receipt of a written statement from Landlord setting forth such cost.
13.1.3 Tenant shall, during the Lease Term, carry, at its expense,
insurance against fire, vandalism, windstorm, explosion, smoke damage, malicious
mischief, and such other perils as are from time to time included in a standard
extended coverage endorsement, insuring Tenant's trade fixtures, furnishings,
equipment and all other items of personal property of Tenant located on or
within the Demised Premises, in an amount equal to the actual replacement cost
thereof and furnish Landlord with a certificate evidencing such cover-age. If
Tenant fails to maintain such insurance coverage, Landlord may, at its option,
procure such insurance for the account of Tenant and the cost thereof shall be
paid by Tenant to Landlord upon delivery to Tenant of bills therefor.
13.1.4 Tenant shall not carry any stock of goods or do anything in or about
the Demised Premises which will in any way tend to increase the insurance rates
on the Demised Premises. If Tenant installs any electrical equipment that
overloads the electrical lines in the Demised Premises, Tenant shall, at its own
expense, make whatever changes are necessary to comply with the requirements of
the insurance underwriters or governmental authorities having jurisdiction.
Tenant shall not violate or knowingly permit any occupant of the Demised
Premises, or any part thereof, to violate any of the conditions or provisions of
any such policy, and Tenant shall so perform and satisfy the requirements of the
insurers writing such policies so that at all times insurers of good standing,
satisfactory to Landlord, shall be willing to write or continue such insurance.
13.2 REBUILDING
In the event, during the Lease Term, the improvements on the Demised
Premises are damaged or destroyed in whole or in part by fire or other casualty
insured under the insurance carried by Tenant pursuant to Section 13.1 and the
insurance proceeds are not required to be paid to any mortgagee under any
mortgage upon the Demised Premises, then Landlord shall, after the adjustment of
the insurance loss and receipt of insurance proceeds, immediately commence and
diligently pursue the restoration of such improvements to good and tenantable
condition unless Landlord shall elect not to rebuild as hereinafter provided. If
(a) the insurance proceeds are insufficient to pay the full cost of the repairs
(unless Tenant deposits sufficient funds with Landlord pursuant to Section 13.3
to pay the full cost of the repairs), (b) more than thirty-five percent (35%) of
the improvements on the Demised Premises shall be destroyed by fire or other
casualty, or (c) during the last twelve (12) months of the Lease Term (unless
Tenant has previously exercised its option to renew), more than twenty percent
(20%) of the improvements on the Demised Premises shall be destroyed by fire or
other casualty, then each of Landlord and Tenant may, at its option, terminate
this Lease by notice in writing delivered to the other within one hundred twenty
(120) days after the occurrence of such fire or other casualty. If Landlord is
obligated or elects to perform such repairs, the improvements on the Demised
Premises are partially or totally untenantable, the fire or other casualty
occurred through no fault directly or indirectly or Tenant, its employees,
agents, contractors, customers or invitees and provided that rental interruption
insurance is available at the time in question for similar properties in the
locality in which the Demised Premises are located, then the Rent shall be
proportionately reduced
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during the period of rebuilding, based upon the untenantable portion of the
improvements on the Demised Premises, provided that Tenant does not in fact
occupy such untenantable portion of the Demised Premises.
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13.3 TENANT'S DEPOSIT FOR REBUILDING
If the insurance proceeds available for rebuilding are insufficient to
cover the cost of repair or restoration of the Demised Premises as required
hereunder, Tenant, so long as Tenant is not in default, may elect to deposit
with Landlord, or to the title company holding the insurance proceeds in escrow,
an amount which in combination with the insurance proceeds shall be sufficient
for such repairs or restorations. In the event Tenant elects not to deposit such
funds, then Landlord shall be relieved of any obligation to repair or restore
the Demised Premises. Landlord shall have no obligation hereunder if the
insurance proceeds are paid to any mortgagee under any mortgage upon the Demised
Premises.
13.4 WAIVER OF SUBROGATION
Any insurance policy carried by Landlord or Tenant or any policy covering
both the interest of Landlord or Tenant under this Section 13 shall include a
provision under which the insurance company waives all right of recovery by way
of subrogation against Landlord or Tenant in connection with any loss or damage
covered by any such policy. Landlord or Tenant hereby release and discharge each
other from any liability whatsoever arising from any loss, damage or injury
caused by fire or other casualty to the extent of the insurance covering such
loss, damage or injury.
SECTION 14
EMINENT DOMAIN
14.1 TOTAL CONDEMNATION
If the whole of the Demised Premises shall be taken by any condemning
authority under the power of eminent domain or conveyed in lieu of any such
taking, then the term of this Lease shall cease as of the date actual physical
possession of the Demised Premises is transferred to such condemning authority
and the Rent shall be paid up to that day with a proportionate refund by
Landlord of such Rent as may have been paid in advance for a period subsequent
to the date of the transfer of actual physical possession.
14.2 PARTIAL CONDEMNATION
If only a part of the Demised Premises shall be taken by any condemning
authority under the power of eminent domain or conveyed in lieu of any such
taking, then, except as otherwise provided in this Section, this Lease and the
term shall continue in full force and effect and there shall be no reduction in
the Rent. From and after the date actual physical possession of a portion of the
building or parking area on the Demised Premises is transferred to such
condemning authority, the Rent shall be reduced in the proportion which the
floor area of the part of the building on the Demised Premises so acquired, if
any, bears to the total floor area of the building on the Demised Premises
immediately prior to the date
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such actual physical possession is transferred. If (a) more than thirty-five
percent (35%) of the floor area of all buildings on the Demised Premises or such
other portion of the Demised Premises as shall materially interfere with
Tenant's use of the Demised Premises as permitted hereunder shall be taken under
eminent domain or conveyed in lieu of any such taking, or (b) more than
thirty-five percent (35%) of the parking spaces on the Demised Premises shall be
taken under eminent domain or conveyed in lieu of any such taking and Landlord
is unable to provide parking spaces on land immediately contiguous to the
Demised Premises equal to one-half of the number of parking spaces taken,
Landlord and Tenant shall each have the right to terminate this Lease and
declare the same null and void, by written notice of such intention to the other
party within thirty (30) days after the date the order is entered in such
eminent domain proceeding establishing the date upon which actual physical
possession shall be transferred to the condemning authority. In the event
neither party exercises said right of termination, the Lease Term shall cease
only on the part of the Demised Premises so taken as of the date actual physical
possession is transferred to the condemning authority and Tenant shall pay
Annual Base Rent and Additional Rent up to that day, with appropriate refund by
Landlord of such Rent as may have been paid in advance for a period subsequent
to the date actual physical possession is transferred, and thereafter all the
terms herein provided shall continue in effect, except that the Rent shall be
reduced in the proportion stated above and Landlord shall, at its own cost and
expense, make all the necessary repairs or alterations to the remaining Demised
Premises so as to cause it to be a complete architectural unit.
14.3 LANDLORD'S AND TENANT'S DAMAGES
All damages awarded for such taking under the power of eminent domain or
any consideration paid for a conveyance in lieu thereof, whether for the whole
or a part of the Demised Premises, shall belong to and be the property of
Landlord whether such damages or other consideration shall be awarded as
compensation for diminution in value to the leasehold or to the fee of the
Demised Premises; provided, however, that Landlord shall not be entitled to the
award made for depreciation to, and cost of removal of, Tenant's stock and
fixtures. Tenant shall be entitled to seek a separate award for loss of Tenant's
fixtures.
SECTION 15
ACCESS TO PREMISES
Landlord or Landlord's agents and designees shall have the right to enter
the Demised Premises at all reasonable times upon five (5) days' prior notice
(which may be telephonic), except that no notice shall be required in the event
of an emergency, to inspect or examine the same, and to show them to prospective
purchasers or mortgagees of the Demised Premises and to make such tests,
repairs, alterations, improvements or additions as Landlord may reasonably deem
necessary or desirable, and Landlord shall be allowed to take all material into
and upon the Demised Premises that may be required therefor without the same
constituting an eviction of Tenant in whole or in part, and the Annual Base Rent
and Additional Rent shall in no way abate (provided the Demised Premises are not
rendered
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entirely unusable thereby, and if a portion of the Demised Premises is rendered
entirely unusable thereby and Tenant does not in fact use such portion of the
Premises, then there shall be a proportionate abatement of Rent) while said
repairs, alterations, improvements, or additions are being made, by reason of
loss or interruption of the business of Tenant, or otherwise. In the exercise of
its rights under this Section, Landlord shall use all reasonable efforts, which
shall not include the use of overtime labor, to minimize interference with
Tenant's conduct of business in the Demised Premises during normal business
hours. During the six (6) months prior to the expiration of the Lease Term,
Landlord may exhibit the Demised Premises to prospective lessees and place upon
the Demised Premises the usual "To Let" or "For Rent" notices.
SECTION 16
FIXTURES AND EQUIPMENT
All fixtures and equipment installed by Tenant (other than Tenant's trade
fixtures) during the term of this Lease which are incorporated and affixed to
the Building or improvements and cannot be removed without damage or injury to
the Building or improvements shall not be removed without Landlord's consent
(but shall be removed at Landlord's direction), and all fixtures and equipment
not removed shall remain the property of Landlord at the termination of the
Lease Term. In the event Landlord consents to such removal (or directs Tenant to
perform any such removal), Tenant shall remove such fixtures in accordance with
all applicable Laws and Restrictions and shall promptly repair any such damage
or injury in a good and workmanlike manner.
SECTION 17
BANKRUPTCY AND INSOLVENCY OF TENANT
If the estate created hereby shall be taken in execution or by other
process of law, or if Tenant shall be declared bankrupt or insolvent, according
to law, or if any receiver be appointed for the business and property of Tenant
or if any assignment shall be made of Tenant's property for the benefit of
creditors (and as to such matters involuntarily taken against Tenant, Tenant,
has not within ninety (90) days thereof obtained release or discharge
therefrom), then this Lease may be cancelled at the option of Landlord. If, as a
matter of law, Landlord has no right upon the bankruptcy of Tenant, to terminate
this Lease, then the rights of Tenant, as debtor, or its trustee, shall be
deemed abandoned or rejected unless Tenant, as debtor or its trustee, (a) within
sixty (60) days after the date of the Order for Relief under Chapter 7 of the
Bankruptcy Code or sixty (60) days after the date the Petition is filed under
Chapter 11 of the Bankruptcy Code assumes in writing the obligations under this
Lease, (b) cures or adequately assures the cure of all defaults existing under
this Lease on Tenant's part within sixty (60) days and (c) furnishes adequate
assurances of future performance of the obligations of Tenant under this Lease
within such sixty (60) days. Adequate assurance of curing defaults means the
posting with Landlord of a sum in cash sufficient to defray the costs of such
cure. Adequate assurance of future performance
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of the Tenant's obligations under this Lease means increasing any existing
security deposit or creating a security deposit in an amount equal to three (3)
Monthly Installments of Base Rent. Tenant shall not be permitted to assume and
assign this Lease in connection with any bankruptcy or insolvency proceedings
unless: (a) Landlord is provided with the following information regarding the
party desiring to assume the Lease ("Assumptor") which Landlord in its sole and
absolute discretion deems sufficient: (1) organizational information regarding
the Assumptor, (2) audited financial statements for the three (3) most recent
fiscal years, and (3) such other information as Landlord deems appropriate; (b)
Landlord determines that the use of the Demised Premises by the Assumptor is
compatible with the character of the Building; (c) all existing defaults under
this Lease are cured at least ten (10) days prior to any hearings in connection
with Tenant's request to assume and assign the Lease; (d) the Assumptor at any
such hearing provides adequate assurance of its future performance of the Lease
as determined by Landlord in its sole and absolute discretion, which adequately
assurance shall include at least: (1) posting of a security deposit equal to
three (3) Monthly Installments of Base Rent, if such was not already posted by
Tenant, (2) paying in advance to Landlord the next six (6) Monthly Installments
of Base Rent, or posting an irrevocable letter of credit for such amount, (3)
establishing with Landlord an escrow in advance for the full cost of all Taxes
and insurance charges as required under the Lease for the next twelve (12)
months of the Lease and thereafter on an annual basis in advance; (4) providing
Landlord with an unconditional continuing guarantee of the Lease executed by the
owners or officers of the Assumptor; and (5) the Assumptor executes a written
agreement assuming the Lease and such Lease amendments as are necessary, which
agreements and amendments are satisfactory to Landlord in its sole and absolute
discretion.
SECTION 18
RIGHT TO MORTGAGE
Landlord reserves the absolute right to subject and subordinate this Lease,
at all times, to the lien of any mortgage or mortgages now or hereafter placed
upon the Demised Premises. Although the foregoing subordination is
self-operative, in the event Landlord exercises its right hereunder, Tenant
shall execute and deliver, or join in the execution and delivery of an agreement
which shall provide, among other things, (a) that this Lease is subordinate to
the lien of any mortgage or mortgages upon the Demised Premises and (b) that the
Tenant shall attorn to any foreclosing mortgagee or purchaser at the foreclosure
sale. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant
for purposes of executing and delivering in the name of Tenant such an
agreement. Landlord agrees to request and use reasonable efforts to obtain from
the holder of any superior mortgage or superior lease, as the case may be,
executed after the date hereof a subordination, non-disturbance and attornment
agreement from the mortgagee under such superior mortgage or the lessor under
such superior lease, as the case may be, wherein such mortgagee or lessor, as
the case may be, agrees to recognize the interest of Tenant under this Lease in
the event of foreclosure or in the event of a termination of the superior lease,
as the case may be, provided Tenant is not then in default under this Lease.
Landlord shall have no liability to Tenant if such non-disturbance agreement is
not executed or delivered or,
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if executed and delivered, the parties thereto (other than Landlord) do not
abide by the respective terms thereof.
SECTION 19
ASSIGNMENT, SUBLETTING AND TRANSFERS BY TENANT
(a) Tenant shall not sell, assign, sublet, hypothecate, encumber, mortgage
or in any manner transfer this Lease or any estate or interest therein
(including any transfer by operation of law or otherwise), the Demised Premises
or any part thereof or permit the use of the Demised Premises by any third party
(collectively "Transfer") without the prior written consent of the Landlord. In
the event of any Transfer by Tenant without Landlord's prior written consent,
Landlord, at its option, may either: (a) accelerate payment of all Rent and
amounts due for Taxes and insurance (which will be paid by Landlord when due)
payable during the balance of the unexpired Lease Term and receive immediate
payment thereof or (b) terminate this Lease, re-enter and repossess the Demised
Premises, and enforce all other remedies available under this Lease or permitted
by law as a result of Tenant's default. Consent by Landlord to one or more
Transfers shall not be deemed to be consent to a subsequent Transfer or to waive
Landlord's rights in connection therewith. The acceptance of Rent or Additional
Rent from an assignee, subtenant or occupant shall not constitute a release of
Tenant from the obligations and covenants in this Lease. Tenant shall remain
liable under this Lease unless and until Landlord executes and delivers a
written release of such liability. Landlord's consent hereunder shall not be
unreasonably withheld only in the event of a Transfer of all or any pail of the
Demised Premises to any parent corporation of Tenant or wholly owned subsidiary
of Tenant. In the event of a Transfer by Tenant, with or without Landlord's
consent, then an amount equal to fifty percent (50%) of all rent, sums of money
or other economic consideration owed to or received by Tenant as a result of
such Transfer which exceed, in the aggregate, the total sums of Rent, Additional
Rent or other economic consideration which Tenant is obligated to pay Landlord
under this Lease, shall be immediately payable to Landlord upon receipt by
Tenant as Additional Rent under this Lease without affecting or reducing any
obligations of Tenant hereunder.
(b) Tenant shall have the right to assign this Lease or sublet all or any
portion of the Demised Premises without Landlord's consent to any "Related
Entity" (for so long as such entity continues to be a Related Entity), provided
that Tenant gives Landlord prior written notice as provided in clause (i) below,
which notice shall include evidence reasonably satisfactory to Landlord that
such entity is a Related Entity. For purposes hereof, "Related Entity" shall
mean any corporation or other business entity which controls, is controlled by
or is under common control with Tenant, and "control" shall mean ownership of
fifty percent (50%) or more of the outstanding voting capital stock of a
corporation or fifty percent (50%) or more of the beneficial interests of any
other entity and, in either case, the ability effectively to control the
business decisions of Tenant. Tenant shall also have the right to assign this
Lease or sublet all or any portion of the Demised Premises without Landlord's
consent to another entity into which Tenant is merged or consolidated or to
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which all or substantially all of Tenant's stock or assets are sold or
transferred, provided, however, that Tenant gives Landlord written notice as
provided in clause (i) below, which notice shall include evidence reasonably
satisfactory to Landlord that after completion of the contemplated transaction,
in Landlord's reasonable judgment, the proposed assignee or subtenant will be of
sound financial condition able to perform its obligations under the Lease or
such sublease, as the cases may be. Further, the shareholders of Tenant shall
have the right, without Landlord's consent, to engage in sales of Tenant's
stock, provided that Tenant's use of the Demised Premises shall continue to be
conducted in the same manner as provided herein. The following conditions shall
apply to any assignment or sublease pursuant to this paragraph: (i) Tenant shall
be required to provide Landlord with not less than thirty (30) days' prior
written notice of such assignment or sublease setting forth the name of such
assignee or subtenant; (ii) Tenant shall not at the time of such assignment or
sublease be in default under any of the terms, covenants or conditions of this
Lease; (iii) Tenant shall not be released or discharged from any of its
obligations under this Lease in connection with or as a result of any such
assignment or sublease; (iv) any such assignee or subtenant shall use the
Demised Premises or such portion thereof as may be subleased only for the uses
permitted pursuant to the terms of this Lease; (v) such assignment or sublease
is made for a valid intracorporate business purpose and is not made to
circumvent the provisions of this Section 19; and (vi) in the case of any
assignment, such assignee shall agree in writing, in form and substance
reasonably acceptable to Landlord, to perform all of the unperformed terms,
covenants and conditions of this Lease, and, in the case of a sublease, the
sublease shall specifically provide that the subtenant will be bound by all of
the terms and conditions of this Lease and the sublease will be subject and
subordinate to this Lease and to all matters to which this Lease is subject and
subordinate.
SECTION 20
SALE OR TRANSFER
Landlord shall have the right to sell, transfer or assign the Demised
Premises ("Conveyance"). In the event of a Conveyance, Tenant shall attorn to
the purchaser, transferee or assignee ("Transferee") and recognize such
Transferee as Landlord under this Lease and Landlord shall be relieved from all
subsequent obligations and liabilities under this Lease, provided such
obligations are assumed in writing by such Transferee and a copy thereof is
provided to Tenant.
SECTION 21
DEFAULT, RE-ENTRY AND DAMAGES
21.1 DEFAULT
The following shall constitute a default under this Lease: (a) failure to
pay any Annual Base Rent or Additional Rent due hereunder within ten (10) days
after notice that the same
28
<PAGE>
is (are) due; (b) failure to perform any of the other terms and conditions of
this Lease (other than as set forth in clause (a) above or clauses (c) through
(e) below), and such failure remains uncured for thirty (30) days following
written notice, or if such default is of such a nature that it cannot be
completely remedied within said period of thirty (30) days, if Tenant shall not
(x) promptly upon the giving by Landlord of such notice, advise Landlord of
Tenant's intention to institute all steps necessary to remedy such situation,
(y) promptly institute and thereafter diligently prosecute to completion all
steps necessary to remedy the same, and (z) complete such remedy within a
reasonable time after the date of the giving of said notice by Landlord and in
any event prior to such time as would either (i) subject Landlord, Landlord's
agents, any superior lessor or superior mortgagee to prosecution for a crime or
(ii) cause a default under any ground lease or any mortgage covering the Demised
Premises; (c) any attempted Transfer (as defined in Section 19) of the Demised
Premises or taking of any other action requiring Landlord's consent, without
receiving such consent; (d) the commission by Tenant of any waste, which shall
include the failure to pay taxes, hazard insurance premiums and persistent
failure to maintain and repair the Demised Premises; or (e) abandonment or
vacating of the Demised Premises for a consecutive period in excess of 120 days.
21.2 RE-ENTRY AND DAMAGES
In the event of Tenant's default, Landlord, in addition to all of its other
remedies under this Lease, at law or in equity, shall have the right to re-enter
the Demised Premises, with or without process of law, using such force as may be
necessary to remove all persons and property therefrom. Upon such default,
Landlord, at its option, may either terminate this Lease, or without terminating
this Lease, relet the Demised Premises or any part thereof on such terms and
conditions as Landlord deems advisable in its reasonable discretion. Landlord
agrees to use its best efforts to mitigate its damages upon a default by Tenant
and, in connection therewith, to consider in good faith any prospective
replacement tenant(s) procured by Tenant. The proceeds of such reletting shall
be applied (a) First, to the payment of any indebtedness due from Tenant to
Landlord other than Annual Base Rent or Additional Rent hereunder; (b) Second,
to the payment of any reasonable costs of such reletting, including, without
limitation, the cost of any reasonable alterations and repairs to the Demised
Premises, brokerage fees and expenses, advertising expenses, inspection fees and
attorney's fees; (c) Third, to the payment of Annual Base Rent and Additional
Rent due and unpaid hereunder; (d) Fourth, to any other damages, costs and
expenses incurred by Landlord as a result of Tenant's breach; and (e) the
residue, if any, shall be held by Landlord and applied in payment of future
Annual Base Rent and Additional Rent as the same may become due and payable
hereunder. Should the proceeds of such reletting during any month be less than
the monthly installment of Annual Base Rent or Additional Rent required
hereunder, then Tenant shall during such month pay such deficiency to Landlord
upon demand. No reentry or taking possession of the Demised Premises by Landlord
shall be construed as an election on its part to terminate this Lease unless
written notice of such intention is given to Tenant. In the event Landlord
elects to terminate this Lease, then Landlord shall have the right to accelerate
all of the Annual Base Rent and Additional Rent due hereunder for the balance of
the term of this Lease and Tenant shall forthwith pay to Landlord upon demand,
as liquidated damages, the deficiency between the amount of said accelerated
rent and the proceeds of reletting, if any, for what would have otherwise
29
<PAGE>
constituted the balance of the Lease Term or the reasonable rental value of the
Demised Premises for such balance of the Lease Term if the Demised Premises are
not relet by Landlord within thirty (30) days following Tenant's default. In
computing such liquidated damages there shall be added to such deficiency any
expenses incurred in connection with obtaining possession of the Demised
Premises and reletting the Demised Premises, whether such reletting is
successful or not, which expenses include, but are not limited to, attorneys'
fees, brokerage fees and expenses, advertising expenses, reasonable alterations
and repairs to the Demised Premises, and inspection fees.
21.3 WAIVER OF LANDLORD'S LIABILITY
Landlord shall have no liability or responsibility in any way whatsoever
for its failure to relet the Demised Premises or, in the event of reletting, for
failure to collect the rent under such reletting. The failure of Landlord to
relet the Demised Premises or any part thereof shall not release or affect
Tenant's liability for Rent or damages.
21.4 LANDLORD'S RIGHTS CUMULATIVE
All the rights and remedies of Landlord hereunder shall be cumulative and
in addition to all other rights and remedies allowed by law or equity and may be
exercised separately or jointly without constituting an election of remedies.
21.5 WAIVER OF JURY TRIAL AND COUNTERCLAIM
In the event Landlord commences any proceedings against Tenant in
connection with this Lease, Tenant shall not interpose any non-compulsory
counterclaim in any such proceeding. This shall not, however, be construed as a
waiver of Tenant's right to assert such a claim in any separate action brought
by Tenant. Landlord and Tenant waive trial by jury in any action or proceeding
brought by either party on any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of lessor and lessee, Tenant's use
or occupancy of the Demised Premises, or any claim of injury or damage.
21.6 NON-LIABILITY
Landlord shall not be responsible or liable to Tenant for any loss or
damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or for any loss or damage resulting to Tenant or
its property from burst, stopped or leaking water, gas, sewer or steam pipes, or
for any damage or loss of property within the Demised Premises from any other
cause whatsoever (unless the same is due to the gross negligence or willful
misconduct of Landlord), and no such occurrence shall be deemed to be an actual
or constructive eviction from the Demised Premises or result in an abatement of
rental.
30
<PAGE>
SECTION 22
LANDLORD'S RIGHT TO CURE DEFAULTS
If Tenant defaults in the performance of any provision of this Lease,
Landlord shall have the right (but not the obligation) in addition to any and
other rights and remedies in the event of default, to cure such default for the
account of Tenant, without prior notice to Tenant, and Tenant shall upon receipt
of notice thereof and demand for payment from Landlord pay any payment or
expenditure made by Landlord with the next monthly installment of Annual Base
Rent, together with interest at the "prime interest rate" as defined in Section
5.6 plus 4%.
SECTION 23
SECURITY INTEREST
INTENTIONALLY DELETED
SECTION 24
QUIET ENJOYMENT
Landlord covenants that so long as Tenant pays the Rent and is not in
default of any of the terms and conditions of this Lease, Tenant may, subject to
the terms hereof, peacefully and quietly hold and enjoy the Demised Premises for
the Lease Term without interference by Landlord or any person claiming by,
through or under Landlord.
SECTION 25
HOLDING OVER
In the event of Tenant holding over after the expiration of the Lease Term,
then the tenancy shall continue from month to month in the absence of a written
agreement to the contrary, subject to all the terms and provisions hereof,
except the monthly installment of Annual Base Rent shall be equal to 125 percent
(125%) of the monthly installments of Annual Base Rent due for the last full
month of the Lease Term.
31
<PAGE>
SECTION 26
CUMULATIVE REMEDIES AND WAIVER
26.1 CUMULATIVE REMEDIES
Each and every right, remedy and benefit provided by this Lease to Landlord
shall be cumulative and shall not be exclusive of any other right, remedy or
benefit allowed by law. These remedies may be exercised jointly or severally
without constituting an election of remedies.
26.2 WAIVER
One or more waivers by either party hereto of any term and condition hereof
or default by the other party hereunder shall not be construed as a waiver of
such term and condition or default in the future or any subsequent default for
the same cause. Any consent or approval given by Landlord requiring such consent
or approval shall not constitute consent or approval to any subsequent similar
act by Tenant. If either party shall bring an action against the other to
enforce any of the provisions of this Lease or to protect its interest in any
matter arising under this Lease or to recover damages for the breach of this
Lease, the prevailing party in such action shall be entitled to recover its cost
of suit and reasonable attorneys' fees expended or incurred in connection
therewith.
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly installment of Annual Base Rent shall be deemed to be other than on
account of the earliest stipulated Rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment of Rent be deemed
an accord and satisfaction, and Landlord shall accept such check or payment
without prejudice to Landlord's right to recover the balance of such Rent or
pursue any other remedy in this Lease provided.
SECTION 27
DEFINITION OF
LANDLORD, LANDLORD'S LIABILITY
The term "Landlord" as used in this Lease so far as covenants or
obligations on the part of Landlord are concerned shall be limited to mean and
include only the owner or owners at the time in question of the fee of the
Demised Premises, and in the event of any transfer or transfers of the title to
such fee, Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be automatically freed and relieved from
and after the date of such transfer or conveyance of all liability with respect
to the performance of any covenants or obligations on the part of Landlord
contained in this Lease thereafter to be performed, provided that any funds in
the hands of such Landlord or the then grantor at the time of such transfer in
which Tenant has an interest shall be turned over to the grantee and any amount
then due and payable to Tenant by Landlord or the then
32
<PAGE>
grantor under any provision of this Lease, shall be paid to Tenant, it being
intended hereby that the covenants and obligations contained in this Lease on
the part of Landlord shall, subject as aforesaid, be binding on Landlord, its
successors and assigns, only during and in respect of their respective
successive periods of ownership.
If Landlord shall fail to perform any covenant, term or condition of this
Lease upon Landlord's part to be performed, and if as a consequence of such
default Tenant shall recover a money judgment against Landlord, such judgment
shall be satisfied only out of the proceeds of sale received upon execution of
such judgment and levied thereon against the right, title and interest of
Landlord in the Demised Premises, and Landlord shall not be liable for any
deficiency.
SECTION 28
WASTE
Tenant shall not commit or suffer to be committed any waste upon the
Demised Premises.
SECTION 29
TENANT'S FINANCIAL INFORMATION
Tenant agrees, upon request by Landlord in connection with any proposed
financing of the Demised Premises, to provide to Landlord such financial reports
or statements as may have been prepared (but Tenant shall have no obligation to
prepare new financial statements or to have any unaudited statements audited).
SECTION 30
SIGNS
Tenant will not place or cause to be placed or maintained any sign or
advertising matter of any kind anywhere on the exterior of the Demised Premises
without Landlord's prior written approval. No illuminated signs located in the
interior of the Demised Premises and which are visible from the outside shall
advertise any product. Tenant further agrees to maintain in good condition and
repair at all times any such sign or advertising matter of any kind which has
been approved by Landlord for use by Tenant.
33
<PAGE>
SECTION 31
SECURITY DEPOSIT
INTENTIONALLY DELETED.
SECTION 32
MISCELLANEOUS
32.1 LEASE CHANGES REQUIRED BY LENDER
This Lease shall be subject to modification of non-economic terms contained
herein at the request of any first mortgage lender furnishing financing to
Landlord in connection with the Demised Premises.
32.2 ENTIRE AGREEMENT
This Lease and exhibits attached hereto and forming a part hereof, set
forth all of the covenants, agreements, stipulations, promises, conditions,
understandings and representations, hereinafter collectively "Representations"
between Landlord and Tenant concerning the Demised Premises and the buildings
and improvements to be constructed thereon. Landlord and Tenant agree that there
are no Representations other than set forth herein and agree to make no claims
against each other based upon Representations not set forth herein.
32.3 MODIFICATION
This Lease shall not be modified or amended unless by a writing signed by
Landlord and Tenant.
32.4 JOINT VENTURE, MORTGAGE
Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating relationship of mortgagor and
mortgagee, principal and agent or of partnership or of joint venture between the
parties hereto, it being understood and agreed that neither this method of
computation of Rent, nor any other provision contained herein, nor any acts of
the parties herein, shall be deemed to create any relationship between the
parties hereto other than the relationship of lessor and lessee.
34
<PAGE>
32.5 NOTICES
Except as specifically provided otherwise in this Lease, any notices or
demands required under this Lease shall be given in writing and either delivered
personally or sent by certified mail, return receipt requested, postage prepaid
and addressed to the address of Landlord or Tenant as set forth in Section I
hereof or such other address as Landlord or Tenant shall designate from time to
time by written notice to the other and shall be deemed received three (3) days
after being deposited in the mail or upon personal hand-delivery.
32.6 INTENTIONALLY OMITTED.
32.7 ESTOPPEL CERTIFICATE
Upon request by Landlord, Tenant shall, from time to time, execute,
acknowledge and deliver to Landlord a written statement certifying that this
Lease is in full force and effect and unmodified (or if modified specifying the
nature of the modification), the dates to which Rent and other charges have been
paid, that Landlord is not in default hereunder (or if in default, specifying
the nature of any default) and such other matters pertaining to the Lease or
Tenant's occupancy of the Demised Premises as Landlord may reasonably request.
It is understood that such statement may be relied upon by Landlord, a
prospective purchaser, mortgagee or assignee of any mortgagee of Landlord's
interest in the Demised Premises or this Lease.
Landlord shall, without charge, at any time and from time to time during
the term of this Lease, but in no event more often than once in any twelve (12)
month period, within thirty (30) days after receipt by Landlord of written
request therefor from Tenant, deliver a duly executed and acknowledged
certificate or statement to Tenant certifying: (a) that this Lease is unmodified
and in full force and effect, or, if there has been any modification, that the
same is in full force and effect as modified, and stating any such modification;
(b) the date of commencement of the term of this Lease; (c) that Annual Base
Rent is paid currently without any offset or defense thereto; (d) the dates to
which the Annual Base Rent and other charges payable hereunder by Tenant have
been paid, and the amount of Annual Base Rent paid in advance; and (e) any other
matter relating to the status of this Lease as shall be reasonably requested by
Tenant; provided, that, in fact, such facts are accurate and ascertainable by
Landlord.
32.8 GENDER
Whenever the singular is used herein, the same shall include the plural and
the masculine, feminine and neuter genders.
32.9 CAPTIONS AND SECTION NUMBERS
The captions, section numbers, article numbers, and index appearing in this
Lease are inserted only as a matter of convenience and in no way define, limit,
construe, or describe the scope or intent of such sections or articles of this
Lease nor in any way affect this Lease.
35
<PAGE>
32.10 BROKER'S COMMISSION
Tenant represents and warrants to Landlord that Tenant has not dealt with
any broker, finder or similar person acting in the capacity of a broker in
connection with this Lease and Tenant agrees to indemnify Landlord and hold it
harmless from all liabilities arising from any claim of any broker, finder or
similar person resulting from or arising out of an alleged agreement or act by
Tenant, including, without limitation, the cost of counsel fees in connection
therewith. The provisions of this Section 32.10 shall survive the expiration or
earlier termination of this Lease.
Landlord represents and warrants to Tenant that Landlord has not dealt with
any broker, finder or similar person acting in the capacity of a broker in
connection with this Lease and Landlord agrees to indemnify Landlord and hold it
harmless from all liabilities arising from any claim of any broker, finder or
similar person resulting from or arising out of an alleged agreement or act by
Landlord including, without limitation, the cost of counsel fees in connection
therewith. The provisions of this Section 32.10 shall survive the expiration or
earlier termination of this Lease.
32.11 RECORDING
Landlord and Tenant agree to execute and record a memorandum of lease, in
form and substance reasonably satisfactory to Landlord, Tenant and their
respective counsel.
32.12 INTEREST ON PAST DUE AMOUNTS
Any rent, late charges or other sums payable by Tenant to Landlord under
this Lease which are not paid within ten (10) days after written notice from
Landlord shall bear interest at a per annum rate equal to the Prime Rate (as
hereinabove set forth), plus four percent (4%) per annum. Such interest will be
due and payable as Additional Rent upon demand and will accrue from the date
that such Rent, late charges or other sums are payable under the provisions of
this Lease until actually paid by Tenant.
32.13 EXECUTION OF LEASE
The submission of this Lease for examination does not constitute a
reservation of, or option for, the Demised Premises, and this Lease shall become
effective as a lease only upon execution and delivery thereof by Landlord and
Tenant.
32.14 CONSTRUCTION
This Lease shall be construed and enforced in accordance with the laws of
the State of Michigan. If any provision of this Lease, or the application
thereof to any person or circumstances, shall, to any extent be invalid or
unenforceable, the remaining provisions of this Lease shall not be affected
thereby and shall be valid and enforceable.
36
<PAGE>
32.15 BINDING EFFECT
This Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors, assigns
and permitted transferees.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day
and year first above written.
IN THE PRESENCE OF: LANDLORD:
MAPLE LANE ACQUISITION, L.L.C.,
a Michigan limited liability company
By:
- ----------------------------------------- ---------------------------------
Its:
- ----------------------------------------- ---------------------------------
TENANT:
CREATIVE CONCEPTS IN
ADVERTISING, INC.
a corporation
----------------------
By:
- ----------------------------------------- ---------------------------------
Its:
- ----------------------------------------- --------------------------------
37
<PAGE>
Exhibit 10.35
FIRST AMENDMENT TO CREDIT AGREEMENT
To Each of the Lenders Signatory Hereto
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
January 31, 1997 (the "CREDIT AGREEMENT"), between the undersigned, HA-LO
Industries, Inc., an Illinois corporation (the "COMPANY"), American National
Bank and Trust Company of Chicago, as agent for the Lenders (the "AGENT"), and
you (the "LENDERS"). All capitalized terms used herein without definition shall
have the same meanings herein as such terms have in the Credit Agreement.
The Company has requested that the Lenders amend Sections 1.1
(Revolving Credit), 7.11 (Indebtedness for Borrowed Money), 7.13 (Investment,
Acquisitions, Loans, Advances and Guaranties) and 9.1 (Definitions) and Schedule
5.2 (Subsidiaries) and add an additional covenant, and the Lenders are willing
to do so on the terms and conditions set forth in this First Amendment.
1. AMENDMENTS.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the Credit Agreement shall be and hereby is amended as follows:
(a) Section 1.1 of the Credit Agreement shall be amended by
deleting the second sentence thereof and inserting in its place the
following sentence:
"The Revolving Credit, subject to all of the terms
and conditions hereof, may be utilized by the Company in the
form of Revolving Loans and Letters of Credit, all as more
fully hereinafter set forth; PROVIDED, HOWEVER, that the
aggregate principal amount of the Revolving Loans and L/C
Obligations outstanding at any one time shall not at any time
exceed the lesser of: (i) the Revolving Credit Commitments
then in effect and (ii) the Available Amount as then
determined and computed in accordance with Section 7.19
hereof."
(b) Section 7.11 of the Credit Agreement shall be amended by
(i) deleting the word "and" at the end of subsection (f) thereof and
subsection (g) thereof and (ii) inserting in their places the following
subsections (g) and (h):
"(g) the Canadian Subsidiaries Indebtedness; and
<PAGE>
(h) other unsecured indebtedness of the Company and
its Subsidiaries in an aggregate amount not to exceed $500,000
at any one time outstanding."
(c) Section 7.13 of the Credit Agreement shall be amended by
(i) deleting the word "and" at the end of subsection (h) thereof and
subsection (i) thereof and (ii) inserting in their places the following
subsections (i) and (j):
"(i) the guaranty by the Company and its Subsidiaries
of the Canadian Subsidiaries Indebtedness upon the terms and
conditions satisfactory to the Agent; and
(j) other investments, loans and advances in
addition to these otherwise permitted by this Section in an
aggregate amount not to exceed $2,000,000 at any one time
outstanding."
(d) The Credit Agreement shall be amended by inserting the
following new Section 7.19 at the end of Section 7.18:
"SECTION 7.19. CANADIAN SUBSIDIARIES INDEBTEDNESS
RESERVE AGAINST COMMITMENT AVAILABILITY. As soon as available,
and in any event within five (5) Business Days after the last
day of each calendar quarter, the Company shall execute and
deliver to the Agent a written certificate (in form and
substance satisfactory to the Agent) showing (a) the aggregate
maximum amount of credit (whether or not in use) available
under the Canadian Subsidiaries Indebtedness (such amount to
be stated in Canadian Dollars) as of the last day of the
calendar quarter then ended and (b) the U.S. dollar equivalent
of the amount described in subsection (a) above (for purposes
of this determination, the Company shall show the U.S. dollar
equivalent of such amount by reference to the spot market
exchange rate for Canadian Dollars as of the close of business
on such day or, if the last day of such calendar quarter is
not a day on which U.S. commercial banks and foreign exchange
markets settle such currency payments, on the next preceding
business day). From and after the date of the Agent's receipt
of such certificate, the amount available to the Company under
the Revolving Credit shall be reduced by an amount equal to
the U.S. dollar equivalent of the amount determined in
accordance with subsection (b) above (as so reduced from time
to time, the "AVAILABLE AMOUNT"), such that the sum of the
aggregate principal amount of the Revolving Loans and of L/C
Obligations at any time outstanding during such period plus
the U.S. dollar equivalent of the amount determined in
accordance with subsection (b) above shall not at any time
exceed the Revolving Credit Commitments in effect at such
time. In the event that the sum of the aggregate
2
<PAGE>
principal amount of the Revolving Loans and of L/C Obligations
at any time outstanding during such period plus the aggregate
U.S. dollar equivalent of the amount determined in accordance
with subsection (b) above shall ever exceed the Revolving
Credit Commitments in effect at such time, the Company shall
immediately without notice or demand pay over the amount of
the excess to the Lenders as and for a mandatory prepayment of
the Revolving Loans and, if necessary, as a prefunding of
Letters of Credit. Unless the Company otherwise directs,
prepayments of principal under this Section 7.19 shall be
applied first to the Base Rate Portion until payment in full
thereof with any balance applied to the LIBOR Portions in the
order in which their Interest Periods expire. The reduction in
the amount available to the Company under the Revolving Credit
pursuant to this Section 7.19 shall be recomputed upon the
Agent's receipt of each written certificate delivered pursuant
to the first sentence hereof and such reduction shall continue
in effect until the effectiveness of the next redetermination
thereof. Any determination by the Agent of the reduction in
the amount available to the Company under the Revolving Credit
hereunder shall be conclusive and binding upon the Company and
the Lenders provided that it has been made reasonably and in
good faith."
(e) Section 8.1 of the Credit Agreement shall be amended by
deleting subsection (b) thereof and inserting in its place the
following:
"(b) default in the observance or performance of any
covenant set forth in Sections 7.5, 7.7, 7.8, 7.9, 7.10, 7.11,
7.12, 7.13, 7.14, 7.15 or 7.19 hereof;"
(f) Section 9.1 of the Credit Agreement shall be amended by
inserting the following definitions in a proper alphabetical order:
""AVAILABLE AMOUNT " is defined in Section 7.19."
""CANADIAN SUBSIDIARIES INDEBTEDNESS" means
indebtedness of Creadis Group, Inc., a corporation organized
and existing under the laws of the province of Ontario,
Canada, and Marusa Marketing, Inc. a corporation organized and
existing under the laws of the province of Ontario, Canada,
under a line of credit up to the aggregate principal amount of
Canadian $2,000,000 made available by First Chicago NBD Bank,
Canada to such corporations."
3
<PAGE>
(g) Schedule 5.2 of the Credit Agreement shall be amended to
read as Exhibit A attached hereto.
2. CONDITIONS PRECEDENT.
The effectiveness of this First Amendment is subject to the
satisfaction of all of the following conditions precedent:
(a) The Company, the Agent and the Required Lenders shall have
executed and delivered this First Amendment.
(b) Legal matters incident to the execution and delivery of
this First Amendment shall be satisfactory to the Agent and its
counsel.
3. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this First
Amendment, the Company hereby represents to the Lenders that as of the date
hereof, and after giving effect to this First Amendment, the representations and
warranties set forth in Section 5 of the Credit Agreement are and shall be and
remain true and correct (except that the representations contained in Section
5.5 shall be deemed to refer to the most recent financial statements of the
Company delivered to the Lenders) and the Company is in full compliance with all
of the terms and conditions of the Credit Agreement and no Default or Event of
Default has occurred and is continuing under the Credit Agreement or shall
result after giving effect to this First Amendment.
4. MISCELLANEOUS.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific First Amendment need not be made in the Credit
Agreement, the Notes, or any other instrument or document executed in connection
therewith, or in any certificate, letter or communication issued or made
pursuant to or with respect to the Credit Agreement, any reference in any of
such items to the Credit Agreement being sufficient to refer to the Credit
Agreement as amended hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Agent in connection with the negotiation, preparation, execution
and delivery of this First Amendment, including the fees and expenses of counsel
for the Agent.
(c) This First Amendment may be executed in any number of counterparts,
and by the different parties on different counterpart signature pages, all of
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this First Amendment by signing any such counterpart
and each of such counterparts shall for all purposes be deemed to be an
original. This First Amendment shall be governed by the internal laws of the
State of Illinois.
4
<PAGE>
Dated as of August 8, 1997.
HA-LO INDUSTRIES, INC.
By
Its
Accepted and agreed to as of the date and year last above written.
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO, individually and as0
Agent
By
Its
HARRIS TRUST AND SAVINGS BANK
By
Its
COMERICA BANK
By
Its
5
<PAGE>
EXHIBIT A
FIRST AMENDMENT TO CREDIT AGREEMENT
SCHEDULE 5.2
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION PERCENTAGE OWNERSHIP
<S> <C> <C>
Fletcher, Barnhardt & White, Inc. Illinois 100%
HA-LO Sports, Inc. Illinois 100%
Market U.S.A., Inc. Illinois 100%
Creative Concepts in Advertising, Inc. Michigan 100%
Creadis Group, Inc. Onatrio 100%
Marusa Marketing, Inc. Onatrio 100%
</TABLE>
<PAGE>
Exhibit 10.36
SECOND AMENDMENT TO CREDIT AGREEMENT
To Each of the Lenders Signatory Hereto
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
January 31, 1997, as amended (the "CREDIT AGREEMENT"), between the undersigned,
HA-LO Industries, Inc., an Illinois corporation (the "COMPANY"), American
National Bank and Trust Company of Chicago, as agent for the Lenders (the
"AGENT"), and you (the "LENDERS"). All capitalized terms used herein without
definition shall have the same meanings herein as such terms have in the Credit
Agreement.
The Company has requested that the Lenders extend the Term Credit
Termination Date and the Termination Date from January 31, 1999, to March 1,
1999, and the Lenders are willing to do so on the terms and conditions set forth
in this agreement (herein, the "AMENDMENT").
1. AMENDMENTS.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the definitions of "Term Credit Termination Date" and
"Termination Date" appearing in Section 9.1 of the Credit Agreement shall be
amended and restated in their entirety to read as follows:
"TERM CREDIT TERMINATION DATE" means March 1, 1999, or such
earlier date on which the Term Loan Commitments are terminated
in whole pursuant to Sections 3.6, 8.2 or 8.3 hereof.
"TERMINATION DATE" means March 1, 1999, or such earlier date
on which the Revolving Credit Commitments are terminated in
whole pursuant to Sections 3.6, 8.2 or 8.3 hereof, or such
later date to which the Revolving Credit Commitments are
extended pursuant to Section 11.11 hereof.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
2.1 The Company, the Agent and the Lenders shall have
executed and delivered this Amendment.
2.2 Legal matters incident to the execution and delivery of
this Amendment shall be satisfactory to the Agent and its counsel.
<PAGE>
3. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment,
the Company hereby represents to the Lenders that as of the date hereof the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.5 shall be deemed to refer to the most recent financial
statements of the Company delivered to the Lenders) and the Company is in
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
4. MISCELLANEOUS.
4.1 Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
4.2 The Company agrees to pay on demand all costs and expenses of or
incurred by the Agent in connection with the negotiation, preparation, execution
and delivery of this Amendment, including the fees and expenses of counsel for
the Agent.
4.3 This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of January 20, 1999.
HA-LO INDUSTRIES, INC.
By
Name
----------------------------------
Title
---------------------------------
<PAGE>
Accepted and agreed to as of the date and year last above written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, individually
and as Agent
By
Name
----------------------------
Title
---------------------------
HARRIS TRUST AND SAVINGS BANK
By
Name
----------------------------
Title
---------------------------
COMERICA BANK
By
Name
----------------------------
Title
---------------------------
<PAGE>
Exhibit 10.37
THIRD AMENDMENT TO CREDIT AGREEMENT
To Each of the Lenders Signatory Hereto
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
January 31, 1997, as amended (the "CREDIT AGREEMENT"), between the undersigned,
HA-LO Industries, Inc., an Illinois corporation (the "COMPANY"), American
National Bank and Trust Company of Chicago, as agent for the Lenders (the
"AGENT"), and you (the "LENDERS"). All capitalized terms used herein without
definition shall have the same meanings herein as such terms have in the Credit
Agreement.
The Company has requested that the Lenders, among other things,
increase the Revolving Credit Commitments and extend the Termination Date, and
the Lenders are willing to do so on the terms and conditions set forth in this
agreement (herein, the "AMENDMENT").
1. AMENDMENTS.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the Credit Agreement shall be amended as follows:
(a) Section 1.3(b) of the Credit Agreement shall be amended
by deleting the first sentence thereof and inserting in its place the
following sentence:
"At any time before the Termination Date, the Agent shall, at
the request of the Company, issue one or more Letters of
Credit to or for the account of the Company in a form
satisfactory to the Agent, with expiration dates no later than
the Termination Date then in effect, in an aggregate face
amount as set forth above, upon the receipt of an application
for the relevant Letter of Credit in the form then customarily
prescribed by the Agent duly executed by the Company (each an
"APPLICATION")."
(b) Section 3.1 of the Credit Agreement shall be amended by
deleting the first sentence thereof and inserting in its place the
following sentences:
"For the period from the date hereof to but not including the
Termination Date, the Company shall pay to the Agent for the
account of the Lenders in accordance with their Percentage a
commitment fee for each day at the rate per annum equal to the
Commitment Fee Rate in effect on such day on the daily unused
<PAGE>
amount of the Revolving Credit Commitments hereunder.
Notwithstanding anything contained in this Agreement to the
contrary, for the purposes of calculating the commitment fee
hereunder, the undrawn face amount of any commercial Letter of
Credit outstanding hereunder shall not be considered usage of
the Revolving Credit Commitments.
(c) Section 3.4 of the Credit Agreement shall be amended by
deleting the date "January 31, 1997" appearing therein and inserting
the date "February 18, 1999" in its place.
(d) Section 5.5 of the Credit Agreement shall be amended by
deleting the dates "December 31, 1995" and "September 30, 1996"
appearing therein and inserting in their places the dates "December 31,
1997" and "September 30, 1998, respectively.
(e) The Credit Agreement shall be amended by inserting the
following new Section 5.15 at the end of Section 5.14:
"SECTION 5.15. YEAR 2000. The Company has made a full and
complete assessment of the Year 2000 Issues and has a
realistic and achievable program for remediating the Year 2000
Issues on a timely basis (the "YEAR 2000 Program"). Based on
such assessment and on the Year 2000 Program the Company does
not reasonably anticipate that Year 2000 Issues will have a
Material Adverse Effect.
(f) Section 7.5(e) of the Credit Agreement shall be amended
by deleting the "." at the end thereof and inserting in its place the
following clause:
"or of any other development, financial or otherwise
(including, without limitation, developments with respect to
Year 2000 Issues) which would reasonably be expected to have a
Material Adverse Effect."
(g) Sections 7.7, 7.8, 7.9 and 7.10 of the Credit Agreement
shall be amended in their entirety to read as follows:
"SECTION 7.7. [RESERVED].
SECTION 7.8. TANGIBLE NET WORTH. The Company shall, at all
times, maintain Tangible Net Worth of not less than the sum of
(a) $180,000,000 plus (b) 50% of Net Income for each fiscal
year of the Company ending after February 26, 1999 (commencing
with the fiscal year ending December 31, 1999) for which such
Net Income is a positive amount (i.e., there shall be no
reduction to the amount of Tangible Net Worth required to be
maintained
-2-
<PAGE>
hereunder for any fiscal year in which Net Income is less
than zero).
SECTION 7.9. FUNDED DEBT/EBITDA RATIO. As of the last day
of each fiscal quarter of the Company, the Company shall
maintain the Funded Debt/EBITDA Ratio for the four fiscal
quarters of the Company then ended of not more than 3.25 to
1.0.
SECTION 7.10. FIXED CHARGE COVERAGE RATIO. As of the last
day of each fiscal quarter of the Company, the Company shall
maintain a Fixed Charge Coverage Ratio of not less than 3.0 to
1.0."
(h) The Credit Agreement shall be amended by inserting the
following new Section 7.20 at the end of Section 7.19:
"SECTION 7.20. YEAR 2000. The Company will take and will
cause each of its Subsidiaries to take all such actions as are
reasonably necessary to successfully implement the Year 2000
Program and to assure that Year 2000 Issues will not have a
Material Adverse Effect. At the request of the Agent or any
Lender, the Company will provide a description of the Year
2000 Program, together with any updates or progress reports
with respect thereto."
(i) Sections 8.1(a) of the Credit Agreement shall be amended
in its entirety to read as follows:
"(a) default in the payment when due of all or any part of
the principal of any Note (whether at the stated maturity
thereof or at any other time provided for in this Agreement)
or of any Reimbursement Obligation or default for a period of
5 days in the payment when due of all or any part of the
interest on any Note (whether at the stated maturity thereof
or at any other time provided for in this Agreement) or any
fee or other Obligation payable hereunder or under any other
Loan Document;"
(j) Section 9.1 of the Credit Agreement shall be amended by
deleting the definitions of "APPLICABLE MARGIN", "FIXED CHARGES" and
"TERMINATION DATE" appearing therein and inserting the following
definitions in a proper alphabetical order:
""APPLICABLE MARGIN" means, with respect to LIBOR
Portions, .50% per annum until the first Pricing Date, and
thereafter from one Pricing Date to the next, the Applicable
Margin with respect to LIBOR Portions shall mean a rate per
annum determined in accordance with the following schedule:
-3-
<PAGE>
<TABLE>
<CAPTION>
FUNDED DEBT/EBITDA RATIO APPLICABLE MARGIN
FOR SUCH PRICING DATE SHALL BE
<S> <C>
Greater than 2.5 to 1.0 1.50%
Equal to or less than 2.5 to 1.0, but 1.25%
greater than 2.0 to 1.0
Equal to or less than 2.0 to 1.0, but 1.00%
greater than 1.5 to 1.0
Equal to or less than 1.5 to 1.0 but greater .75%
than 1.0 to 1.0
Equal to or less than 1.0 to 1.0 but greater .625%
than 0.5 to 1.0
Equal to or less than 0.5 to 1.0 .50%
</TABLE>
For purposes hereof, the term "PRICING DATE" means, for any
fiscal quarter of the Company ended after the date hereof, 15
days after the date the Agent is in receipt of the Company's
most recent financial statements for the fiscal quarter then
ended, pursuant to Section 7.5(a) or (b) hereof. The
Applicable Margin established on a Pricing Date shall remain
in effect until the next Pricing Date. If the Company has not
delivered its financial statements by the date such financial
statements (and, in the case of the year-end financial
statements, audit report) are required to be delivered under
Section 7.5(a) and (b) hereof, until such financial statements
and audit report are delivered, the Applicable Margin for
LIBOR Portions shall be 1.50%. If the Company subsequently
delivers such financial statements before the next Pricing
Date, the Applicable Margin established by such late delivered
financial statements shall take effect from the date of
delivery until the next Pricing Date. In all other
circumstances, the Applicable Margin established by such
financial statements shall be in effect from the Pricing Date
that occurs immediately after the end of the Company's fiscal
quarter covered by such financial statements until the next
Pricing Date. Each determination of the Applicable Margin made
by the Agent in accordance with the foregoing shall be
conclusive and binding on the Company and the Lenders if
reasonably determined."
""COMMITMENT FEE RATE" means, for each day, .20% per annum
until the first Pricing Date, and thereafter from one Pricing
-4-
<PAGE>
Date to the next, the Commitment Fee Rate shall mean a rate
per annum determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
FUNDED DEBT/EBITDA RATIO COMMITMENT FEE RATE
FOR SUCH PRICING DATE SHALL BE
<S> <C>
Greater than 2.5 to 1.0 .30%
Equal to or less than 2.5 to 1.0, but .25%
greater than 2.0 to 1.0
Equal to or less than 2.0 to 1.0, but .225%
greater than 1.5 to 1.0
Equal to or less than 1.5 to 1.0 but greater .225%
than 1.0 to 1.0
Equal to or less than 1.0 to 1.0 but greater .20%
than 0.5 to 1.0
Equal to or less than 0.5 to 1.0 .20%
</TABLE>
For purposes hereof, the term "PRICING DATE" means, for any
fiscal quarter of the Company ended after the date hereof, 15
days after the date the Agent is in receipt of the Company's
most recent financial statements for the fiscal quarter then
ended, pursuant to Section 7.5(a) or (b) hereof. The
Commitment Fee Rate established on a Pricing Date shall remain
in effect until the next Pricing Date. If the Company has not
delivered its financial statements by the date such financial
statements (and, in the case of the year-end financial
statements, audit report) are required to be delivered under
Section 7.5(a) and (b) hereof, until such financial statements
and audit report are delivered, the Commitment Fee Rate shall
be .30%. If the Company subsequently delivers such financial
statements before the next Pricing Date, the Commitment Fee
Rate established by such late delivered financial statements
shall take effect from the date of delivery until the next
Pricing Date. In all other circumstances, the Commitment Fee
Rate established by such financial statements shall be in
effect from the Pricing Date that occurs immediately after the
end of the Company's fiscal quarter covered by such financial
statements until the next Pricing Date. Each determination of
the Commitment Fee Rate made by the Agent in accordance with
the foregoing shall be conclusive and binding on the Company
and the Lenders if reasonably determined."
-5-
<PAGE>
""FIXED CHARGE COVERAGE RATIO" means, as of the last day
of the most recently completed fiscal quarter of the Company
for the four fiscal quarters of the Company then ended, the
ratio of (x) the sum of (i) Net Income for such period plus
(ii) Interest Expense for such period plus (iii) federal,
state and local income taxes for such period plus (iv)
operating lease expense for such period to (y) the sum of (i)
Interest Expense for such period plus (ii) operating lease
expense for such period."
""TERMINATION DATE" means February 25, 2000, or such
earlier date on which the Revolving Credit Commitments are
terminated in whole pursuant to Sections 3.6, 8.2 or 8.3
hereof, or such later date to which the Revolving Credit
Commitments are extended pursuant to Section 11.11 hereof."
""YEAR 2000 ISSUES" means anticipated costs, problems and
uncertainties associated with the inability of certain
computer applications to effectively handle data including
dates on and after January 1, 2000, as such inability affects
the business, operations and financial condition of the
Company and its Subsidiaries and of the Company's and its
Subsidiaries material customers, suppliers and vendors."
""YEAR 2000 PROGRAM" is defined in Section 5.15 hereof."
(k) Section 11.11 of the Credit Agreement shall be amended in
its entirety to read as follows:
"SECTION 11.11. EXTENSION OF THE REVOLVING CREDIT
COMMITMENTS. The Company shall have the option to request
extensions to the Termination Date pursuant to this Section
11.11. No earlier than 45 days prior to, but no later than 40
days prior to, the Termination Date then in effect, the
Company may advise the Agent in writing of the Company's
desire to extend the Termination Date for an additional 364
day period and the Agent shall promptly notify the Lenders of
each such request. If the Company makes any such request, each
Lender agrees to notify the Company and the Agent no earlier
than 30 days prior to, but no later than 25 days prior to, the
Termination Date then in effect stating whether such Lender is
declining or consenting to any such request, or consenting to
such request subject to specified terms and conditions. In the
event that a Lender fails to so notify the Agent and the
Company during such period, such Lender shall be deemed to
have refused the requested extension. In the event that each
Lender is agreeable to such extension (it being understood
that the Lenders may accept or decline such a request in their
sole
-6-
<PAGE>
discretion and on such terms as they may elect), the Company
and the Lenders shall enter into such documents as the Agent
may reasonably deem necessary or appropriate to reflect such
extension, and all actual out-of-pocket costs and expenses
incurred by the Agent in connection therewith (including
reasonable attorneys' fees) shall be paid by the Company."
(l) The signature pages to the Credit Agreement shall be
amended by (i) deleting the amount "$22,500,000" appearing under the
caption "Revolving Credit Commitment" opposite American National Bank
and Trust Company of Chicago's signature and inserting in its place the
amount "$37,500,000", (ii) deleting the amount "$15,576,923" appearing
under the caption "Revolving Credit Commitment" opposite Harris Trust
and Savings Bank's signature and inserting in its place the amount
"$25,000,000", (iii) deleting the amount "$6,923,077" appearing under
the caption "Revolving Credit Commitment" opposite Comerica Bank's
signature and inserting in its place the amount "$12,500,000" and (iv)
deleting the amounts "$10,000,000", "$6,923,077" and "$3,076,923"
appearing under the caption "Term Loan Commitment" opposite signatures
of American National Bank and Trust Company of Chicago, Harris Trust
and Savings Bank and Comerica Bank, respectively and inserting in their
places the amount "$0".
(m) Schedule 5.2 of the Credit Agreement shall be amended in
its entirety to read as Exhibit B attached hereto.
(n) Schedule I to Exhibit D of the Credit Agreement shall be
amended in its entirety to read as Schedule I attached to this
Amendment.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
2.1 The Company, the Agent and the Lenders shall have
executed and delivered this Amendment.
2.2 The Company shall have executed and delivered to each of
the Lenders a Revolving Credit Note in the form of Exhibit A to the
Credit Agreement payable to the order of such Lender in the principal
amount of its Revolving Credit Commitment in effect after giving effect
to this Amendment.
2.3 Each Subsidiary of the Company party to the Guaranties
shall have executed and delivered the Guarantor's Acknowledgment in the
form attached hereto as Exhibit A and each of Promotional Marketing
LLC, Lipson Associates, Inc., Premier Promotional Marketing, Inc. and
Lee Wayne Corporation shall have executed and delivered the Assumption
and Supplement to Guaranty Agreement.
-7-
<PAGE>
2.4 The Agent shall have received, in form and substance
satisfactory to the Lenders (a) corporate resolutions of the Company
and the Subsidiaries of the Company executing the Assumption and
Supplement to Guaranty Agreement and (b) an opinion of counsel to the
Company and such Subsidiaries.
2.5 The Company shall have paid in full to the Lenders
through the Agent the Term Loans and interest thereon, together with,
if any, all amounts required under Section 2.8 of the Credit Agreement.
2.6 The Agent and the Lenders shall have received information
satisfactory to the Agent and the Lenders regarding the Company's Year
2000 Program.
3. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment,
the Company hereby represents to the Lenders that as of the date hereof the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.5 shall be deemed to refer to the most recent financial
statements of the Company delivered to the Lenders) and the Company is in
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
4. EQUALIZATION.
Anything contained in the Credit Agreement or in this Amendment to the
contrary notwithstanding, upon satisfactory completion of the conditions
precedent to the effectiveness of this Amendment as set forth above, there shall
be such purchases and sales of interests in the Revolving Loans, if any then
outstanding, as shall be necessary so that after giving effect thereto each
Lender holds its ratable share of the total of the Revolving Loans then
outstanding in accordance with its Percentage of the Revolving Credit
Commitments.
5. MISCELLANEOUS.
5.1 Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
5.2 The Company agrees to pay on demand all costs and expenses of or
incurred by the Agent in connection with the negotiation, preparation, execution
and delivery of this Amendment, including the fees and expenses of counsel for
the Agent.
-8-
<PAGE>
5.3 This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of March 1, 1999.
HA-LO INDUSTRIES, INC.
By
Name
-----------------------------
Title
----------------------------
-9-
<PAGE>
Accepted and agreed to as of the date and year last above written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, individually and as
Agent
By
Name
-------------------------------------
Title
------------------------------------
HARRIS TRUST AND SAVINGS BANK
By
Name
-------------------------------------
Title
------------------------------------
COMERICA BANK
By
Name
-------------------------------------
Title
------------------------------------
-10-
<PAGE>
EXHIBIT A
GUARANTOR'S ACKNOWLEDGMENT
Each of the undersigned has heretofore executed in favor of American
National Bank and Trust Company of Chicago, as Agent for American National Bank
and Trust Company of Chicago, Harris Trust and Savings Bank and Comerica Bank
(the "LENDERS") a Guaranty Agreement dated January 31, 1997 and hereby
acknowledges and consents to the amendment of the Credit Agreement dated as of
January 31, 1997 (the "CREDIT AGREEMENT") among Ha-Lo Industries, Inc. (the
"COMPANY") and the Lenders pursuant to the Third Amendment to Credit Agreement
dated as of March 1, 1999 (the "THIRD AMENDMENT") among the Company and the
Lenders. Each of the undersigned confirms that the Guaranty Agreement and all of
its obligations thereunder remain in full force and effect and, without limiting
the foregoing, acknowledges and agrees that all of the Company's indebtedness,
obligations and liabilities to the Lenders, under the Credit Agreement, as
amended by the Third Amendment, constitutes "indebtedness hereby guaranteed"
under the Guaranty Agreement. Each of the undersigned further agrees that its
consent to any further amendments to the Credit Agreement shall not be required
as a result of this consent having been obtained, except to the extent, if any,
required by the Guaranty Agreement referred to above.
Dated as of March 1, 1999.
FLETCHER, BARNHARDT & WHITE, INC.
By
Its
-----------------------------------
HA-LO SPORTS, INC.
By
Its
-----------------------------------
MARKET U.S.A., INC.
By
Its
-----------------------------------
<PAGE>
CREATIVE CONCEPTS IN ADVERTISING, INC.
By
Its
-----------------------------------
-2-
<PAGE>
EXHIBIT B
THIRD AMENDMENT TO CREDIT AGREEMENT
SCHEDULE 5.2
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF INCORPORATION/
ORGANIZATION PERCENTAGE
NAME OWNERSHIP
<S> <C> <C>
Fletcher, Barnhardt & White, Inc. Illinois 100%
HA-LO Sports, Inc. Illinois 100%
Market U.S.A., Inc. Illinois 100%
Creative Concepts in Advertising, Inc. Michigan 100%
Creadis Group, Inc. Ontario 100%
Marusa Marketing, Inc. Ontario 100%
Promotional Marketing LLC (d.b.a. UPSHOT) Illinois 100%
Lipson Associates, Inc. Ohio 100%
Premier Promotional Marketing, Inc. California 100%
Lee Wayne Corporation Illinois 100%
</TABLE>
<PAGE>
SCHEDULE I
COMPLIANCE CALCULATIONS
FOR JANUARY 31, 1997 CREDIT AGREEMENT
CALCULATIONS AS OF _____________, ____
<TABLE>
<S> <C> <C>
A. TANGIBLE NET WORTH (SECTION 7.8)
1. Stockholders Equity $___________
2. Sum of:
(i) intangible assets $___________
(ii) write-up of assets $___________
(iii) sample inventory $___________
3. Line A1 minus A2 $___________
(Tangible Net Worth)
4. Line A3 must not be less than $___________
5. The Company is in compliance (circle yes or no) yes/no
B. FUNDED DEBT/EBITDA RATIO (SECTION 7.9)
1. Total Funded Debt $___________
2. EBITDA $___________
3. Ratio of Line B1 to Line B2 ___: 1.0
4. Line B3 Ratio must not be more than 3.25: 1.0
5. The Company is in compliance (circle yes or no) yes/no
C. FIXED CHARGE COVERAGE RATIO (SECTION 7.10)
1. Net Income for past 4 quarters $________
2. Interest Expense for past 4 quarters $________
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3. Federal, state and local income tax expense for past 4 quarters $________
4. Operating lease expense for past 4 quarters $________
5. Sum of Lines C1, C2, C3 and C4 $________
6. Sum of Lines C3 and C4 $________
7. Ratio of Line C5 to Line C6 ______:1.0
8. Line C7 ratio must not to be less than 3.0:1.0
9. The Company is in compliance (circle yes or no) Yes/No
</TABLE>
-2-
<PAGE>
EXHIBIT 10.38
ASSUMPTION AND SUPPLEMENT TO GUARANTY AGREEMENT
This Assumption and Supplement to Guaranty Agreement (the "AGREEMENT")
is dated as of this ___ day of March, 1999, made by (1) (the "NEW GUARANTOR");
WITNESSETH THAT:
WHEREAS, certain parties have executed and delivered to the Guaranteed
Creditors that certain Guaranty Agreement dated as of January 31, 1997, or
supplements thereto (such Guaranty Agreement, as the same may from time to time
be modified or amended, including supplements thereto which add or substitute
parties as Guarantors thereunder, being hereinafter referred to as the
"GUARANTY") pursuant to which such parties (the "EXISTING GUARANTORS") have
guaranteed to the Guaranteed Creditors the full and prompt payment of, among
other things, any and all indebtedness, obligations and liabilities of HA-LO
Industries, Inc. (the "COMPANY") arising under or relating to the Credit
Agreement and the other Credit Documents described therein; and
WHEREAS, the Company provides the New Guarantor with substantial
financial, managerial, administrative, technical and design support and the New
Guarantor will benefit, directly and indirectly, from credit and other financial
accommodations extended and to be extended by the Lenders to the Company;
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances
made or to be made, or credit accommodations given or to be given, to the
Company by the Lenders from time to time, the New Guarantor hereby agrees as
follows:
1. The New Guarantor acknowledges and agrees that it shall become a
"Guarantor" party to the Guaranty effective upon the date the New Guarantor's
execution of this Agreement and the delivery of this Agreement to the Agent on
behalf of the Guaranteed Creditors, and that upon such execution and delivery,
all references in the Guaranty to the terms "Guarantor" or "Guarantors" shall be
deemed to include the New Guarantor.
2. The New Guarantor hereby assumes and becomes liable (jointly and
severally with all the other Guarantors) for the indebtedness hereby guaranteed
(as defined in the Guaranty) and agrees to pay and otherwise perform all of the
obligations of a Guarantor under the Guaranty according to, and otherwise on and
subject to, the terms and conditions of the Guaranty to the same extent and with
the same force and effect as if the New Guarantor had originally been one of the
Existing Guarantors under the Guaranty and had originally executed the same as
such an Existing Guarantor.
3. All capitalized terms used in this Agreement without definition
shall have the same meaning herein as such terms have in the Guaranty, except
that any reference to the term "Guarantor" or "Guarantors" and any provision of
the Guaranty providing meaning to such term shall be deemed a reference to the
Existing Guarantors and the New Guarantor. Except as
<PAGE>
specifically modified hereby, all of the terms and conditions of the Guaranty
shall stand and remain unchanged and in full force and effect.
4. The New Guarantor agrees to execute and deliver such further
instruments and documents and do such further acts and things as the Agent or
the Guaranteed Creditors may deem necessary or proper to carry out more
effectively the purposes of this Agreement.
5. No reference to this Agreement need be made in the Guaranty or in
any other document or instrument making reference to the Guaranty, any reference
to the Guaranty in any of such to be deemed a reference to the Guaranty as
modified hereby.
6. This Agreement shall be governed by and construed in accordance
with the State of Illinois (without regard to principles of conflicts of law) in
which state it shall be performed by the New Guarantor.
(1)
By
Its
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Attention
--------------------------
Telephone
--------------------------
Telecopy
---------------------------
Acknowledged and agreed to in Chicago, Illinois as of the date first
above written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Agent
By
Its
-----------------------------------
<PAGE>
SCHEDULE 1*
There are four (4) documents omitted as Exhibits which contain the same
material terms of the attached agreement, except that the parties defined
therein as "New Guarantor" (marked as "1" in the first paragraph of such
document) differ among the documents. Such parties are set forth below
(listed as "New Guarantor").
New Guarantor
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Premier Promotions and Marketing, Inc.
Lee Wayne Corporation
Lipton Associates, Inc.
Promotional Marketing, L.L.C.
<PAGE>
Exhibit 10.42
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
-14
<PAGE>
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
-15-
<PAGE>
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
-16-
<PAGE>
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:
-17-
<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.
-18-
<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.
------------------------------------
4-
HA-LO INDUSTRIES, INC.
By:
---------------------------------
Its:
---------------------------
-19-
<PAGE>
SCHEDULE 1*
There are eight (8) 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.
<TABLE>
<CAPTION>
Executive Section 6(a)(i)(B) Multiple
- --------- ---------------------------
<S> <C>
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
David J. Blumenthal 2.00
Michael J. Linderman 2.00
Jon Sloan 2.00
Bradford S. Kerr 2.00
Peter A. Blythe 2.00
</TABLE>
*Updated in March 1999.
<PAGE>
Exhibit 10.48
AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of June 29, 1998
between HA-LO INDUSTRIES, INC., an Illinois corporation ("HA-LO"), and
MONTGOMERY WARD & CO. INCORPORATED, an Illinois corporation ("Montgomery Ward").
RECITALS
A. Montgomery Ward and HA-LO are parties to that certain Exclusive
Premium Purchasing Agreement, dated January 11, 1995, as amended by a First
Amendment, dated December 27, 1995
(collectively, the "Purchasing Agreement").
B. Pursuant to two Warrants, each dated January 10, 1996 (collectively,
the "Warrants"), HA-LO granted to Montgomery Ward the right to purchase an
aggregate of 518,917 shares (preadjustment) of HA-LO's Common Stock, no par
value (the "Warrant Shares"), on specified terms and conditions.
C. On July 7, 1997, Montgomery Ward filed voluntary petitions for
relief under Chapter 11 of Title XI of the United States Code (the "Bankruptcy
Proceeding").
D. HA-LO has certain pre-petition claims in the Bankruptcy Proceeding
(collectively, the "Pre-Petition Claim").
E. Montgomery Ward and HA-LO desire to amend the Purchasing Agreement
and the Warrants in certain respects, to cause the Pre- Petition Claim to be
satisfied and withdrawn and to memorialize certain other agreements between
them, all as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. SATISFACTION OF PRE-PETITION CLAIM. At the Closing (as such term is
defined in Section 6), Montgomery Ward shall pay $2,500,000 (the "Satisfaction
Amount") to HA-LO in satisfaction of the Pre-Petition Claim and in consideration
of the other agreements and covenants of HA-LO contained herein. The
Satisfaction Amount shall be payable by wire transfer of immediately available
funds to an account designated in writing by HA-LO. Promptly upon receipt of the
Satisfaction Amount, HA-LO shall file any and all documents that may be
reasonably required in order to waive and/or withdraw the Pre-Petition Claim.
2. AMENDMENT TO PURCHASING AGREEMENT. At the Closing, Montgomery Ward
and HA-LO shall each execute and deliver an amendment to the Purchasing
Agreement in the form attached hereto as Exhibit A (the "Amendment to Purchasing
Agreement").
<PAGE>
3. AMENDMENTS TO WARRANTS. At the Closing, HA-LO shall execute and
deliver to Montgomery Ward amendments to the Warrants in the forms attached
hereto as Exhibits B and C (the "Amendments to Warrants").
4. REGISTRATION OF THE WARRANT SHARES. Promptly upon payment of the
Satisfaction Amount, HA-LO shall use all reasonable efforts to effect the
registration of the Warrant Shares under the Securities Act of 1933 (the
"Securities Act") by performing the following:
(a) The registration shall be effective through an S-3
Registration Statement (or such other applicable form) ("Registration
Statement") covering the Warrant Shares and filed with the Securities
and Exchange Commission ("Commission"). HA-LO shall cause each
Registration Statement to become and remain effective for a period of
five (5) years from the effectiveness thereof.
(b) HA-LO shall identify and cause there to be provided at all
times to the Holders (as such term is defined in the Warrants) a
transfer agent for all of the Warrants Shares required to be registered
under this Agreement.
(c) HA-LO shall provide, or cause there to be provided, such
certificates, instruments and any other documents required under the
Securities Act requested by the Commission in connection with the sale
by any Holder of Warrant Shares covered by a Registration Statement or
otherwise necessary or reasonably required in connection with or to
facilitate the sale of Warrant Shares in accordance with this
Agreement.
(d) HA-LO shall file with the appropriate stock exchange or
trading system a notification form for the listing of additional shares
with respect to the Warrant Shares at the time and in the manner
required by such exchange.
(e) HA-LO shall prepare and file with the Commission such
required amendments and supplements to the Registration Statement as
may be necessary to update and keep such Registration Statement
effective and to comply with the provisions of the Securities Act with
respect to the sale of the Warrant Shares; provided, however, that
nothing herein shall require HA-LO to disclose any confidential
information concerning its business, results of operations or
contemplated activities not otherwise required to be disclosed so long
as the period of time during which updating is required in order to
permit sale of Warrant Shares but not effected shall not exceed 90 days
in any calendar year.
(f) All expenses incurred by HA-LO and effecting the
registration pursuant to this Agreement, including without
- 2 -
<PAGE>
limitation all registration and filing fees with any governmental
entity, printing expenses and fees and disbursements of counsel for
HA-LO shall be paid by and be the sole obligation of HA-LO. All selling
commissions applicable to sales of Warrant Shares and all fees and
disbursements of counsel of a Holder in connection therewith or
otherwise shall be paid by and be the sole obligation of the applicable
Holder.
(g) To the extent necessary, each Holder shall timely furnish
such information as may be reasonably requested by HA-LO for inclusion
and/or necessary to the preparation of a Registration Statement or
other filing ancillary thereto. The information supplied by such Holder
for inclusion in the Registration Statement shall not, at the time of
such Registration Statement is declared effective, contain any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(h) The information supplied by HA-LO for inclusion in the
Registration Statement shall not, at the time such Registration
Statement is declared effective, contain any untrue statement of
material fact supplied by HA-LO or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading.
(i) To the extent required by the Rule and Regulations of the
Commission, the Holders hereby consent to the use of their respective
names in any Registration Statement prepared by HA-LO.
5. MATTERS PERTAINING TO THE BANKRUPTCY PROCEEDING.
(a) Prior to the execution of this Agreement, Montgomery Ward
shall have obtained Bankruptcy Court Approval of the Agreement and the
transactions contemplated hereby (the "Approval"), and take all actions
reasonably necessary to expedite receipt thereof.
(b) Montgomery Ward shall have made any and all filings with
the Bankruptcy Court as may be reasonably required for Montgomery Ward
to assume the Purchasing Agreement, it being agreed and understood that
such assumption shall be a condition to Closing.
6. CLOSING. For purposes of this Agreement, the "Closing" of the
transactions contemplated hereby shall occur within ten (10) business days
following the Approval (which Approval shall be evidenced by an order of the
Bankruptcy Court which is both final
- 3 -
<PAGE>
and not subject to appeal) shall have been received. Montgomery Ward and HA-LO
each agree and acknowledge, effective as of the Closing, that no breach by the
other will be deemed to exist (and that no state of affairs will be deemed to
exist which, with the passage of time, the giving of notice or both, would
constitute a breach) under the Purchasing Agreement (as amended by the Amendment
to Purchasing Agreement), all such breaches and potential breaches, if any,
being deemed to have been either cured or waived without any additional action
on the part of either of the parties.
7. ENTIRE AGREEMENT. This Agreement, together with the Exhibits hereto,
set forth the entire understanding of the parties hereto and supersedes all
prior oral or written agreements between them relative to the subject matter
hereof, and merge all prior and contemporaneous discussion between them.
8. MODIFICATION. The parties to this Agreement may, by a
written instrument executed by both of them, amend, modify or
supplement this Agreement.
9. FURTHER ASSURANCES. Each of the parties hereto will, at any time and
from time to time after the Closing, upon the request of the other party, do,
execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered, all such further acts, deeds instruments and documents as may be
reasonably required for the consummation of the transactions contemplated
hereby.
10. WAIVER OF PROVISIONS. The terms, covenants and conditions of this
Agreement may be waived only by a written instrument executed by the party
waiving compliance. The failure by either party at any time to require
performance of any provisions hereof shall, in no manner, affect the right at a
later date to enforce the same.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12. LAW TO GOVERN. The validity, construction and enforceability of
this Agreement shall be governed in all respects by the laws of the State of
Illinois, without regard to its conflict of law rules.
13. JURISDICTION AND VENUE. The parties hereto agree that all actions
or proceedings initiated by any party hereto and arising directly or indirectly
out of this Agreement which are brought pursuant to judicial proceedings shall
be litigated in the United States Bankruptcy Court for the District of Delaware,
or in the event that the bankruptcy case for Montgomery Ward has been closed or
such court cannot or will not exercise jurisdiction, then in the United States
District Court for the Northern District of Illinois, or in the event that such
court cannot or will not
- 4 -
<PAGE>
exercise jurisdiction, then in the Circuit Court in and for the County of Cook,
Illinois. The parties hereto expressly submit and consent in advance to such
jurisdiction and agree that service of summons and complaint or other process or
papers may be made by registered or certified mail addressed to the relevant
party at the address to which notices are to be sent pursuant to Section 14 of
this Agreement. The parties hereto waive any objection that any of the foregoing
jurisdictions is an inconvenient forum or an improper forum based on lack of
venue.
14. NOTICES AND OTHER COMMUNICATIONS. Every notice or other
communication required, contemplated or permitted by this Agreement by any party
shall be in writing and shall be delivered by personal delivery, confirmed
telecopy, private courier service or postage pre-paid, returned receipt
requested, certified mail, addressed to the party to whom intended at the
following address:
(a) If to HA-LO: HA-LO Industries, Inc.
5980 Touhy Avenue
Niles, Illinois 60714
Attention: Richard A. Magid
Telecopy: 847-647-4970
With a copy to:
Neal, Gerber & Eisenberg
2 North LaSalle Street, Suite 2200
Chicago, Illinois 60602
Attention: Barry J. Shkolnik, Esq.
Telecopy: 312-269-1747
(b) If to Montgomery
Ward: Montgomery Ward & Co. Incorporated
535 West Chicago
Chicago, Illinois 60671
Attention: Phil Delk
Telecopy: 312-467-7898
With a copy to:
Altheimer & Gray
10 South Wacker
Suite 4000
Chicago, Illinois 60606
Attention: John Lowe
Telecopy: 312-715-4800
or at such other address as the intended recipient previously shall have
designated by written notice.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an
- 5 -
<PAGE>
original instrument, but all such separate counterparts shall
constitute one in the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as
of the date set forth above.
MONTGOMERY WARD & CO. INCORPORATED
By:
------------------------------------
Its:
---------------------------------
HA-LO INDUSTRIES, INC.
By:
------------------------------------
Its:
---------------------------------
- 6 -
<PAGE>
EXHIBIT INDEX
A. Second Amendment to Exclusive Premium Purchasing Agreement.
B. Amendment to Warrant covering 345,946 shares of Common Stock of HA-LO.
C. Amendment to Warrant covering 172,971 shares of Common Stock of HA-LO.
-7-
<PAGE>
Exhibit 10.49
SECOND AMENDMENT
TO
EXCLUSIVE PREMIUM PURCHASING AGREEMENT
THIS SECOND AMENDMENT TO EXCLUSIVE PREMIUM PURCHASING AGREEMENT
("Amendment") is entered into as of June 29, 1998 between MONTGOMERY WARD & CO.
INCORPORATED, an Illinois corporation ("Montgomery Ward") and HA-LO INDUSTRIES,
INC., an Illinois corporation ("HA-LO").
RECITALS
A. Montgomery Ward and HA-LO are parties to that certain Exclusive
Premium Purchasing Agreement, dated January 11, 1995, as amended by a First
Amendment, dated December 27, 1995
(collectively, the "Agreement").
B. The parties desire to amend the Agreement in certain respects as set
forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AMENDMENT. Effective as of the date hereof, the Agreement is hereby
amended by deleting Section 3(C) of the Agreement in its entirety.
2. REFERENCES TO AND EFFECT ON AGREEMENT.
(a) On and after the date hereof, each reference in the Agreement
to "this Agreement", "hereunder", "hereof", "herein" or words
of similar import shall mean and shall be a reference to the
Agreement as amended hereby.
(b) Except as specifically set forth in this Amendment, the
Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
3. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
4. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
5. ENTIRE AGREEMENT. This Amendment, together with the Agreement and
the Exhibits thereto and that certain Confidentiality Letter between the
parties, constitute the entire agreement of the
<PAGE>
parties and supersedes all prior agreements and understandings, written or oral,
relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have accepted and executed this
Amendment on and as of the date set forth above.
MONTGOMERY WARD & CO. INCORPORATED
By:
---------------------------------------
Its:
--------------------------------------
HA-LO INDUSTRIES, INC.
By:
---------------------------------------
Its:
--------------------------------------
- 2 -
<PAGE>
EXHIBIT 10.50
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE,
AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SHARES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT IS ISSUED PURSUANT TO THE TERMS OF A STOCK PURCHASE AGREEMENT,
DATED AS OF JANUARY 11, 1995, AS AMENDED, BETWEEN HA-LO INDUSTRIES, INC. AND
MERCHANT PARTNERS, L.P. (THE "STOCK PURCHASE AGREEMENT"), A COPY OF WHICH IS
MAINTAINED AT THE OFFICES OF HA-LO INDUSTRIES, INC.
WARRANT
To Subscribe for and Purchase (2) Shares of
Common Stock of
HA-LO Industries, Inc.
THIS CERTIFIES THAT, for value received, (1) or registered assigns is
entitled to subscribe for and purchase from HA-LO INDUSTRIES, INC. (the
"Corporation"), a corporation organized and existing under the laws of the State
of Illinois, at the price of $6.67 per share (subject to adjustment as noted
below) (2) (subject to adjustment as noted below) fully paid and nonassessable
shares of the Corporation's Common Stock, no par value (the "Common Stock") at
the times and in the manner set forth below until 5:00 p.m., Chicago time, on
January 11, 2005 (the "Expiration Date").
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE; VESTING; ACCELERATION.
1.1 EXERCISE OF THIS WARRANT. Subject to the terms and
conditions hereof, the holder of this Warrant shall have the right to purchase,
in whole or in part, up to (2) shares of Common Stock, by the surrender of this
Warrant (accompanied by a duly executed Election to Purchase) at the principal
office of the Corporation in Niles, Illinois (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holder hereof at the address of such holder appearing on the books of the
Corporation), at any time or from time to time prior to the Expiration Date and
upon payment to the Corporation of the purchase price for such shares by
certified check or cashier's check or wire transfer. The Corporation agrees that
the shares so purchased shall be deemed to be issued to the holder hereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for
<PAGE>
such shares as aforesaid. Certificates for the shares of Common Stock so
purchased shall be delivered to the holder hereof as promptly as practicable
after the rights represented by this Warrant shall have been so exercised, and a
new warrant (in the same form as this Warrant, subject to such changes as may be
approved by the holder of this Warrant and the Corporation) representing the
number of shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to the holder hereof as promptly as
practicable. This Warrant shall expire and no longer be exercisable after the
Expiration Date to the extent to which this Warrant shall not have been
exercised on or prior to the Expiration Date.
1.2 VESTING. Notwithstanding Paragraph 1.1, and subject to the
remainder of this Section 1.2, the right of the holder of this Warrant to
purchase up to (2) shares of Common Stock shall vest in the following manner:
<TABLE>
<CAPTION>
Number of Shares Vesting Date
---------------- ------------
<S> <C>
one-sixth of (2) January 11, 1995
one-sixth of (2) December 27, 1995
one-sixth of (2) January 11, 1996
one-sixth of (2) January 11, 1997
one-sixth of (2) January 11, 1998
one-sixth of (2) January 11, 1999
----------------
(2)
</TABLE>
, and the holder of this Warrant may only exercise such right as to
shares that have vested. Notwithstanding anything to the contrary
contained herein:
(a) This Warrant and all rights of the holder of this
Warrant to exercise this Warrant shall immediately
and automatically terminate, without the necessity of
any action or notice whatsoever, upon the termination
or expiration of that certain Exclusive Premium
Purchasing Agreement dated January 11, 1995 between
the Corporation and Montgomery Ward & Co.,
Incorporated (an affiliate of Merchant Partners,
L.P.) (the "Purchasing Agreement"), unless (i) such
termination is the result of the Corporation
exercising its right to terminate the Purchasing
Agreement early pursuant to Section 1.2(B)(2) thereof
or is the result of Montgomery Ward & Co.,
Incorporated exercising its right to terminate the
Purchasing Agreement early pursuant to Section 1.2(C)
thereof, in either event the vesting of the right to
purchase shares of
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<PAGE>
Common Stock pursuant to this Warrant shall
accelerate, and this Warrant shall become fully
exercisable for all shares of Common Stock not
previously purchased by exercise; or (ii) such
termination is the result of Montgomery Ward & Co.,
Incorporated exercising its right to terminate the
Purchasing Agreement early pursuant to Section 1.2(B)
thereof, in which event this Warrant shall vest with
respect to the shares of Common Stock that would
otherwise vest on the next succeeding vesting date
and the holder of this Warrant will be entitled to
exercise this Warrant as to the number of shares of
Common Stock that it otherwise would have been
entitled to exercise on such next succeeding vesting
date but only if during the period commencing on
January 1 of the year in which such termination
occurs and ending on the date of such termination,
purchases of Premium Products (as defined in the
Purchasing Agreement) by the MW Buying Group (as
defined in the Purchasing Agreement) under the
Purchasing Agreement equal or exceed $15,000,000
(inclusive of Premium Products purchased by the MW
Buying Group from other vendors in the manner
contemplated by Sections 4.(B) and 6 of the
Purchasing Agreement but exclusive of the amount of
Premium Product purchases, if any, attributed to the
immediately preceding calendar year as permitted
pursuant to Section 1.2(b) below) calculated on the
basis of the dates of invoices for such Premium
Products; and
(b) If during any calendar year beginning with 1995
purchases of Premium Products (as defined in the
Purchasing Agreement) by the MW Buying Group (as
defined in the Purchasing Agreement) under the
Purchasing Agreement are less than $15,000,000
(inclusive of premium products purchased by the MW
Buying Group from other vendors in the manner
contemplated by Sections 4.(B) and 6 of the
Purchasing Agreement) calculated on the basis of the
dates of invoices for such Premium Products, then
this Warrant shall not vest with respect to the
shares of Common Stock that would otherwise vest on
the next succeeding vesting date and the holder of
this Warrant will not be entitled to exercise this
Warrant as to the number of shares of Common Stock
that it
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<PAGE>
otherwise would have been entitled to exercise on
such next succeeding vesting date until January 11,
2004; provided, however, that solely for purposes of
calendar year 1995, the MW Buying Group shall be
deemed to have purchased at least $15,000,000 of
Premium Products during such year if the MW Buying
Group purchased at least $12,500,000 of Premium
Products during the ten-month period from March 1,
1995 through December 31, 1995; and further provided
that the holder of this Warrant may, at its option,
attribute the Premium Products purchased by the MW
Buying Group during the month of January of any
calendar year to the Premium Product purchases for
the immediately preceding calendar year for purposes
of attaining said $15,000,000 (or $12,500,000) in
Premium Product purchases, in which event the amount
of Premium Product purchases so attributed to the
immediately preceding calendar year may not be used
again in connection with the calculation of Premium
Product purchases for the then current calendar year.
1.3 ACCELERATION. The vesting of the right to purchase shares
of Common Stock pursuant to this Warrant shall accelerate, and this Warrant
shall become fully exercisable for all shares of Common Stock not previously
purchased by exercise, upon the occurrence of any of the following events:
(a) The termination of the Purchasing Agreement by
Montgomery Ward & Co., Incorporated pursuant to
Section 1.2(C) thereof; or
(b) Lou Weisbach ceasing to be the chief executive
officer of the Corporation (other than as a result of
his death or disability); or
(c) The dissolution or liquidation of the Corporation,
except if such dissolution or liquidation is part of
a reorganization, reclassification, consolidation,
merger or sale covered by Paragraph 3.6.
2. STOCK ISSUED.
2.1 STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized but unissued Common Stock,
solely for the purpose of issue upon exercise of this Warrant, such number of
shares of Common Stock as shall be issuable upon exercise of this Warrant. The
Corporation covenants that all
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<PAGE>
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
2.2 RESTRICTIONS ON TRANSFER. Subject to the continued
accuracy of the representations made in Section 6 of the Stock Purchase
Agreement as to the holder hereof, the Corporation will take all such action as
may be reasonable to assure that all such shares of Common Stock issuable
pursuant to this Warrant may be so issued without violation of any applicable
law or regulation, or of any requirements of any securities exchange upon which
the Common Stock of the Corporation may be listed.
3. WARRANT PRICE; PROTECTION AGAINST DILUTION.
3.1 INITIAL WARRANT PRICE. The initial purchase price of $6.67
per share (the "Warrant Price") and the number of shares of Common Stock
issuable pursuant to this Warrant shall be subject to adjustment from time to
time as hereinafter provided.
3.2 ADJUSTMENT OF THE WARRANT PRICE AND NUMBER OF SHARES.
3.2.1 Except as provided in Paragraph 3.5, if and
whenever the Corporation shall issue or sell any shares of its Common Stock for
a consideration per share less than the Warrant Price on the date of such issue
or sale, then forthwith upon such issue or sale, the Warrant Price shall be
reduced to the price (calculated to the nearest cent) determined by multiplying
the Warrant Price in effect immediately prior to the time of such issuance or
sale by a fraction, the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Warrant Price immediately prior to such issue or sale, plus
(B) the consideration, if any, received by the Corporation upon such issue or
sale, and the denominator of which shall be the product of (C) the total number
of shares of Common Stock outstanding immediately after such issue or sale,
multiplied by (D) the Warrant Price immediately prior to such issue or sale.
3.2.2 Except as provided in Paragraph 3.5, if and
whenever the Corporation shall issue or sell any shares of its Common Stock for
a consideration per share less than the Market Price on the date of such issue
or sale, then forthwith upon such issue or sale, the Warrant Price shall be
reduced to the price (calculated to the nearest cent) determined by multiplying
the Warrant Price in effect immediately prior to the time of such issuance or
sale by a fraction, the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Market
-5-
<PAGE>
Price immediately prior to such issue or sale, plus (B) the consideration, if
any, received by the Corporation upon such issue or sale, and the denominator of
which shall be the product of (C) the total number of shares of Common Stock
outstanding immediately after such issue or sale, multiplied by (D) the Market
Price immediately prior to such issue or sale. For purposes hereof, the Market
Price of a share of Common Stock shall mean the average of the closing prices of
the Common Stock for sales on all securities exchanges on which the Common Stock
may at the time be listed, or, if there shall have been no sales on any such
exchange on any such date, the average of the closing bid and asked prices on
such date, or, if the Common Stock shall not be so listed, the average of the
closing bid and asked prices on such date in the over-the-counter market as
furnished by the NASDAQ System, or any similar successor organization, in each
case averaged over a period of 30 consecutive business days prior to the date as
of which Market Price is being determined. If at any time the Common Stock is
not listed on any securities exchange or quoted in the over-the-counter market,
the Market Price shall be deemed to be the fair value thereof determined in good
faith by the Board of Directors of the Corporation as of a date which is within
15 days of the date as of which the determination is to be made; provided,
however, that if the holder of this Warrant disputes such determination of
Market Value within 15 days of its receipt of notice of such determination, then
the determination of Market Price shall be made by a nationally recognized
appraiser or investment banking firm mutually agreeable to the Corporation and
the holder of this Warrant, with the costs of such determination being shared
equally by the Corporation and the holder of this Warrant.
3.2.3 No adjustment of the Warrant Price however
shall be made in any amount less than one percent (1%) of the then applicable
Warrant Price, but any such lesser adjustment shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to one percent
(1%) or more of the then applicable Warrant Price.
3.2.4 Upon each adjustment of the Warrant Price
as provided in this Section 3, the holder of this Warrant shall thereafter be
entitled to purchase, at the Warrant Price resulting from such adjustment, the
number of shares obtained by multiplying the Warrant Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
Warrant Price resulting from such adjustment.
3.3 DETERMINATION OF WARRANT PRICE ADJUSTMENT.
3.3.1 ISSUANCE OF RIGHTS, OPTIONS OR WARRANTS. In
case at any time the Corporation shall in any manner grant
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<PAGE>
(whether directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options or warrants for the purchase of,
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (such rights or options or warrants being herein called "Options"
and such convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the Warrant Price
or Market Price, determined as of the date of granting such Options, then the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting
of such Options and thereafter shall be deemed to be outstanding. Except as
otherwise provided in Paragraph 3.3.3, no adjustment of the Warrant Price shall
be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.
3.3.2 ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the Warrant
Price or Market Price, determined as of the date of such issue or sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon conversion
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<PAGE>
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in Paragraph 3.3.3 below, no
adjustment of the Warrant Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
if any such issue or sale of such Convertible Securities is made upon exercise
of any Option to purchase any such Convertible Securities for which adjustments
of the Warrant Price have been or are to be made pursuant to other provisions of
Paragraph 3.3, no further adjustment of the Warrant Price shall be made by
reason of such issue or sale.
3.3.3 CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon
the happening of any of the following events, namely, if the purchase price
provided for in or the number of shares covered by any Option referred to in
Paragraph 3.3.1, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in Paragraph
3.3.1 or 3.3.2, or the rate at which Convertible Securities referred to in
Paragraph 3.3.1 or 3.3.2, are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution upon the occurrence of an event that also results in
the adjustment of the Warrant Price hereunder), the Warrant Price in effect at
the time of such event shall forthwith be readjusted to the Warrant Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price, number of
shares, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; and on the expiration of any such Option
or the termination of any such right to convert or exchange such Convertible
Securities, the Warrant Price then in effect hereunder shall forthwith be
increased to the Warrant Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been granted or issued, and the Common Stock issuable thereunder shall no longer
be deemed to be outstanding.
3.3.4 STOCK DIVIDENDS. In case the Corporation
shall declare a dividend or make any other distribution upon any stock of the
Corporation payable in shares of Common Stock, Options or Convertible
Securities, any shares of Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
3.3.5 CONSIDERATION FOR STOCK, OPTIONS OR CONVERTIBLE
SECURITIES. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash,
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<PAGE>
the consideration received therefor shall be deemed to be the amount received by
the Corporation therefor. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without consideration.
In case any shares of Common Stock, Options or Convertible Securities shall be
issued in connection with any merger or consolidation in which the Corporation
is the surviving corporation, the amount of consideration therefor shall be
deemed to be the fair value as determined in good faith by the Board of
Directors of the Corporation of such portion of the assets and business of the
non-surviving corporation as such Board shall determine to be attributable to
such Common Stock, Options or Convertible Securities, as the case may be. In the
event of any consolidation or merger of the Corporation in which the Corporation
is not the surviving corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for stock or other securities
of any corporation, the Corporation shall be deemed to have issued a number of
shares of its Common Stock for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other corporation; provided,
however, that the Warrant Price shall not be increased as a result of the
foregoing.
3.3.6 RECORD DATE. In case the Corporation shall take
a record of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities, or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
3.3.7 TREASURY SHARES. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares shall
be considered an issue or sale of Common Stock for the purposes of Paragraphs
3.2 and 3.3.
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<PAGE>
3.3.8 DETERMINATION OF MARKET PRICE UNDER CERTAIN
CIRCUMSTANCES. Anything herein to the contrary notwithstanding, in case the
Corporation shall issue shares of Common Stock, Options or Convertible
Securities in connection with the acquisition by the Corporation, or any
subsidiary of the Corporation, of the stock or assets of any other corporation
or the merger of any other corporation into the Corporation, or any subsidiary
of the Corporation, the Market Price shall be determined as of the date the
number of shares of Common Stock, Options or Convertible Securities (or in the
case of Convertible Securities other than stock, the aggregate principal amount
of Convertible Securities) was determined (as set forth in the binding agreement
between the Corporation and the other party to the transaction) rather than on
the date of issuance of such shares of Common Stock, Options or Convertible
Securities.
3.3.9 PRIORITY OF ADJUSTMENT. In case an adjustment
of the Warrant Price will be required pursuant to both Paragraphs 3.2.1 and
3.2.2, the adjustment to be made shall be made only pursuant to one of such
Paragraphs, whichever would result in the lower Warrant Price.
3.4 SUBDIVISION OR COMBINATION OF STOCK. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, the Warrant Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Corporation shall be combined into
a smaller number of shares, the Warrant Price in effect immediately prior to
such combination shall be proportionately increased.
3.5 EXCEPTIONS TO ADJUSTMENT PROVISIONS. Notwithstanding
anything to the contrary contained in this Warrant, there shall be no adjustment
to the Warrant Price as a result of the occurrence of any of the following
events:
(a) The issue or sale of any shares of Common
Stock pursuant to options or warrants which
were outstanding on the date hereof; or
(b) The issue or sale of any shares of Common
Stock pursuant to the Corporation's employee
stock option, stock purchase or similar
plans now or hereafter in effect; provided,
however, that any such issue or sale of
shares of Common Stock to Lou Weisbach or to
any of his parents, spouse, descendants,
siblings or spouses of siblings shall only
be covered by this Subparagraph (b) if the
shares of Common Stock issued or sold to
such person is on the same basis as is made
available to other employees of the
Corporation.
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<PAGE>
3.6 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization or reclassification (other than a
reclassification constituting a subdivision or combination of its outstanding
shares of Common Stock) of the capital stock of the Corporation, or any
consolidation or merger of the Corporation with another corporation, or the sale
of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant and in lieu of the
shares of Common Stock of the Corporation immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore so purchasable and
receivable upon the exercise of the rights represented hereby had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Warrant Price and of the number of shares purchasable upon the exercise of
this Warrant) shall thereafter be applicable, as nearly as may be, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof (including an immediate adjustment, by reason of such
consolidation or merger, of the Warrant Price to the value for the Common Stock
reflected by the terms of such consolidation or merger if the value so reflected
is less than the Warrant Price or Market Price in effect immediately prior to
such consolidation or merger). In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares of common
stock of the surviving corporation are issuable to holders of Common Stock of
the Corporation outstanding immediately prior to such merger or consolidation,
the Warrant Price in effect immediately prior to such merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Corporation. The
Corporation will not effect any such consolidation, merger or sale, unless prior
to the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the registered holder hereof at the last address of such holder
appearing on the books of the Corporation, the obligation to deliver to such
holder such shares of stock,
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<PAGE>
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
3.7 ADJUSTMENT FOR CERTAIN SPECIAL DIVIDENDS. In the event the
Corporation shall declare a dividend upon the Common Stock payable otherwise
than out of earnings or profits or earned surplus determined in accordance with
generally accepted accounting principles (except in Common Stock or Convertible
Securities or Options to Purchase Common Stock or Convertible Securities), the
Warrant Price in effect immediately prior to the declaration of such dividend
shall be reduced (to the extent payable otherwise than out of earnings or
profits or earned surplus) by an amount equal, in the case of a dividend in
cash, to the amount thereof payable per share of Common Stock or, in the case of
any other dividend, to the fair value thereof per share of Common Stock as
determined in good faith by the Board of Directors of the Corporation (in both
cases assuming that this Warrant had been fully exercised with respect to the
shares of Common Stock covered hereby). Such reduction shall take effect as of
the date on which a record is taken for the purposes of such dividend or, if a
record is not taken, the date as of which the holders of Common Stock of record
entitled to such dividend are to be determined.
3.8 CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment under the provisions of this Paragraph 3 in the number or kind of
Common Stock (or such other security as may become issuable pursuant to the
provisions hereof) or in the Warrant Price as then in effect, the Corporation
shall compute such adjustment in accordance with the provisions set forth herein
and the Chief Financial Officer of the Company shall prepare a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based, including a statement of the consideration received or to
be received by the Corporation for any additional Common Stock, Options or
Convertible Securities issued or sold or deemed to have been issued or sold and
of the number of shares of Common Stock, Options and Convertible Securities
outstanding or deemed to be outstanding. The Corporation will forthwith mail a
copy of each such certificate to the holder of this Warrant.
3.9 OTHER NOTICES. In case at any time:
(a) the Corporation shall pay any cash dividend
on its Common Stock at a rate in excess of
the rate of the last cash dividend
theretofore paid;
(b) the Corporation shall declare any dividend
payable in stock upon its Common Stock or
make any special dividend or other
distribution other than regular cash
dividends to the holders of its Common
Stock;
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<PAGE>
(c) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock
any additional shares of stock of any class
or other rights;
(d) there shall be any capital reorganization,
or reclassification of the capital stock of
the Corporation, or consolidation or merger
of the Corporation with, or sale of all or
substantially all of its assets to, another
corporation; or
(e) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of
the Corporation;
then, in any one or more of said cases, the Corporation shall give written
notice, by first class mail, postage prepaid, addressed to the holder of this
Warrant at the address of such holder as shown on the books of the Corporation,
(a) at least seven days prior to the date on which a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (b) in the case of any
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
3.10 CERTAIN EVENTS. If any event occurs as to which in the
opinion of the Board of Directors the other provisions of this Paragraph 3 are
not strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant in accordance with the essential
intent and principles of such provisions, the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid.
3.11 ISSUE TAX. The issuance of certificates for shares of
Common Stock upon exercise of the Warrant shall be made without charge to the
holder of this Warrant for any issuance tax in respect thereof, provided that
the Corporation shall not be
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<PAGE>
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of this Warrant.
3.12 NO FRACTIONAL SHARES. The Corporation shall not be
required to issue fractional shares of Common Stock and shall have the right
upon the exercise of this Warrant or any portion hereof to round off the number
of shares of Common Stock issued to the nearest whole number of shares.
4. NO VOTING RIGHTS. Until the valid exercise of this Warrant, this
Warrant shall not entitle the holder hereof to any voting rights or other rights
as a stockholder of the Corporation, but immediately upon exercise of this
Warrant and upon payment of the Warrant Price, the holder shall be deemed a
record holder of the Common Stock.
5. RIGHTS OFFERINGS. The holder of this Warrant shall have the right to
participate in any rights offering made by the Corporation generally to its
holders of outstanding Common Stock as if this Warrant had been exercised in its
entirety as to vested shares as of the date and time of such rights offering.
6. RESTRICTION ON TRANSFER OF COMMON STOCK AND REGISTRATION. The terms
and conditions relating to transferability, restrictive legends and registration
of the Common Stock issued upon the exercise of this Warrant shall be the same
as those set forth in and contemplated by the Stock Purchase Agreement, all of
which are incorporated herein by this reference.
7. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Illinois.
8. TRANSFER OF WARRANT. This Warrant and all rights hereunder are not
transferrable, in whole or in part, by the holder hereof without the prior
written consent of the Corporation, except that such consent of the Corporation
shall not be required in order for any such transfer to be made by the holder
hereof to any owner of an equity interest in the holder hereof, a spouse or
child of the holder hereof or any such equity owner, an entity controlled by the
holder hereof or any such equity owner or any trust all of the beneficiaries of
which are any of the foregoing. Any such permitted transfer shall be effected at
the office or agency of the Corporation referred to in Paragraph 1 hereof by the
holder hereof in person or by its duly authorized attorney, upon surrender of
this Warrant properly endorsed. The form of the warrants issued upon any such
transfer shall be the same as this Warrant, subject to such changes as may be
approved by the holder of this Warrant and the Corporation. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
this Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so
-14-
<PAGE>
endorsed may be treated by the Corporation and all other persons dealing with
this Warrant as the absolute owner hereof for any purpose and as the person
entitled to exercise the rights represented by this Warrant, or to the transfer
hereof on the books of the Corporation; but until such transfer on such books,
the Corporation may treat the registered holder hereof as the owner for all
purposes.
9. EXCHANGES OF WARRANTS. This Warrant is exchangeable, upon its
surrender by the holder hereof at the office or agency of the Corporation
referred to in Paragraph 1 hereof, for new Warrants or like tenor representing
in the aggregate the right to subscribe for and purchase the same number of
shares of Common Stock as the holder of this Warrant has the right to subscribe
for and purchase pursuant to this Warrant.
10. LOST OR MUTILATED WARRANT. In the event that this Warrant is lost
or mutilated, the Corporation shall issue a substitute Warrant to the holder
hereof upon such holder delivering to the Corporation such indemnification as
the Corporation may reasonably require and otherwise complying with such
requirements as the Corporation may reasonably impose.
11. MEANING OF COMMON STOCK. "Common Stock" when used in this Warrant
with reference to the Common Stock purchasable hereunder shall mean Common Stock
of the class existing on the date of issuance of this Warrant and any stock into
which such Common Stock may thereafter have been changed and, when otherwise
used in this Warrant, shall include also stock of the Company of any other
class, whether now or hereafter authorized, which ranks, or is entitled to a
participation, as to assets or dividends, substantially on a parity with such
existing Common Stock or other class of stock into which such Common Stock may
have been changed.
12. HEADINGS. The section headings used in this Warrant are for
convenience of reference only and shall not constitute a part of this Warrant or
affect the construction of this Warrant.
-15-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed by one of its duly authorized officers under its corporate seal and
attested as of the 10th day of January, 1996.
HA-LO INDUSTRIES, INC.,
an Illinois corporation
By:
---------------------------------------
Title:
-------------------------------------
(CORPORATE SEAL)
Attest:
- -----------------------------------
Secretary
-16-
<PAGE>
ELECTION TO PURCHASE
HA-LO INDUSTRIES, INC
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented by said Warrant for, and to purchase
thereunder, _____________________ shares of the Common Stock covered by said
Warrant and herewith makes payment in full therefor of $_____________ , and
requests that certificates for such shares be issued in the name of and
delivered to __________________________ whose address is _____________________
_____________________________; and, if such shares shall not include all of the
shares issuable as provided in said Warrant, that a new Warrant of like tenor
and date for the balance of the shares issuable thereunder be delivered to the
undersigned.
Dated: _________________________, _____
_______________________________
-17-
<PAGE>
SCHEDULE 1
There are three (3) documents omitted as Exhibits which contain the
same material terms of the attached warrant, except that the parties defined
therein as the holder of the warrant (marked as "(1)" on the first page of such
document) and the amount of shares marked as "(2)" in the title of the warrant,
the first paragraph thereafter, Section 1.1 and Section 1.2 differ among the
documents. Such parties are set forth below (listed as "Holder") with the
corresponding share number of their respective warrants.
<TABLE>
<CAPTION>
Holder Shares Subject to Warrant
- ------ -------------------------
<S> <C>
Montgomery Ward & Co. Incorporated 345,946
ValueVision International Inc. 51,892
Merchant Development Corporation 2,160
</TABLE>
-18-
<PAGE>
EXHIBIT 10.51
FIRST AMENDMENT
TO
WARRANT
THIS FIRST AMENDMENT TO WARRANT ("Amendment") is entered into as of
June 29, 1998 between HA-LO INDUSTRIES, INC., an Illinois corporation (the
"Corporation"), and Montgomery Ward & Co. Incorporated, an Illinois corporation
(the "Holder").
RECITALS
A. Pursuant to that certain Warrant, dated January 10, 1996 (the
"Warrant"), the Corporation granted to the Holder the right to purchase 345,946
shares of the Corporation's Common Stock, no par value (the "Common Stock"), on
specified terms and conditions.
B. Pursuant to the adjustment provisions of the Warrant, but subject to
the vesting provisions of the Warrant, the Warrant is currently exercisable for
an aggregate of 648,162 shares of Common Stock at a Warrant Price (as such term
is defined in the Warrant) of $3.56.
C. The Corporation and the Holder desire to amend the Warrant in
certain respects as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AMENDMENTS. Effective as of the date hereof, the Warrant is hereby
amended as follows:
(a) Notwithstanding the terms of Section 1.2 of the Warrant, the
right to purchase 57,658 shares of the Common Stock scheduled
to vest on January 11, 1998 upon the satisfaction of certain
performance standards set forth in the Warrant shall,
notwithstanding the failure to satisfy such performance
standards, be deemed fully vested.
(b) All references to "$15,000,000" in Sections 1.2(a) and 1.2(b)
of the Warrant are hereby deleted and "$8,000,000" is hereby
substituted in lieu thereof.
(c) Section 1.3(b) of the Warrant is hereby deleted in its
entirety.
2. REFERENCES TO AND EFFECT ON WARRANT.
(a) On and after the date hereof, each reference in the Warrant to
"this Warrant", "hereunder", "hereof", "herein" or words of
similar import shall mean and
<PAGE>
shall be a reference to the Warrant as amended hereby.
(b) Except as specifically set forth in this Amendment, the
Warrant shall remain in full force and effect and is hereby
ratified and confirmed.
3. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
4. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
5. ENTIRE AGREEMENT. This Amendment, together with the Warrant,
constitute the entire agreement of the parties and supersedes all prior
agreements and understandings, written or oral, relating to the subject matter
hereof.
IN WITNESS WHEREOF, the parties have accepted and executed this
Amendment on and as of the date set forth above.
HA-LO INDUSTRIES, INC.
By:
-------------------------------------
Its:
------------------------------------
MONTGOMERY WARD & CO. INCORPORATED
By:
-------------------------------------
Its:
------------------------------------
- 2 -
<PAGE>
Exhibit 10.52
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE,
AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SHARES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT IS ISSUED PURSUANT TO THE TERMS OF A STOCK PURCHASE AGREEMENT,
DATED AS OF JANUARY 11, 1995, AS AMENDED, BETWEEN HA-LO INDUSTRIES, INC. AND
MERCHANT PARTNERS, L.P., (THE "STOCK PURCHASE AGREEMENT"), A COPY OF WHICH IS
MAINTAINED AT THE OFFICES OF HA-LO INDUSTRIES, INC.
WARRANT
To Subscribe for and Purchase (2) Shares of
Common Stock of
HA-LO Industries, Inc.
THIS CERTIFIES THAT, for value received, (1) or registered assigns is
entitled to subscribe for and purchase from HA-LO INDUSTRIES, INC. (the
"Corporation"), a corporation organized and existing under the laws of the State
of Illinois, at the price of $25.00 per share (subject to adjustment as noted
below) (2) (subject to adjustment as noted below) fully paid and nonassessable
shares of the Corporation's Common Stock, no par value (the "Common Stock") at
the times and in the manner set forth below until 5:00 p.m., Chicago time, on
January 11, 2010 (the "Expiration Date").
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE; VESTING; ACCELERATION.
1.1 EXERCISE OF THIS WARRANT. Subject to the terms and
conditions hereof, the holder of this Warrant shall have the right to purchase,
in whole or in part, up to (2) shares of Common Stock, by the surrender of this
Warrant (accompanied by a duly executed Election to Purchase) at the principal
office of the Corporation in Niles, Illinois (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holder hereof at the address of such holder appearing on the books of the
Corporation), at any time or from time to time prior to the Expiration Date and
upon payment to the Corporation of the purchase price for such shares by
certified check or cashier's check or wire transfer. The Corporation agrees that
the shares so purchased shall be deemed to be issued to the holder hereof as the
record
<PAGE>
owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares as
aforesaid. Certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof as promptly as practicable after the rights
represented by this Warrant shall have been so exercised, and a new warrant (in
the same form as this Warrant, subject to such changes as may be approved by the
holder of this Warrant and the Corporation) representing the number of shares,
if any, with respect to which this Warrant shall not then have been exercised
shall also be delivered to the holder hereof as promptly as practicable. This
Warrant shall expire and no longer be exercisable after the Expiration Date to
the extent to which this Warrant shall not have been exercised on or prior to
the Expiration Date.
1.2 VESTING. Notwithstanding Paragraph 1.1, and subject to the
remainder of this Section 1.2, the right of the holder of this Warrant to
purchase up to (2) shares of Common Stock shall vest in the following manner:
<TABLE>
<CAPTION>
NUMBER OF SHARES VESTING DATE
---------------- ----------------
<S> <C>
one-sixth of (2) January 11, 2000
one-sixth of (2) January 11, 2001
one-sixth of (2) January 11, 2002
one-sixth of (2) January 11, 2003
one-sixth of (2) January 11, 2004
one-sixth of (2) January 11, 2005
----------------
(2)
</TABLE>
, and the holder of this Warrant may only exercise such right as to shares that
have vested. Notwithstanding anything to the contrary contained herein:
(a) This Warrant and all rights of the holder of this Warrant to
exercise this Warrant shall immediately and automatically
terminate, without the necessity of any action or notice
whatsoever, upon the termination or expiration of that certain
Exclusive Premium Purchasing Agreement dated January 11, 1995
between the Corporation and Montgomery Ward & Co.,
Incorporated (an affiliate of Merchant Partners, L.P.) (the
"Purchasing Agreement"), unless (i) such termination is the
result of Montgomery Ward & Co., Incorporated exercising its
right to terminate the Purchasing Agreement early pursuant to
Section 1.2(C) thereof, in which event the vesting of the
right to purchase shares of Common Stock pursuant to this
Warrant shall accelerate, and this Warrant shall become fully
exercisable
-2-
<PAGE>
for all shares of Common Stock not previously purchased by
exercise; or (ii) such termination is the result of
Montgomery Ward & Co., Incorporated exercising on or after
January 1, 1999 its right to terminate the Purchasing
Agreement early pursuant to Section 1.2(B) thereof, in
which event this Warrant shall vest with respect to the
shares of Common Stock that would otherwise vest on the
next succeeding vesting date and the holder of this Warrant
will be entitled to exercise this Warrant as to the number
of shares of Common Stock that it otherwise would have been
entitled to exercise on such next succeeding vesting date
but only if during the period commencing on January 1 of
the year in which such termination occurs and ending on the
date of such termination, purchases of Premium Products (as
defined in the Purchasing Agreement) by the MW Buying Group
(as defined in the Purchasing Agreement) under the
Purchasing Agreement equal or exceed $15,000,000 (inclusive
of Premium Products purchased by the MW Buying Group from
other vendors in the manner contemplated by Sections 4.(B)
and 6 of the Purchasing Agreement but exclusive of the
amount of Premium Product purchases, if any, attributed to
the immediately preceding calendar year as permitted
pursuant to Section 1.2(b) below) calculated on the basis
of the dates of invoices for such Premium Products; and
(b) If during any calendar year beginning with 1999 purchases of
Premium Products (as defined in the Purchasing Agreement) by
the MW Buying Group (as defined in the Purchasing Agreement)
under the Purchasing Agreement are less than $15,000,000
(inclusive of premium products purchased by the MW Buying
Group from other vendors in the manner contemplated by
Sections 4.(B) and 6 of the Purchasing Agreement) calculated
on the basis of the dates of invoices for such Premium
Products, then this Warrant shall not vest with respect to the
shares of Common Stock that would otherwise vest on the next
succeeding vesting date until December 27, 2004; provided,
however, that the holder of this Warrant may, at its option,
attribute the Premium Products purchased by the MW Buying
Group during the month of January of any calendar year to the
Premium
-3-
<PAGE>
Product purchases for the immediately preceding calendar year
for purposes of attaining said $15,000,000 in Premium Product
purchases, in which event the amount of Premium Product
purchases so attributed to the immediately preceding calendar
year may not be used again in connection with the calculation
of Premium Product purchases for the then current calendar
year.
1.3 ACCELERATION. The vesting of the right to purchase shares
of Common Stock pursuant to this Warrant shall accelerate, and this Warrant
shall become fully exercisable for all shares of Common Stock not previously
purchased by exercise, upon the occurrence of any of the following events:
(a) The termination of the Purchasing Agreement by Montgomery Ward
& Co., Incorporated pursuant to Section 1.2(C) thereof; or
(b) The dissolution or liquidation of the Corporation, except if
such dissolution or liquidation is part of a reorganization,
reclassification, consolidation, merger or sale covered by
Paragraph 3.6.
2. STOCK ISSUED.
2.1 STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized but unissued Common Stock,
solely for the purpose of issue upon exercise of this Warrant, such number of
shares of Common Stock as shall be issuable upon exercise of this Warrant. The
Corporation covenants that all shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be duly authorized
and issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
2.2 RESTRICTIONS ON TRANSFER. Subject to the continued
accuracy of the representations made in Section 6 of the Stock Purchase
Agreement as to the holder hereof, the Corporation will take all such action as
may be reasonable to assure that all such shares of Common Stock issuable
pursuant to this Warrant may be so issued without violation of any applicable
law or regulation, or of any requirements of any securities exchange upon which
the Common Stock of the Corporation may be listed.
-4-
<PAGE>
3. WARRANT PRICE; BASE PRICE; PROTECTION AGAINST DILUTION.
3.1 INITIAL WARRANT PRICE; INITIAL BASE PRICE . The initial
purchase price of $25.00 per share (the "Warrant Price") and the number of
shares of Common Stock issuable pursuant to this Warrant shall be subject to
adjustment from time to time as hereinafter provided. For purposes of
calculating the adjustment to the Warrant Price contemplated by this Paragraph
3, the initial Base Price shall be $21.583 per share (being the average of the
"daily market price" for a share of the Corporation's Common Stock over a period
of three business days immediately prior to the date of this Warrant, which
business days were December 21, 1995, December 22, 1995 and December 26, 1995,
with the "daily market price" for each such business day being the mean of the
last reported closing bid and asked prices on such day in the over-the- counter
market, as furnished by the NASDAQ System), subject to adjustment from time to
time as hereinafter provided.
3.2 ADJUSTMENT OF THE WARRANT PRICE, BASE PRICE AND NUMBER OF
SHARES.
3.2.1 Except as provided in Paragraph 3.5, if and
whenever the Corporation shall issue or sell any shares of its Common Stock for
a consideration per share less than the Base Price on the date of such issue or
sale, then forthwith upon such issue or sale, (i) the Warrant Price shall be
reduced to the price (calculated to the nearest cent) determined by multiplying
the Warrant Price in effect immediately prior to the time of such issuance or
sale by a fraction, the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Base Price immediately prior to such issue or sale, plus (B)
the consideration, if any, received by the Corporation upon such issue or sale,
and the denominator of which shall be the product of (C) the total number of
shares of Common Stock outstanding immediately after such issue or sale,
multiplied by (D) the Base Price immediately prior to such issue or sale; and
(ii) the Base Price shall be reduced to the price (calculated to the nearest
cent) determined by multiplying the Base Price in effect immediately prior to
the time of such issuance or sale by the same fraction.
3.2.2 Except as provided in Paragraph 3.5, if and
whenever the Corporation shall issue or sell any shares of its Common Stock for
a consideration per share less than the Market Price on the date of such issue
or sale, then forthwith upon such issue or sale, the Warrant Price shall be
reduced to the price (calculated to the nearest cent) determined by multiplying
the Warrant Price in effect immediately prior to the time of such issuance or
sale by a fraction, the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Market
-5-
<PAGE>
Price immediately prior to such issue or sale, plus (B) the consideration, if
any, received by the Corporation upon such issue or sale, and the denominator of
which shall be the product of (C) the total number of shares of Common Stock
outstanding immediately after such issue or sale, multiplied by (D) the Market
Price immediately prior to such issue or sale. For purposes hereof, the Market
Price of a share of Common Stock shall mean the average of the closing prices of
the Common Stock for sales on all securities exchanges on which the Common Stock
may at the time be listed, or, if there shall have been no sales on any such
exchange on any such date, the average of the closing bid and asked prices on
such date, or, if the Common Stock shall not be so listed, the average of the
closing bid and asked prices on such date in the over-the-counter market as
furnished by the NASDAQ System, or any similar successor organization, in each
case averaged over a period of 30 consecutive business days prior to the date as
of which Market Price is being determined. If at any time the Common Stock is
not listed on any securities exchange or quoted in the over-the-counter market,
the Market Price shall be deemed to be the fair value thereof determined in good
faith by the Board of Directors of the Corporation as of a date which is within
15 days of the date as of which the determination is to be made; provided,
however, that if the holder of this Warrant disputes such determination of
Market Value within 15 days of its receipt of notice of such determination, then
the determination of Market Price shall be made by a nationally recognized
appraiser or investment banking firm mutually agreeable to the Corporation and
the holder of this Warrant, with the costs of such determination being shared
equally by the Corporation and the holder of this Warrant.
3.2.3 No adjustment of the Warrant Price or Base
Price however shall be made in any amount less than one percent (1%) of the then
applicable Warrant Price or Base Price, as applicable, but any such lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to one percent (1%) or more of the then
applicable Warrant Price or Base Price.
3.2.4 Upon each adjustment of the Warrant Price as
provided in this Section 3, the holder of this Warrant shall thereafter be
entitled to purchase, at the Warrant Price resulting from such adjustment, the
number of shares obtained by multiplying the Warrant Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
Warrant Price resulting from such adjustment.
-6-
<PAGE>
3.3 DETERMINATION OF WARRANT PRICE ADJUSTMENT.
3.3.1 ISSUANCE OF RIGHTS, OPTIONS OR WARRANTS. In
case at any time the Corporation shall in any manner grant (whether directly or
by assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options or warrants for the purchase of, Common Stock or any
stock or securities convertible into or exchangeable for Common Stock (such
rights or options or warrants being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or exchange
any such Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such Options or
upon conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the Corporation
as consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the Base Price or
Market Price, determined as of the date of granting such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting
of such Options and thereafter shall be deemed to be outstanding. Except as
otherwise provided in Paragraph 3.3.3, no adjustment of the Warrant Price or
Base Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities.
3.3.2 ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or
-7-
<PAGE>
exchange of all such Convertible Securities) shall be less than the Base Price
or Market Price, determined as of the date of such issue or sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of the issue
or sale of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in Paragraph 3.3.3
below, no adjustment of the Warrant Price or Base Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Option to purchase any such Convertible
Securities for which adjustments of the Warrant Price have been or are to be
made pursuant to other provisions of Paragraph 3.3, no further adjustment of the
Warrant Price or Base Price shall be made by reason of such issue or sale.
3.3.3 CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon
the happening of any of the following events, namely, if the purchase price
provided for in or the number of shares covered by any Option referred to in
Paragraph 3.3.1, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in Paragraph
3.3.1 or 3.3.2, or the rate at which Convertible Securities referred to in
Paragraph 3.3.1 or 3.3.2, are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution upon the occurrence of an event that also results in
the adjustment of the Warrant Price hereunder), the Warrant Price and Base Price
in effect at the time of such event shall forthwith be readjusted to the Warrant
Price and Base Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
purchase price, number of shares, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or sold; and on the
expiration of any such Option or the termination of any such right to convert or
exchange such Convertible Securities, the Warrant Price and Base Price then in
effect hereunder shall forthwith be increased to the Warrant Price and Base
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been granted or
issued, and the Common Stock issuable thereunder shall no longer be deemed to be
outstanding.
3.3.4 STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution upon any stock of the
Corporation payable in shares of Common Stock, Options or Convertible
Securities, any shares of Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of
-8-
<PAGE>
such dividend or distribution shall be deemed to have been issued or sold
without consideration.
3.3.5 CONSIDERATION FOR STOCK, OPTIONS OR CONVERTIBLE
SECURITIES. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation therefor. In case
any shares of Common Stock, Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Corporation. In case any Options shall be issued in connection with the issue
and sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration. In case any shares of Common Stock, Options or
Convertible Securities shall be issued in connection with any merger or
consolidation in which the Corporation is the surviving corporation, the amount
of consideration therefor shall be deemed to be the fair value as determined in
good faith by the Board of Directors of the Corporation of such portion of the
assets and business of the non-surviving corporation as such Board shall
determine to be attributable to such Common Stock, Options or Convertible
Securities, as the case may be. In the event of any consolidation or merger of
the Corporation in which the Corporation is not the surviving corporation or in
the event of any sale of all or substantially all of the assets of the
Corporation for stock or other securities of any corporation, the Corporation
shall be deemed to have issued a number of shares of its Common Stock for stock
or securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a consideration
equal to the fair market value on the date of such transaction of such stock or
securities of the other corporation; provided, however, that the Warrant Price
shall not be increased as a result of the foregoing.
3.3.6 RECORD DATE. In case the Corporation shall take
a record of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities, or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
-9-
<PAGE>
3.3.7 TREASURY SHARES. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares shall
be considered an issue or sale of Common Stock for the purposes of Paragraphs
3.2 and 3.3.
3.3.8 DETERMINATION OF MARKET PRICE UNDER CERTAIN
CIRCUMSTANCES. Anything herein to the contrary notwithstanding, in case the
Corporation shall issue shares of Common Stock, Options or Convertible
Securities in connection with the acquisition by the Corporation, or any
subsidiary of the Corporation, of the stock or assets of any other corporation
or the merger of any other corporation into the Corporation, or any subsidiary
of the Corporation, the Market Price shall be determined as of the date the
number of shares of Common Stock, Options or Convertible Securities (or in the
case of Convertible Securities other than stock, the aggregate principal amount
of Convertible Securities) was determined (as set forth in the binding agreement
between the Corporation and the other party to the transaction) rather than on
the date of issuance of such shares of Common Stock, Options or Convertible
Securities.
3.3.9 PRIORITY OF ADJUSTMENT. In case an adjustment
of the Warrant Price will be required pursuant to both Paragraphs 3.2.1 and
3.2.2, the adjustment to be made shall be made only pursuant to one of such
Paragraphs, whichever would result in the lower Warrant Price.
3.4 SUBDIVISION OR COMBINATION OF STOCK. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, the Warrant Price and Base Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the Corporation
shall be combined into a smaller number of shares, the Warrant Price and Base
Price in effect immediately prior to such combination shall be proportionately
increased.
3.5 EXCEPTIONS TO ADJUSTMENT PROVISIONS. Notwithstanding
anything to the contrary contained in this Warrant, there shall be no adjustment
to the Warrant Price or Base Price as a result of the occurrence of any of the
following events:
(a) The issue or sale of any shares of Common Stock pursuant to
options or warrants which were outstanding on the date hereof;
or
(b) The issue or sale of any shares of Common Stock pursuant to
the Corporation's employee stock option, stock purchase or
similar plans now or hereafter in effect; provided, however,
that any such issue or sale of shares of
-10-
<PAGE>
Common Stock to Lou Weisbach or to any of his parents,
spouse, descendants, siblings or spouses of siblings shall
only be covered by this Subparagraph (b) if the shares of
Common Stock issued or sold to such person is on the same
basis as is made available to other employees of the
Corporation.
3.6 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any capital reorganization or reclassification (other than a
reclassification constituting a subdivision or combination of its outstanding
shares of Common Stock) of the capital stock of the Corporation, or any
consolidation or merger of the Corporation with another corporation, or the sale
of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant and in lieu of the
shares of Common Stock of the Corporation immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore so purchasable and
receivable upon the exercise of the rights represented hereby had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Warrant Price and Base Price and of the number of shares purchasable upon
the exercise of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof (including an immediate adjustment, by
reason of such consolidation or merger, of the Warrant Price and Base Price to
the value for the Common Stock reflected by the terms of such consolidation or
merger if the value so reflected is less than the Warrant Price or Market Price
in effect immediately prior to such consolidation or merger). In the event of a
merger or consolidation of the Corporation as a result of which a greater or
lesser number of shares of common stock of the surviving corporation are
issuable to holders of Common Stock of the Corporation outstanding immediately
prior to such merger or consolidation, the Warrant Price and Base Price in
effect immediately prior to such merger or consolidation shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding shares of Common Stock of the
-11-
<PAGE>
Corporation. The Corporation will not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor corporation (if
other than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument executed
and mailed or delivered to the registered holder hereof at the last address of
such holder appearing on the books of the Corporation, the obligation to deliver
to such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase.
3.7 ADJUSTMENT FOR CERTAIN SPECIAL DIVIDENDS. In the event
the Corporation shall declare a dividend upon the Common Stock payable otherwise
than out of earnings or profits or earned surplus determined in accordance with
generally accepted accounting principles (except in Common Stock or Convertible
Securities or Options to Purchase Common Stock or Convertible Securities), the
Warrant Price and Base Price in effect immediately prior to the declaration of
such dividend shall be reduced (to the extent payable otherwise than out of
earnings or profits or earned surplus) by an amount equal, in the case of a
dividend in cash, to the amount thereof payable per share of Common Stock or, in
the case of any other dividend, to the fair value thereof per share of Common
Stock as determined in good faith by the Board of Directors of the Corporation
(in both cases assuming that this Warrant had been fully exercised with respect
to the shares of Common Stock covered hereby). Such reduction shall take effect
as of the date on which a record is taken for the purposes of such dividend or,
if a record is not taken, the date as of which the holders of Common Stock of
record entitled to such dividend are to be determined.
3.8 CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment under the provisions of this Paragraph 3 in the number or kind of
Common Stock (or such other security as may become issuable pursuant to the
provisions hereof) or in the Warrant Price and Base Price as then in effect, the
Corporation shall compute such adjustment in accordance with the provisions set
forth herein and the Chief Financial Officer of the Company shall prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the consideration
received or to be received by the Corporation for any additional Common Stock,
Options or Convertible Securities issued or sold or deemed to have been issued
or sold and of the number of shares of Common Stock, Options and Convertible
Securities outstanding or deemed to be outstanding. The Corporation will
forthwith mail a copy of each such certificate to the holder of this Warrant.
3.9 OTHER NOTICES. In case at any time:
(a) the Corporation shall pay any cash dividend on its Common
Stock at a rate in excess of the
-12-
<PAGE>
rate of the last cash dividend theretofore paid;
(b) the Corporation shall declare any dividend payable in stock
upon its Common Stock or make any special dividend or other
distribution other than regular cash dividends to the holders
of its Common Stock;
(c) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of
any class or other rights;
(d) there shall be any capital reorganization, or reclassification
of the capital stock of the Corporation, or consolidation or
merger of the Corporation with, or sale of all or
substantially all of its assets to, another corporation; or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written
notice, by first class mail, postage prepaid, addressed to the holder of this
Warrant at the address of such holder as shown on the books of the Corporation,
(a) at least seven days prior to the date on which a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (b) in the case of any
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
3.10 CERTAIN EVENTS. If any event occurs as to which in the
opinion of the Board of Directors the other provisions of this Paragraph 3 are
not strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant in accordance with the essential
intent and principles of
-13-
<PAGE>
such provisions, the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid.
3.11 ISSUE TAX. The issuance of certificates for shares of
Common Stock upon exercise of the Warrant shall be made without charge to the
holder of this Warrant for any issuance tax in respect thereof, provided that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the holder of this Warrant.
3.12 NO FRACTIONAL SHARES. The Corporation shall not be
required to issue fractional shares of Common Stock and shall have the right
upon the exercise of this Warrant or any portion hereof to round off the number
of shares of Common Stock issued to the nearest whole number of shares.
4. NO VOTING RIGHTS. Until the valid exercise of this Warrant, this
Warrant shall not entitle the holder hereof to any voting rights or other rights
as a stockholder of the Corporation, but immediately upon exercise of this
Warrant and upon payment of the Warrant Price, the holder shall be deemed a
record holder of the Common Stock.
5. RIGHTS OFFERINGS. The holder of this Warrant shall have the right to
participate in any rights offering made by the Corporation generally to its
holders of outstanding Common Stock as if this Warrant had been exercised in its
entirety as to vested shares as of the date and time of such rights offering.
6. RESTRICTION ON TRANSFER OF COMMON STOCK AND REGISTRATION. The terms
and conditions relating to transferability, restrictive legends and registration
of the Common Stock issued upon the exercise of this Warrant shall be the same
as those set forth in and contemplated by the Stock Purchase Agreement, all of
which are incorporated herein by this reference.
7. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Illinois.
8. TRANSFER OF WARRANT. This Warrant and all rights hereunder are not
transferrable, in whole or in part, by the holder hereof without the prior
written consent of the Corporation, except that such consent of the Corporation
shall not be required in order for any such transfer to be made by the holder
hereof to any owner of an equity interest in the holder hereof, a spouse or
child of the holder hereof or any such equity owner, an entity controlled by the
holder hereof or any such equity owner or any trust all of the beneficiaries of
which are any of the foregoing. Any such permitted transfer shall be effected at
the office or
-14-
<PAGE>
agency of the Corporation referred to in Paragraph 1 hereof by the holder hereof
in person or by its duly authorized attorney, upon surrender of this Warrant
properly endorsed. The form of the warrants issued upon any such transfer shall
be the same as this Warrant, subject to such changes as may be approved by the
holder of this Warrant and the Corporation. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed may be treated by the Corporation
and all other persons dealing with this Warrant as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented by
this Warrant, or to the transfer hereof on the books of the Corporation; but
until such transfer on such books, the Corporation may treat the registered
holder hereof as the owner for all purposes.
9. EXCHANGES OF WARRANTS. This Warrant is exchangeable, upon its
surrender by the holder hereof at the office or agency of the Corporation
referred to in Paragraph 1 hereof, for new Warrants or like tenor representing
in the aggregate the right to subscribe for and purchase the same number of
shares of Common Stock as the holder of this Warrant has the right to subscribe
for and purchase pursuant to this Warrant.
10. LOST OR MUTILATED WARRANT. In the event that this Warrant is lost
or mutilated, the Corporation shall issue a substitute Warrant to the holder
hereof upon such holder delivering to the Corporation such indemnification as
the Corporation may reasonably require and otherwise complying with such
requirements as the Corporation may reasonably impose.
11. MEANING OF COMMON STOCK. "Common Stock" when used in this Warrant
with reference to the Common Stock purchasable hereunder shall mean Common Stock
of the class existing on the date of issuance of this Warrant and any stock into
which such Common Stock may thereafter have been changed and, when otherwise
used in this Warrant, shall include also stock of the Company of any other
class, whether now or hereafter authorized, which ranks, or is entitled to a
participation, as to assets or dividends, substantially on a parity with such
existing Common Stock or other class of stock into which such Common Stock may
have been changed.
12. HEADINGS. The section headings used in this Warrant are for
convenience of reference only and shall not constitute a part of this Warrant or
affect the construction of this Warrant.
-15-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed by one of its duly authorized officers under its corporate seal and
attested as of the 10th day of January, 1996.
HA-LO INDUSTRIES, INC.,
an Illinois corporation
By:
--------------------------------
Title:
-----------------------------
(CORPORATE SEAL)
Attest:
- --------------------------------------
Secretary
-16-
<PAGE>
ELECTION TO PURCHASE
HA-LO INDUSTRIES, INC
The undersigned, the holder of the foregoing Warrant, hereby elects
to exercise purchase rights represented by said Warrant for, and to purchase
thereunder, ________________________ shares of the Common Stock covered by
said Warrant and herewith makes payment in full therefor of
$_________________, and requests that certificates for such shares be issued
in the name of and delivered to ___________________________
_______________________ whose address is
_______________________________________________; and, if such shares shall
not include all of the shares issuable as provided in said Warrant, that a
new Warrant of like tenor and date for the balance of the shares issuable
thereunder be delivered to the undersigned.
Dated: ,
------------------------------- ------------
--------------------------------
-17-
<PAGE>
SCHEDULE 1
There are three (3) documents omitted as Exhibits which contain the
same material terms of the attached warrant, except that the parties defined
therein as the holder of the warrant (marked as "(1)" on the first page of such
document) and the amount of shares marked as "(2)" in the title of the warrant,
the first paragraph thereafter, Section 1.1 and Section 1.2 differ among the
documents. Such parties are set forth below (listed as "Holder") with the
corresponding share number of their respective warrants.
<TABLE>
<CAPTION>
HOLDER SHARES SUBJECT TO WARRANT
- ------ -------------------------
<S> <C>
Montgomery Ward & Co. Incorporated 172,971
ValueVision International Inc. 25,946
Merchant Development Corporation 1,081
</TABLE>
-18-
<PAGE>
EXHIBIT 10.53
FIRST AMENDMENT
TO
WARRANT
THIS FIRST AMENDMENT TO WARRANT ("Amendment") is entered into as of
June 29, 1998 between HA-LO INDUSTRIES, INC., an Illinois corporation (the
"Corporation"), and Montgomery Ward & Co. Incorporated, an Illinois corporation
(the "Holder").
RECITALS
A. Pursuant to that certain Warrant, dated January 10, 1996 (the
"Warrant"), the Corporation granted to the Holder the right to purchase 172,971
shares of the Corporation's Common Stock, no par value (the "Common Stock"), on
specified terms and conditions.
B. Pursuant to the adjustment provisions of the Warrant, but subject to
the vesting provisions of the Warrant, the Warrant is currently exercisable for
an aggregate of 324,157 shares of Common Stock at a Warrant Price (as such term
is defined in the Warrant) of $13.34.
C. The Corporation and the Holder desire to amend the Warrant in
certain respects as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AMENDMENT. Effective as of the date hereof, the Warrant is hereby
amended by deleting all references to "$15,000,000" in Sections 1.2(a) and
1.2(b) of the Warrant and substituting "$8,000,000" in lieu thereof.
2. REFERENCES TO AND EFFECT ON WARRANT.
(a) On and after the date hereof, each reference in the
Warrant to "this Warrant", "hereunder", "hereof",
"herein" or words of similar import shall mean and
shall be a reference to the Warrant as amended
hereby.
(b) Except as specifically set forth in this Amendment,
the Warrant shall remain in full force and effect and
is hereby ratified and confirmed.
3. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
4. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
<PAGE>
5. ENTIRE AGREEMENT. This Amendment, together with the Warrant,
constitute the entire agreement of the parties and supersedes all prior
agreements and understandings, written or oral, relating to the subject matter
hereof.
IN WITNESS WHEREOF, the parties have accepted and executed this
Amendment on and as of the date set forth above.
HA-LO INDUSTRIES, INC.
By:
------------------------------------
Its:
-----------------------------------
MONTGOMERY WARD & CO. INCORPORATED
By:
------------------------------------
Its:
-----------------------------------
- 2 -
<PAGE>
Exhibit 10.54
AGREEMENT
This Agreement ("Agreement") is entered into as of January 26, 1999 by
and between HA-LO INDUSTRIES, INC., an Illinois corporation ("HA-LO"), and
MONTGOMERY WARD & CO. INCORPORATED, an Illinois corporation ("Montgomery Ward").
RECITALS
A. Montgomery Ward and HA-LO are party to that certain Exclusive
Premium Purchasing Agreement dated January 11, 1995 as amended by a First
Amendment, dated December 27, 1995, and a Second Amendment, dated June 29, 1998
(collectively, the "Purchasing
Agreement").
B. Pursuant to two Warrants, each dated January 10, 1996 and each
amended as of June 29, 1998 (as amended, collectively, the "Warrants"), HA-LO
granted to Montgomery Ward the right to purchase an aggregate of 518,917 shares
(preadjustment) of HA-LO's Common Stock, no par value (the "Warrant Shares") on
specified terms and conditions.
C. The parties wish to make certain clarifying changes and amendments
to the Purchasing Agreement, the Warrants and otherwise, all as is set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DESIGNATION OF PURCHASE ORDERS. Notwithstanding the provisions of
Section 1.2(b) of the Warrants that the calculation of purchases of Premium
Products by the MW Buying Group under the Purchasing Agreement are to be
calculated "on the basis of the dates of invoices for such Premium Products," at
the discretion of Montgomery Ward, purchase orders made by Montgomery Ward
pursuant to the Purchasing Agreement during the calendar month of January, 1999
shall be included in the calculation of purchases of Premium Products under such
Section 1.2(b) for January, 1999. All such purchase orders shall be paid in full
by Montgomery Ward upon execution hereof.
2. PAYMENT TERMS. Notwithstanding the provisions of Section 5 of the
Purchasing Agreement, for all purchase orders made by the MW Buying Group from
and after the date hereof pursuant to the Purchasing Agreement (and with respect
to the purchases described in paragraph 1 of this Agreement), payment shall be
made in an amount equal to 100% of the HA-LO quotation amount with regard to
each such purchase order upon delivery of such purchase orders to HA-LO, and the
remainder of the payment obligation with respect to such purchase order, if at
all, shall be due and owing net thirty (30) days from the later of (i) the date
of shipment of
<PAGE>
Premium Products by HA-LO with respect thereto, or (ii) the date of receipt by
Montgomery Ward of HA-LO's invoice for such Premium Products.
3. PAYMENT OF OUTSTANDING RECEIVABLES. On or before February 15, 1999,
Montgomery Ward shall pay in full to HA-LO the outstanding balance of all sums
owed by Montgomery Ward to HA-LO, whether or not such sums are now or would
otherwise be due and owing pursuant to the Purchasing Agreement (prior to the
adoption of this Agreement).
4. COUNTERPART. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument, but
all separate counterparts shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as
of the date set forth above.
MONTGOMERY WARD & CO. INCORPORATED
By:
------------------------------
Its:
--------------------------
HA-LO INDUSTRIES, INC.
By:
------------------------------
Its:
--------------------------
2
<PAGE>
Exhibit 10.55
FIRST AMENDMENT TO THE
1998 RESTATEMENT OF THE HA-LO INDUSTRIES, INC.
401(k) SAVINGS PLAN
WHEREAS, HA-LO Industries, Inc. (the "Company") established and
maintains the HA-LO Industries, Inc. 401(k) Savings Plan (the "Plan") for the
benefit of its eligible employees; and
WHEREAS, amendment of the Plan is now considered desirable;
WHEREAS, the power to amend the Plan is reserved to the Company under
Section 11.1 of the Plan.
NOW, THEREFORE, BE IT RESOLVED that the Plan is hereby amended,
effective as provided herein, in the following particulars:
1. Effective January 1, 1999, by adding to the end of Section 3.1 of
the Plan the following:
Notwithstanding any provision in the Plan to the contrary, each
Participant in the Plan immediately prior to January 1, 1999 shall
continue to be a Participant in the Plan on and after January 1, 1999
subject to the limitations of the Plan. Effective January 1, 1999, each
other Employee 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, provided he is still an
Employee on such date.
For Plan eligibility purposes, service prior to January 1,
1999 shall be counted for each sales representative for a Related
Entity who was an independent contractor or who was employed by a
corporation and in such capacity provided sales services to a Related
Entity, as determined by the Plan Administrator in a uniform and
nondiscriminatory manner.
<PAGE>
Exhibit 10.56
SECOND AMENDMENT TO THE
1998 RESTATEMENT OF THE HA-LO INDUSTRIES, INC.
401(k) SAVINGS PLAN
WHEREAS, HA-LO Industries, Inc. (the "Company") established
and maintains the HA-LO Industries, Inc. 401(k) Savings Plan (the
"Plan") for the benefit of its eligible employees; and
WHEREAS, amendment of the Plan is now considered desirable;
WHEREAS, the power to amend the Plan is reserved to the
Company under Section 11.1 of the Plan.
NOW, THEREFORE, BE IT RESOLVED that the Plan is hereby amended,
effective as provided herein, in the following particulars:
1. Effective January 1, 1998, by substituting for Section 2.2 of the
Plan the following:
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 Testing
Compensation. A Participant's Actual Deferral Percentage will be
determined in accordance with Treasury Regulation ss. 1.401(k)-1.
The term "Testing Compensation" means any and all items of compensation
which the Company establishes and which satisfies the requirements for
a definition of compensation under Code Section 414(s) and regulations
thereunder.
2. Effective January 1, 1999, by substituting for Section 2.7 of the
Plan the following:
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, including commissions paid to sales
representatives, 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
<PAGE>
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.
3. Effective April 1, 1999, by adding to the end of Section 3.1 of the
Plan the following:
Notwithstanding any provision in the Plan to the contrary, for an
Employee who is hired due to a corporate acquisition and who satisfies
the requirements for participation in the Plan, the Plan Administrator
may set a separate, special Entry Date, as shall be determined by the
Plan Administrator in a uniform and nondiscriminatory manner.
4. Effective March 1, 1999, by substituting for the last sentence of
Section 11.1 of the Plan the following:
Notwithstanding any provision in the Plan to the contrary, the Company
has further delegated to Richard A. Magid and Lou Weisbach the
authority to amend the Plan with respect to amendments which would
affect the cost of benefits provided under the Plan, to approve plan
mergers and spinoffs and to appoint members to the committee appointed
to administer the Plan.
-2-
<PAGE>
Exhibit 13
[LOGO]
1998 HIGHLIGHTS
1998 HIGHLIGHTS
- - Recurring pre-tax net income increased to $51.2 million, an increase of 79%
over 1997.
- - Sales increased 27% in 1998 and reached an all-time high of $589.7 million.
- - Continued aggressive growth strategy in the core promotional products
industry.
- - Expanded marketing services business with the acquisitions of UPSHOT and
LAGA, both leaders in their marketing disciplines.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
Restated (a)(b)
---------------------------------------------
(In thousands, except per share amounts) 1998(b) 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Statement of Income Data:
<S> <C> <C> <C> <C> <C>
Net Sales $589,669 $465,721 $375,736 $310,116 $218,834
Net Income $ 24,750 $ 15,458 $ 10,092 $ 7,309 $ 9,195
Pro forma Net Income (c) $ 24,520 $ 14,846 $ 9,879 $ 5,902 $ 6,346
Pro forma Net Income Per Share, Diluted (a), (c) $ 0.53 $ 0.36 $ 0.25 $ 0.17 $ 0.19
Weighted Average Shares Outstanding, Diluted (a) 46,447 41,112 40,266 34,586 32,588
Balance Sheet Data (End of Year):
Working Capital $162,751 $ 78,741 $ 60,706 $ 42,286 $ 21,742
Total Assets $347,017 $238,053 $147,063 $124,331 $ 92,141
Long-term Debt $ - $ 44,930 $ 29,863 $ 13,263 $ 14,917
Shareholders' Equity (d) $235,491 $ 85,473 $ 62,032 $ 52,091 $ 24,414
</TABLE>
(a) The number of common shares and per share data for all periods reflects
the three-for-two split that became effective February 19, 1999.
(b) All periods presented include the results of acquisitions accounted for
using the pooling-of-interests method of accounting.
(c) 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 for Federal and
state taxes at an effective rate of 40%.
(d) Includes cash dividends of $11,518,000, $5,296,000, $6,887,000,
$7,761,000 and $5,088,000 declared by acquired companies in 1998, 1997,
1996, 1995 and 1994, respectively, prior to their acquisition by the
Company.
<PAGE>
[LOGO]
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 in the Company's Consolidated Statements
of Income:
<TABLE>
<CAPTION>
Percent of Net Sales
- ------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 64.9% 67.4% 69.6%
Gross Profit 35.1% 32.6% 30.4%
Selling Expenses 13.0% 12.3% 11.9%
General and Administrative Expenses 13.7% 13.7% 13.4%
Non-Recurring Charges, Primarily Related to Acquisitions 1.8% .8% .4%
- ------------------------------------------------------------------------------------------------------------
Operating Income 6.6% 5.8% 4.7%
Interest Income (Expense), Net .3% (.5%) (.3%)
- ------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 6.9% 5.3% 4.4%
Provision for Income Taxes 2.7% 2.0% 1.7%
- ------------------------------------------------------------------------------------------------------------
Net Income 4.2% 3.3% 2.7%
- ------------------------------------------------------------------------------------------------------------
Pro forma Net Income 4.2% 3.2% 2.6%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the concentration of net sales by each of the
Company's business segments:
<TABLE>
<CAPTION>
Percent of Net Sales
- -------------------------------------------------------------------------------------------------------------
Business Segment 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Promotional Products 79% 75% 79%
Marketing Services 11% 11% 6%
Telemarketing 10% 14% 15%
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Net sales for 1998 increased 26.6% to $589.7 million from $465.7 million for
1997. Of the $123.9 million increase, $96.6 million was due to internal growth
and $27.3 million was from acquired companies.
Promotional product net sales increased $113.8 million in 1998. Of this amount,
$86.5 million was internal, resulting in an internal growth rate for the year of
24.7%. Internal growth in this segment was due to a combination of the addition
of new sales representatives, further penetration of existing customers and
development of new accounts.
Net sales from the Company's marketing services, which include promotion
marketing, brand strategy and identity, and presence marketing, increased 29.8%
in 1998. All of the growth was internal and resulted primarily from increased
penetration of existing customers.
Telemarketing net sales decreased 7.8%, or $5.0 million in 1998. The decrease
was primarily related to industry overcapacity which adversely affected average
billing rates. The proportion of net sales from this segment is expected to
continue to decrease in 1999.
Gross profit as a percentage of net sales for 1998 was 35.1% ($207.2 million)
compared to 32.6% ($152.0 million) for 1997. The increase in gross profit
percentage was primarily due to a higher proportion of net sales from the
promotional product and marketing services segments. Promotional product gross
profit as a percentage of net sales increased in 1998 due to an increase in
sales of exclusive products and more efficient purchasing of merchandise. Gross
profit as a percentage of net sales in the telemarketing segment decreased 4.6%
in 1998. This was due to the pricing pressures discussed above.
Selling expenses as a percentage of net sales for 1998 were 13.0% ($76.6
million) compared to 12.3% ($57.4 million) for 1997. The .7% increase was
primarily due to increased commissions resulting from a greater proportion of
net sales from the promotional product segment. This segment has a higher
proportion of selling expenses to net sales than either marketing services or
telemarketing. To a lesser extent, the increase was attributable to continued
investments to enhance the Company's brand, including proprietary product
arrangements and corporate visibility programs.
21
<PAGE>
General and administrative expenses as a percentage of net sales for 1998 were
13.7% ($81.0 million), unchanged from 1997 ($63.8 million). The $17.1 million
increase was primarily due to increased infrastructure required to support the
Company's growth. Increased payroll and benefits accounted for approximately
$8.4 million of the increase while occupancy and information systems costs
accounted for an additional $7.2 million.
Operating results for 1998 and 1997 include pre-tax non-recurring charges of
$10.3 million and $3.8 million, respectively. These expenses primarily related
to completed acquisitions accounted for using the pooling-of-interests
accounting method.
Net interest income in 1998 was $1.6 million compared to net interest expense of
$2.2 million in 1997. The change was due to the repayment of substantially all
the Company's outstanding debt with the proceeds from a secondary stock offering
completed in May 1998. Excess funds were subsequently invested in interest
bearing investments.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Net sales increased 23.9% to $465.7 million from $375.7 million for 1996. Of the
$90.0 million increase, $73.7 million was due to internal growth and $16.3
million was from acquired companies.
Promotional product net sales increased $52.9 million in 1997. Of this amount,
$36.6 million was due to internal growth and the balance from acquired
companies. Net sales from the Company's marketing services segment more than
doubled in 1997. All of this growth was internal and was due to further
penetration of its customer base. Additionally, the Company's telemarketing net
sales increased 15.8%, or $8.7 million.
Gross profit as a percentage of net sales for 1997 was 32.6% ($152.0 million)
compared to 30.4% ($114.4 million) for 1996. The increase in gross profit
percentage was primarily attributable to the promotional product segment, which
increased its gross profit as a percentage of net sales by 3.1%. This increase
was due to a change in sales mix resulting in a reduction of lower margin
premium sales in 1997 compared to 1996.
Selling expenses as a percentage of net sales for 1997 were 12.3% ($57.4
million) compared to 11.9% ($44.8 million) for 1996. The .4% increase was
primarily due to a reduction in lower margin premium sales which were not
subject to the Company's standard commission program in 1997.
General and administrative expenses as a percentage of net sales for 1997 were
13.7% ($63.8 million) compared to 13.4% in 1996 ($50.3 million). The $13.5
million increase was due to increased infrastructure required to support the
Company's growth and related primarily to salary and related benefit costs.
Operating results for 1997 and 1996 include pre-tax 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 $2.2 million from $1.1 million in
1996. The increase was 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 2000 READINESS DISCLOSURE
Date sensitive computer applications that currently record years in two-digit,
rather than four-digit century format may be unable to properly categorize and
process dates after December 31, 1999 (the "Year 2000 Issue"). Also, embedded
computer chips that control devices such as building security systems, elevators
and telephone equipment may fail, resulting in disruption of operations to the
Company, its customers and suppliers.
The Company's operating divisions and subsidiaries utilize various computer
systems. The Company relies on its computer systems and applications for many
business critical aspects, including financial systems, (including general
ledger, inventory, order processing, accounts payable and accounts receivable),
customer service, creative design, warehouse automation and voice and data
telecommunications. At the direction of its Board of Directors, the Company
formed a Year 2000 Committee in 1998 to assess its state of readiness and
address Year 2000 issues that may affect its business. The Chief Information
Officer of the Company has been appointed the Year 2000 Project Executive.
The Company has completed the inventory and assessment of all key computer
systems. In determining whether a system is Year 2000 compliant The Company has
adopted The British Standards Institution "Definition of Year 2000 Conformity
Requirements," contained in BSI Publication PD2000-1. Under this definition of
Year 2000 conformity, neither performance nor functionality is affected by dates
prior to, during and after the year 2000.
22
<PAGE>
During the assessment phase, the Company identified several systems that were
not Year 2000 ready. The Company has begun, and in certain cases, has completed
plans to remediate or convert all non-compliant systems to other systems that
are Year 2000 compliant. Beyond assessing the Year 2000 readiness of each
system, the Company plans to develop and complete a formal Year 2000 compliance
test for each system, with all testing and remediation completed by June 30,
1999. Based on the information gathered during the assessment phase, the Company
does not believe that the costs of achieving Year 2000 compliance, including
costs to remediate, convert and test systems will exceed $500,000. All costs
relating to the Year 2000 Issue and will be funded out of general operating
funds.
The Company has also initiated formal communications with its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their systems, business processes and supply
chains. The Company believes, due to its large, diverse product supplier base,
that the risk resulting from potential problems of any such supplier is minimal.
However, the Company is dependent upon many key suppliers (including providers
of electricity, telephone, water and gas services) and may incur disruptions of
operations if any one fails to deliver product or services due to a Year 2000
problem. Upon analysis of responses of Year 2000 readiness surveys received from
vendors and suppliers, the Company will prepare contingency plans to minimize
the impact of operational or product supply chain disruptions resulting from the
Year 2000 issue. Contingency plans will be prepared during the third and fourth
quarters of 1999.
In addition to key vendor and supply chain risks, the Company is aware that it
may face Year 2000 issues as a result of any business or company acquired in
1999 that is not Year 2000 compliant. The Company believes these risks can be
mitigated through conversion of non-compliant systems to Year 2000 compliant
systems as part of overall acquisition integration plans.
SEASONALITY
Some of the Company's customers tend to utilize a greater portion of their
advertising and promotional budgets in the latter half of the year, which
historically has resulted and may continue to result in a disproportionately
large share of the Company's net sales being recognized in the second half of
the year. The Company incurs general and administrative expenses evenly
throughout the year, which historically has resulted and may continue to result
in a disproportionate share of its net income being reported in the second half
of the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit facility with three banks. This facility, which matures
on March 1, 2000, provides for an unsecured revolving line of credit totaling
$75 million. Outstanding borrowings bear interest at either prime less .25% or
LIBOR plus between .5% and 1.5% based on a defined ratio.
In May of 1998, the Company completed a secondary offering of 5.85 million
shares of its common stock and recognized net proceeds of $117.4 million.
Approximately $51 million of the proceeds were used to repay substantially all
the outstanding debt of the Company. Additionally, during 1998, approximately
1.7 million shares of common stock were issued for exercises of stock options
and warrants. The Company received approximately $9.3 million in proceeds on
these exercises and recognized a $9.5 million tax benefit. The Company's
operating cash flow for 1998 was approximately $29 million.
Cash provided by financing activities includes cash dividends paid by acquired
companies accounted for as pooling-of-interests. The Company does not anticipate
paying any cash dividends on its common stock in the foreseeable future.
As of December 31, 1998, the Company's working capital was $162.8 million,
including $58.2 million in cash and equivalents and investments, compared to
$78.7 million as of December 31, 1997. A majority of the $84.1 million increase
was attributable to proceeds remaining from the secondary offering discussed
above. The remainder was attributable to the overall sales growth of the Company
and a continued focus on working capital management.
Capital expenditures, excluding acquisitions, were approximately $23.3 million
in 1998 compared to $10.1 million in 1997. The increase between years relates
primarily to a new office and warehouse facility for one of the Company's
subsidiaries. However, the Company exercised an option to sell this facility and
expects to realize proceeds between $9 and $10 million in the first half of
1999. Excluding acquisitions, management expects capital expenditures to be
approximately $12 million in 1999.
The Company anticipates that cash and investments on hand at December 31, 1998,
availability under its credit facility and future operating cash flows will be
adequate to satisfy its cash needs for the foreseeable future.
23
<PAGE>
[LOGO]
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Statements of Income
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------
(in thousands, except share amounts) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
NET SALES $589,669 $465,721 $375,736
COST OF SALES 382,503 313,756 261,362
- -----------------------------------------------------------------------------------------------------------
Gross Profit 207,166 151,965 114,374
SELLING EXPENSES 76,639 57,354 44,795
GENERAL AND ADMINISTRATIVE EXPENSES 80,950 63,819 50,320
NON-RECURRING CHARGES, PRIMARILY RELATED TO ACQUISITIONS 10,337 3,845 1,693
- -----------------------------------------------------------------------------------------------------------
Operating Income 39,240 26,947 17,566
- -----------------------------------------------------------------------------------------------------------
INTEREST INCOME 2,870 434 671
INTEREST EXPENSE (1,237) (2,633) (1,723)
- -----------------------------------------------------------------------------------------------------------
Income Before Income Taxes 40,873 24,748 16,514
PROVISION FOR INCOME TAXES 16,123 9,290 6,422
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 24,750 $ 15,458 $ 10,092
- -----------------------------------------------------------------------------------------------------------
PRO FORMA INCOME DATA (unaudited):
Pro forma adjustment for income tax provision 230 612 213
- -----------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME $ 24,520 $ 14,846 $ 9,879
- -----------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE (unaudited pro forma)
Basic $ 0.55 $ 0.37 $ 0.26
Diluted $ 0.53 $ 0.36 $ 0.25
- -----------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 44,734,301 39,628,308 38,594,051
Diluted 46,446,535 41,112,379 40,265,663
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31,
- -----------------------------------------------------------------------------------------------------------
(in thousands, except share amounts) 1998 1997
- -----------------------------------------------------------------------------------------------------------
ASSETS (Restated)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 7,276 $ 4,808
Short-term investments 50,922 --
Receivables--
Trade 147,174 134,459
Unbilled 12,679 4,517
Other 8,953 9,308
Related party -- 663
Inventories 29,637 24,347
Prepaid expenses and deposits 15,139 6,912
- -----------------------------------------------------------------------------------------------------------
Total current assets 271,780 185,014
- -----------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net 42,225 25,121
- -----------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets, net 26,621 22,569
Other 6,391 5,349
- -----------------------------------------------------------------------------------------------------------
Total other assets 33,012 27,918
- -----------------------------------------------------------------------------------------------------------
$347,017 $238,053
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,423 $ 7,477
Book overdraft 287 9,920
Accounts payable 63,591 48,806
Accrued expenses--
Commissions and wages 11,355 10,187
Customer deposits 10,638 8,601
Other 19,535 21,090
Due to related parties 200 192
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 109,029 106,273
- -----------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, less maturities shown above -- 44,930
- -----------------------------------------------------------------------------------------------------------
DEFERRED LIABILITIES 2,497 1,377
- -----------------------------------------------------------------------------------------------------------
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 47,780,742 and 40,171,844 issued and outstanding
in 1998 and 1997, respectively 198,228 66,241
Other (2,508) (2,131)
Retained earnings 39,771 21,363
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 235,491 85,473
$347,017 $238,053
</TABLE>
The accompanying notes are an integral part of these balance sheets.
25
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------- Total
Shares Retained Shareholders'
(in thousands, except share amounts) Issued Amount Other Earnings Equity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 (Restated) 38,492,160 $ 47,618 $(2,426) $ 6,899 $ 52,091
Transfer of S-Corporation retained earnings -- 3,540 -- (3,540) --
Dividends declared by pooled companies -- (2,201) -- (4,686) (6,887)
Stock bonus in connection with acquisition
of business 8,153 63 -- -- 63
Issuance of shares in connection
with acquisitions 644 10 -- -- 10
Issuance of restricted stock 2,343 34 (34) -- --
Amortization of unearned compensation -- -- 240 -- 240
Recognition of tax benefits from options
and restricted stock -- 5,244 -- -- 5,244
Exercise of stock options 921,458 2,000 -- -- 2,000
Repurchase of common stock (71,228) (862) -- -- (862)
Translation Adjustment -- -- 40 -- 40
Net income for the year -- -- -- 10,092 10,092
- -----------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 (Restated) 39,353,530 55,446 (2,180) 8,765 62,031
Dividends declared by pooled companies -- (2,436) -- (2,860) (5,296)
Issuance of shares in connection
with acquisitions 494,423 10,273 -- -- 10,273
Stock bonus in connection with acquisition
of business 1,865 31 -- -- 31
Amortization of unearned compensation -- -- 257 -- 257
Recognition of tax benefits from options
and restricted stock -- 1,984 -- -- 1,984
Exercise of stock options 378,935 1,844 -- -- 1,844
Repurchase of common stock (56,909) (901) -- -- (901)
Translation Adjustment -- -- (208) -- (208)
Net income for the year -- -- -- 15,458 15,458
- -----------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 (Restated) 40,171,844 66,241 (2,131) 21,363 85,473
Dividends declared by pooled companies -- (5,176) -- (6,342) (11,518)
Issuance of shares through public offering 5,853,000 117,362 -- -- 117,362
Issuance of shares in connection with
acquisitions, net 51,986 1,426 -- -- 1,426
Amortization of unearned compensation -- -- 257 -- 257
Recognition of tax benefits from options,
warrants and restricted stock -- 9,490 -- -- 9,490
Exercise of stock options and warrants 1,728,959 9,335 -- -- 9,335
Repurchase of common stock (25,047) (450) -- -- (450)
Translation Adjustment -- -- (634) -- (634)
Net income for the year -- -- -- 24,750 24,750
- -----------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 47,780,742 $198,228 $(2,508) $39,771 $235,491
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income for the year $ 24,750 $ 15,458 $ 10,092
Adjustments to reconcile net income to net cash
provided by (used for) operating activities--
Depreciation and amortization 9,454 6,564 5,775
Deferred taxes (896) (50) (336)
Increase in cash surrender value (433) (246) (112)
Increase (decrease) in deferred liabilities--other 120 (399) 30
Loss (gain) on disposal of property and equipment 65 92 (17)
Changes in assets and liabilities,
net of effects of acquired companies---
Receivables (16,765) (42,493) (8,199)
Inventories (1,031) (9,436) (1,424)
Prepaid expenses and deposits (7,872) (2,246) (3,073)
Accounts payable and accrued expenses 21,272 26,095 453
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
operating activities 28,664 (6,661) 3,189
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (23,321) (10,056) (8,680)
Proceeds on sale of property and equipment 788 24 58
Decrease (increase) in short-term investments (50,922) 2,908 641
Increase in other assets (1,513) (789) (680)
Increase (decrease) in deferred liabilities 763 (307) (629)
Cash paid for acquisitions (7,036) (7,200) (1,172)
- -----------------------------------------------------------------------------------------------------------
Net cash used for investing activities (81,241) (15,420) (10,462)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on long-term debt (11,248) 9,355 2,701
Net borrowings (payments) under line of credit (38,832) 7,068 12,565
Repayments from related party 663 719 60
Decrease (increase) in book overdraft (9,633) 8,082 (895)
Cash dividends paid by pooled companies (11,518) (5,296) (6,887)
Net proceeds from issuance of common stock 126,697 1,845 2,038
Repurchase of common stock (450) (901) (862)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 55,679 20,872 8,720
- -----------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND EQUIVALENTS (634) (208) 40
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,468 (1,417) 1,487
CASH AND EQUIVALENTS, beginning of year 4,808 6,225 4,738
- -----------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, end of year $ 7,276 $ 4,808 $ 6,225
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
27
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE BUSINESS:
HA-LO Industries, Inc. and Subsidiaries (the "Company") is a brand marketing
organization with diverse marketing disciplines centered around its clients'
brands. The Company's core business is the distribution of promotional and
premium products that physically connect brands to people through merchandise.
These products are marketed by an international network of sales representatives
to customers throughout the United States, Canada and Europe. Through its
subsidiaries, the Company also provides promotion marketing, relationship
marketing, brand strategy and identity and presence marketing services
principally to large corporations throughout the United States. The Company also
provides telemarketing and customer management services to large customers in
the United States and Canada.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies used in the
preparation of these consolidated financial statements.
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements are prepared on the accrual
basis of accounting and include the accounts of HA-LO Industries, Inc. and its
majority owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
B. RECLASSIFICATION
Certain 1997 and 1996 balances have been reclassified to conform with the 1998
presentation.
C. STOCK SPLIT
On January 26, 1999, the Company's Board of Directors declared a 3-for-2 stock
split. The split was effective February 19, 1999 to shareholders of record on
February 5, 1999. All share and per share data has been retroactively adjusted
to give effect to the stock split.
D. REVENUE RECOGNITION
Revenues derived from the distribution of promotional and premium products are
recognized when merchandise is shipped to customers. Revenues from the Company's
other services are recognized as services are provided.
E. CASH AND EQUIVALENTS
Cash equivalents consist principally of short-term money market instruments with
original maturities of three months or less.
F. 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. Included in short-term investments are
available-for-sale marketable securities held by the Company. At December 31,
1998, the value of these securities approximates cost. The Company did not hold
any available-for-sale marketable securities at December 31, 1997. There were no
realized gains or losses from the sales of marketable securities in 1998, 1997
or 1996.
G. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated for financial
reporting purposes over the estimated useful lives on a straight-line basis as
follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings 15-39 years
Furniture, fixtures and equipment 5-10 years
Computer and telephone equipment 5-7 years
Vehicles 5 years
Leasehold improvements Life of lease
</TABLE>
28
<PAGE>
Property and equipment at December 31 are composed of the following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,768 $ 1,848
Buildings 12,922 3,220
Furniture, fixtures and equipment 21,518 15,194
Computer and telephone equipment 26,407 18,855
Vehicles 629 231
Leasehold improvements 4,928 4,696
- ------------------------------------------------------------------------------------------------------------
68,172 44,044
Less--Accumulated depreciation 25,947 18,923
- ------------------------------------------------------------------------------------------------------------
Property and equipment, net $42,225 $25,121
- ------------------------------------------------------------------------------------------------------------
</TABLE>
H. 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 1998, 1997 and 1996 was
approximately $2,732,000, $1,555,000 and $1,434,000, respectively. Accumulated
amortization as of December 31, 1998 and 1997 was $7,611,000 and $4,750,000,
respectively.
I. INVENTORIES
Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
J. 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,
- ----------------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 1,259 $ 2,172 $ 1,654
Cash paid during year for income taxes $ 5,180 $ 4,073 $ 1,768
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Recognition of common shares issued in connection with acquisitions $ 1,426 $10,273 $ 10
Recognition of tax benefits from exercise of stock options,
warrants and restricted stock $ 9,490 $ 1,984 $ 5,244
Conversion of non-operating assets to note receivable $ -- $ 1,530 $ --
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
K. 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.
L. 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.
M. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
130, Reporting Comprehensive Income. With the exception of net income, other
comprehensive income is not material to the financial statements and no
disclosures other than those presented herein are required.
In 1998, the FASB issued Statement No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. The Company has adopted this
statement and no disclosures other than those presented herein are
required.
In 1998, the FASB also issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company is required to adopt this
standard for its fiscal year 2000. Management believes that adoption of the
standard will not have a material effect in the financial statements.
29
<PAGE>
NOTE 3. RECEIVABLES:
The Company provides services to customers in diversified industries and grants
unsecured trade credit to customers in the normal course of business.
Receivables in the accompanying consolidated balance sheets are net of reserves
for doubtful accounts of approximately $2,836,000 as of December 31, 1998 and
$2,749,000 as of December 31, 1997. The Company also makes advances to its sales
representatives, which are applied against commissions to be earned.
No single customer accounted for more than 10% of sales in 1998 or in 1997,
while sales to one major customer amounted to approximately 11% of total sales
in 1996.
NOTE 4. INCOME TAXES:
The Company's provision for income taxes consists of the following amounts:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision $16,354 $ 9,827 $ 6,964
Deferred benefit (231) (537) (542)
- ------------------------------------------------------------------------------------------------------------
Total provision $16,123 $ 9,290 $ 6,422
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's effective tax rate is reconciled to the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 34.0%
State income taxes (net of Federal benefit) 5.0 5.0 5.0
Valuation allowance 1.6 2.0 1.2
Effect of non-taxable S-Corporation (earnings)/losses (0.6) (2.5) 3.6
Other (1.6) (2.0) (4.9)
- ------------------------------------------------------------------------------------------------------------
Effective tax rate 39.4% 37.5% 38.9%
- ------------------------------------------------------------------------------------------------------------
</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
-----------------
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAXES--CURRENT:
Credits due $ 1,267 $ 1,471
Advanced commissions 249 168
Non-deductible reserves (1,592) (461)
Inventory valuation (242) (202)
Other 57 117
- -----------------------------------------------------------------------------------------------------------
Total deferred taxes-current $ (261) $ 1,093
DEFERRED TAXES--NON-CURRENT:
Samples $ 735 $ 589
Acquisition costs (2,923) (1,650)
Depreciation 1,021 744
Amortization (916) (732)
Deferred costs (433) (367)
Basis difference in acquired companies 920 --
Other -- (2)
- -------------------------------------------------------------------------------------------------------------------
Total deferred taxes-non-current (1,596) (1,418)
- -------------------------------------------------------------------------------------------------------------------
Less: Valuation allowance 1,461 825
- -------------------------------------------------------------------------------------------------------------------
Total deferred taxes--non-current, net of valuation allowance (135) (593)
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax (asset) liability $ (396) $ 500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Current and non-current deferred tax assets are included in prepaid expenses and
other assets, respectively, on the accompanying consolidated balance sheets.
Current deferred tax liabilities are included in other accrued expenses.
The tax benefit of costs incurred to complete certain acquisitions will be
realized only in the event such companies are sold. As such, the Company has
provided a valuation allowance against its long-term deferred tax asset to
reflect the potential that the tax benefit of these costs may not be realized.
30
<PAGE>
NOTE 5. PRO FORMA NET INCOME PER SHARE (UNAUDITED):
The unaudited pro forma income data in the consolidated statements of income for
1998, 1997 and 1996 provides information as if S-Corporations acquired and
accounted for using the pooling-of-interests accounting method had been
C-Corporations for income tax purposes.
NOTE 6. DEBT:
Subsequent to year end, the Company refinanced its credit facility. The new
facility, which matures March 1, 2000, provides for an unsecured revolving
credit line of $75 million. Outstanding borrowings bear interest at either prime
less .25% or the London Interbank Offered Rate (LIBOR) plus between .50% and
1.5% based on a defined ratio. The agreement contains certain financial
covenants that the Company must meet, including minimum tangible net worth,
maximum leverage, and fixed charge coverage ratio.
At December 31, 1998, a subsidiary of the Company had a secured term loan in the
amount of $1.6 million maturing on June 1, 1999 with interest accruing at a rate
of .50 percentage points below the prime rate. The loan was secured by certain
financial assets of the subsidiary. The loan has subsequently been paid in full.
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%.
As of December 31, 1998, the prime rate was 7.75% and LIBOR was 6.0%.
Long-term debt at December 31, was as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit line $ 816 $41,066
Secured term loan 1,604 --
Other debt 786 11,069
Capital leases 217 272
- -----------------------------------------------------------------------------------------------------------
3,423 52,407
Less--current maturities 3,423 7,477
- -----------------------------------------------------------------------------------------------------------
Long term debt, net $ -- $44,930
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7. RELATED-PARTY TRANSACTIONS:
A member of the Board of Directors renders acquisition consulting services to
the Company pursuant to an agreement. The director's compensation is strictly
contingent upon the successful completion of an acquisition. During 1998, the
director earned cash compensation of approximately $770,000 and was granted
264,400 options at fair market value at the date of grant. During 1997, the
director earned cash compensation of approximately $1,564,000 and was granted
153,383 options at fair market value at the date of grant. During 1996, the
director earned cash compensation of approximately $307,000 and was granted
85,926 options.
During part of 1998, a wholly owned subsidiary of the Company leases its
corporate headquarters from the Vice Chairman of the Board ("Vice Chairman") of
the Company. Rental lease payments under this lease were $25,000 per month. In
connection with an acquisition, the Vice Chairman converted certain
non-operating assets of the acquired company to a $1,530,000 note receivable,
bearing interest at 7%. The balance has been fully paid.
In connection with the acquisition discussed above, the Company exercised an
option to sell an office and warehouse facility to an entity controlled by the
Vice Chairman. After the sale, to be completed by April 5, 1999, the Company
will lease the facility. Proceeds from the sale are expected to be between $9
and $10 million.
In 1998 and 1997, the Company paid approximately $1,067,000 and $545,000,
respectively, to an entity in which the Vice Chairman indirectly owns a 49%
interest. Payments were for embroidery and other services rendered.
NOTE 8. COMMITMENTS AND CONTINGENCIES:
The Company has operating lease commitments primarily relating to sales and
support facilities in addition to certain office equipment. These leases expire
at various dates through December, 2015. This includes a lease for a new
facility, under construction, which the Company is expected to occupy in late
2000. The aggregate annual minimum lease payments under non-cancelable leases on
December 31, 1998 are as follows:
31
<PAGE>
<TABLE>
<CAPTION>
Year ending December 31--(in thousands)
- --------------------------------------------------------------------------------
<S> <C>
1999 $ 8,900
2000 11,628
2001 14,188
2002 13,655
2003 12,959
Thereafter 137,078
- --------------------------------------------------------------------------------
$198,408
- --------------------------------------------------------------------------------
</TABLE>
Rent expense (exclusive of operating expenses) charged for the facilities
totaled approximately $6,838,000, $5,560,000 and $3,787,000 for 1998, 1997 and
1996, respectively.
At December 31, 1998, the Company had approximately $2,974,000 in outstanding
letters of credit issued in the ordinary course of business.
During 1998, a subsidiary of the company experienced a fire at one of its
locations. The company carried both property and business interruption insurance
to cover the risks associated with such an event. At the time of the fire, a new
facility was under construction. The Company has since relocated to the new
facility and operations have returned to normal.
Various lawsuits have arisen in the ordinary course of the Company's business.
The Company believes that its defenses are meritorious and that the eventual
outcome of those lawsuits will not have a material effect on the Company's
financial position or results of operations.
NOTE 9. BUSINESS COMBINATIONS:
During 1998, the Company acquired six companies. Three of the acquisitions were
accounted for as pooling-of-interests. In June, 1998, the Company completed the
acquisition of a promotion marketing agency, Promotional Marketing, L.L.C,
(d/b/a/UPSHOT), for approximately 3.3 million shares of its common stock. In
August, 1998, the Company completed the acquisition of a brand strategy and
identity agency, Lipson Associates, Inc. d/b/a/ Lipson Alport Glass & Associates
(LAGA), for approximately 2.6 million shares of its common stock. In November
1998, the Company acquired a premium promotional products company, Premier
Promotions and Marketing, Inc. for approximately 2.7 million shares of its
common stock. The consolidated financial statements for all periods presented
have been restated to include the results of these acquired companies.
The following table presents a reconciliation of net sales and net income
reported prior to the 1998 acquisitions accounted for as pooling-of-interests to
those presented in the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales--
Prior to acquisition $545,659 $413,791 $344,422
Acquired companies 44,010 51,930 31,314
- ----------------------------------------------------------------------------------------------------------
Net sales $589,669 $465,721 $375,736
- ----------------------------------------------------------------------------------------------------------
Pro forma net income--
Prior to acquisition $ 21,139 $ 13,882 $ 8,241
Acquired companies 3,381 964 1,638
- ----------------------------------------------------------------------------------------------------------
Pro forma net income $ 24,520 $ 14,846 $ 9,879
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company also acquired two distributors of promotional products and one
promotion marketing agency during 1998 that were accounted for as purchases.
These companies were acquired for an aggregate 87,000 shares of the Company's
common stock and $3.7 million in cash. The common stock issued in these
acquisitions had a fair market value of approximately $1.8 million. Goodwill
resulting from these acquisitions is being amortized on a straight-line basis
over 15 years. The consolidated financial statements include the results of
these acquired companies since the date of acquisition.
During 1997, the Company acquired eight companies. Four of the acquisitions were
accounted for as pooling-of-interests. In January, 1997, the Company completed
the acquisitions of two distributors of promotional products, Creative Concepts
in Advertising, Inc. and Creadis Group, Inc. for an aggregate of approximately
4.3 million shares of its common stock. Two other promotional product
distributors and one telemarketing company were also acquired for an aggregate
of approximately 1.4 million shares of the Company's common stock.
32
<PAGE>
The consolidated financial statements for all periods preceding these
acquisitions have been restated to include their results.
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
approximately 330,000 shares of the Company's common stock. The common stock
issued in these 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 approximately 285,000 shares of the Company's common
stock. The common stock issued in these acquisitions had an aggregate fair
market value of approximately $5.2 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 600 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 approximately 4.8 million shares
of its common stock for all the outstanding shares of two telemarketing
companies.
NOTE 10. CAPITAL STOCK AND EARNINGS PER SHARE:
In May, 1998, the Company sold, through a public offering, 5,853,000 shares of
its common stock. The net proceeds realized from the offering were approximately
$117.4 million.
In connection with the termination of certain 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.
FASB Statement No. 128, Earnings Per Share, provides the guidelines for the
calculation of earnings per share. 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
dilutive stock options and warrants outstanding were exercised during the
period. The computation of net income per share was as follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (pro forma) $24,520 $14,846 $ 9,879
Net income per share--Basic:
Weighted average common shares 44,734 39,628 38,594
Net income per share--Basic $ .55 $ .37 $ .26
Net income per share--Diluted:
Weighted average common shares 44,734 39,628 38,594
Effect of dilutive stock options and warrants 1,713 1,484 1,672
- -----------------------------------------------------------------------------------------------------------
Weighted average shares assuming dilution 46,447 41,112 40,266
- -----------------------------------------------------------------------------------------------------------
Net income per share--Diluted $ .53 $ .36 $ .25
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 11: UNAUDITED SUPPLEMENTAL EARNINGS PER SHARE:
A portion of the net proceeds from the public offering described above were used
to repay substantially all debt outstanding on the Company's credit facilities.
Had the debt retirement taken place on January 1, 1997, the unaudited pro forma
net income per basic and diluted share would not have been materially different
from that reflected in the accompanying consolidated statements of income.
NOTE 12. 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 granted warrants to purchase
1,124,452 shares of the Company's common stock at $2.37 per share. These
warrants vest at the end of nine years but can be accelerated if minimum
purchase levels are achieved. The Company also issued 562,420 warrants at $8.89
per share in connection with the extension of the agreement. These warrants
expire
33
<PAGE>
January 11, 2011 and were recorded at their fair market value as a deferred
marketing cost in shareholders' equity. This cost will be charged against income
over the five-year term of the extension, beginning in January, 2000.
NOTE 13. STOCK OPTIONS:
The Company has 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 option shares
or rights to be issued and the terms thereof are at the discretion of the
Compensation Committee of the Company's Board of Directors. Pursuant to the
plans, an aggregate of 14,834,822 shares of the Company's common stock have been
reserved. At December 31, 1998, there was an aggregate 3,598,671 available for
future grant under the plans. 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. 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 prescribed by FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (pro forma)
As reported $24,520 $14,846 $9,879
Pro forma $17,222 $ 7,143 $7,537
Basic earnings per share
As reported $ .55 $ .37 $ .26
Pro forma $ .38 $ .18 $ .20
Diluted earnings per share
As reported $ .53 $ .36 $ .25
Pro forma $ .37 $ .17 $ .19
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Because the disclosure requirements of FASB Statement No. 123 have not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions; risk free
interest rates between 4.6% and 5.6% in 1998, 6.4% and 6.8% in 1997 and 5.2% and
6.2% in 1996; zero dividend yield for all years; expected lives of 4 years for
1998 and 5 years for 1997 and 1996; and volatility of 40 percent for 1998 and 30
percent for 1997 and 1996.
A summary of the status of the Company's fixed stock option plans and warrants
issued as of December 31, 1998, 1997, and 1996, and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING OUTSTANDING 7,625,672 $11.76 5,252,310 $ 8.98 3,746,108 $ 3.65
GRANTED
Price equal to fair value 3,294,210 $17.59 2,814,453 $16.06 1,728,696 $11.02
Price in excess of fair value -- -- -- -- 751,407 $22.38
EXERCISED (1,729,022) $ 5.40 (378,935) $ 4.87 (921,458) $ 2.17
CANCELLED (73,035) $15.38 (62,156) $13.13 (52,443) $ 7.01
- ----------------------------------------------------------------------------------------------------------
ENDING OUTSTANDING 9,117,825 $15.03 7,625,672 $11.76 5,252,310 $ 8.98
EXERCISABLE AS OF 12/31 3,831,682 3,474,830 1,761,594
Weighted average fair value
of options granted:
Price equal to fair value $6.73 $6.26 $4.08
Price in excess of fair value -- -- $5.25
- ----------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.47--$ 2.37 530,039 5.61 $ 2.21 317,119 $ 2.11
$ 3.49--$ 5.60 199,772 6.66 $ 4.99 199,772 $ 4.99
$ 6.00--$ 9.11 1,090,977 9.05 $ 8.94 518,582 $ 8.99
$ 9.33--$12.67 544,989 7.73 $10.86 497,243 $10.88
$12.83--$19.71 5,159,862 8.68 $16.42 1,765,501 $16.39
$20.04--$23.29 1,592,186 8.85 $21.66 533,465 $22.33
- ----------------------------------------------------------------------------------------------------------
$ 1.47--$23.29 9,117,825 8.47 $15.03 3,831,682 $13.73
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 14. BUSINESS SEGMENT INFORMATION:
The Company's reportable segments are strategic business units that offer
different products and services. Summarized financial information by business
segment follows:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
- -----------------------------------------------------------------------------------------------------------
Promotional products $464,826 $350,981 $298,084
Marketing services 65,801 50,711 22,362
Telemarketing 59,042 64,029 55,290
- -----------------------------------------------------------------------------------------------------------
Total consolidated $589,669 $465,721 $375,736
- -----------------------------------------------------------------------------------------------------------
Operating income:
- -----------------------------------------------------------------------------------------------------------
Promotional products (1) $ 29,550 $ 16,910 $ 10,737
Marketing services 6,320 4,028 1,718
Telemarketing 3,370 6,009 5,111
- -----------------------------------------------------------------------------------------------------------
Total consolidated $ 39,240 $ 26,947 $ 17,566
- -----------------------------------------------------------------------------------------------------------
Depreciation and amortization:
- -----------------------------------------------------------------------------------------------------------
Promotional products $ 7,064 $ 4,410 $ 3,853
Marketing services 708 690 566
Telemarketing 1,682 1,464 1,356
- -----------------------------------------------------------------------------------------------------------
Total consolidated $ 9,454 $ 6,564 $ 5,775
- -----------------------------------------------------------------------------------------------------------
Total assets:
- --------------------------------------------------------------------------------------------
Promotional products $237,515 $194,708
Marketing services 35,004 18,459
Telemarketing 16,300 20,078
Corporate (2) 58,198 4,808
- --------------------------------------------------------------------------------------------
Total consolidated $347,017 $238,053
- --------------------------------------------------------------------------------------------
Capital expenditures:
- --------------------------------------------------------------------------------------------
Promotional products $ 19,917 $ 5,719
Marketing services 2,428 1,918
Telemarketing 976 2,419
- --------------------------------------------------------------------------------------------
Total consolidated $ 23,321 $ 10,056
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Includes corporate overhead expenses for all periods presented. (2) Cash and
short-term investments are considered corporate assets.
(2) Cash and short-term investments are considered corporate assets.
35
<PAGE>
Summarized financial information by geographic area follows:
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
- -----------------------------------------------------------------------------------------------------------
United States $541,490 $440,349 $352,917
Foreign 48,179 25,372 22,819
- -----------------------------------------------------------------------------------------------------------
Total consolidated $589,669 $465,721 $375,736
- -----------------------------------------------------------------------------------------------------------
Long-lived assets:
- -----------------------------------------------------------------------------------------------------------
United States $ 63,178 $ 42,931 $ 31,231
Foreign 11,926 9,510 1,218
- -----------------------------------------------------------------------------------------------------------
Total consolidated $ 75,104 $ 52,441 $ 32,449
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 15. UNAUDITED SELECTED QUARTERLY OPERATING RESULTS:
The following table represents unaudited selected financial information for the
eight quarters ended December 31, 1998. 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 pooled entities
acquired during 1998 and accounted for using the pooling-of-interests method of
accounting and a three-for-two stock split announced in 1999.
<TABLE>
<CAPTION>
Quarter Ended
- -----------------------------------------------------------------------------------------------------------
(in thousands, 1998 1997
except 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 $109,376 $127,888 $143,192 $ 83,593 $ 98,477 $111,185 $135,702
Effect of pooled
companies 15,439 10,350 7,477 11,235 7,616 3,341 14,572
- -----------------------------------------------------------------------------------------------------------
Total $124,815 $138,238 $150,669 $175,948 $ 94,828 $106,093 $114,526 $150,274
- -----------------------------------------------------------------------------------------------------------
Gross profit
Previously
reported $ 35,956 $ 43,082 $ 50,746 $ 26,122 $ 30,056 $ 36,330 $ 46,257
Effect of pooled
companies 6,185 5,864 3,534 4,321 3,442 308 5,129
- -----------------------------------------------------------------------------------------------------------
Total $ 42,141 $ 48,946 $ 54,280 $ 61,799 $ 30,443 $ 33,498 $ 36,638 $ 51,386
- -----------------------------------------------------------------------------------------------------------
Net income per
share--diluted
(pro forma)
Previously
reported $ .06 $ .10 $ .13 $ .02 $ .07 $ .11 $ .21
Effect of pooled
companies -- .01 .01 .01 -- (.01) (.04)
- -----------------------------------------------------------------------------------------------------------
Total $ .06 $ .11 $ .14 $ .20 $ .03 $ .07 $ .10 $ .17
- -----------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
NOTE 16. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
Matters: The Company's Common Stock is publicly traded on the New York Stock
Exchange under the symbol "HMK." As of March 2, 1999, there were 315 holders of
record of the Company's Common Stock. The following table sets forth, for the
periods indicated, the range of high and low sales prices, by quarter, for the
Common Stock.
<TABLE>
<CAPTION>
High Low
- ---------------------------------------------------------------------
<S> <C> <C>
1998
First quarter $25 9/16 $16 5/16
Second quarter 23 13/16 19 1/16
Third quarter 23 9/16 14 7/8
Fourth quarter $25 3/16 $14 15/16
1997
First quarter $19 5/16 $ 8 5/16
Second quarter 16 13/16 9 11/16
Third quarter 19 9/16 15
Fourth quarter $19 9/16 $15 1/2
- ---------------------------------------------------------------------
</TABLE>
NOTE 17. SUBSEQUENT EVENTS:
In January, 1999, the Company completed the acquisition of a French based
promotional products company for approximately 400,000 shares of HA-LO common
stock, which had a fair market value of $9.0 million, and $27.5 million in cash.
37
<PAGE>
[LOGO]
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,
1998 and 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years ended December 31, 1998, 1997
and 1996. 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, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years ended December 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles.
/s/Arthur Anderson LLP
- ----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 1, 1999
38
<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 16, 1999. 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.
Creative Concepts in Advertising, Inc. (Michigan)
Fletcher, Barnhardt & White (Illinois)
Lee Wayne Corporation (Illinois)
HA-LO Sports, Inc. (Illinois)
Promotional Marketing LLC. d/b/a UPSHOT (Illinois)
UPSHOT (New York), (New York)
Lipson Associates, Inc. d/b/a LAGA (Ohio)
Premier Promotions Marketing, Inc. (California)
Market USA, Inc. (Illinois)
Marusa Marketing, Ltd. (Canada)
HA-LO Canada, Inc. (Canada)
HMK International Holdings, Inc. (Netherlands)
HA-LO Belgium, N.V. (Netherlands)
Bavelco, B.V.B.A. (Netherlands)
Joking, Spa. (Italy)
Parsons International S.A.(France)
<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 Statements File Nos. 33-64878, 33-89820, 33-99946, 333-03928,
333-66849, 333-28361, 333-48961 and 333-66849 on Form S8 and 333-00358,
333-49667, 333-19301, 333-43611, 333-36703, 333-32571, 333-28647, 333-27763,
333-26381, 333-49667, 333-58929, 333-65891, 333-69825 and 333-72609 on Form
S-3.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1998 CONSOLIDATED BALANCE SHEET, THE RESTATED CONSOLIDATED
BALANCE SHEETS AS OF SEPTEMBER 30, JUNE 30 AND MARCH 31 OF 1998 AND THE
RELATED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-31-1998 JAN-31-1998 JAN-31-1998 JAN-31-1998
<PERIOD-END> DEC-31-1998 SEP-30-1998 JUN-30-1998 MAR-31-1998
<CASH> 7,276 2,847 83,082 3,921
<SECURITIES> 50,922 57,672 908 529
<RECEIVABLES> 171,641 148,644 146,539 142,002
<ALLOWANCES> 2,836 3,066 3,223 3,468
<INVENTORY> 29,637 31,508 30,423 28,638
<CURRENT-ASSETS> 271,780 248,470 266,908 179,894
<PP&E> 68,172 60,173 53,979 46,816
<DEPRECIATION> 25,947 23,264 21,144 18,607
<TOTAL-ASSETS> 347,017 317,850 331,105 238,447
<CURRENT-LIABILITIES> 109,029 90,253 104,666 95,274
<BONDS> 0 1,660 7,776 48,403
0 0 0 0
0 0 0 0
<COMMON> 198,228 197,887 193,322 72,086
<OTHER-SE> 37,263 26,653 24,382 20,837
<TOTAL-LIABILITY-AND-EQUITY> 347,017 317,850 330,303 238,447
<SALES> 589,669 413,722 263,052 124,815
<TOTAL-REVENUES> 589,669 413,722 263,052 124,815
<CGS> 382,504 268,355 171,965 82,673
<TOTAL-COSTS> 382,504 268,355 171,965 82,673
<OTHER-EXPENSES> 165,034<F1> 119,534<F1> 76,655<F1> 36,880<F1>
<LOSS-PROVISION> 2,059 1,366 847 318
<INTEREST-EXPENSE> 1,259 1,256 1,271 841
<INCOME-PRETAX> 40,873 24,577 13,160 4,420
<INCOME-TAX> 16,353<F2> 9,831<F2> 5,262<F2> 1,766<F2>
<INCOME-CONTINUING> 24,520<F2> 14,747<F2> 7,898<F2> 2,654<F2>
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 24,520<F2> 14,747<F2> 7,898<F2> 2,654<F2>
<EPS-PRIMARY> .55<F2> .34<F2> .19<F2> .07<F2>
<EPS-DILUTED> .53<F2> .32<F2> .18<F2> .06<F2>
<FN>
<F1>INCLUDES NON-RECURRING CHARGES PRIMARILY RELATED TO ACQUISITIONS
<F2>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>
<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, MARCH 31, 1997, JUNE 30,
1997, SEPTEMBER 30, 1997 AND DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996
<CASH> 4,808 5,404 3,555 6,260 6,225
<SECURITIES> 0 0 0 1,007 2,908
<RECEIVABLES> 151,696 126,330 105,996 86,645 91,798
<ALLOWANCES> 2,749 3,846 3,225 3,158 2,980
<INVENTORY> 24,347 20,902 18,523 14,610 11,964
<CURRENT-ASSETS> 185,014 154,803 130,733 110,471 114,106
<PP&E> 44,044 36,296 33,292 34,551 33,184
<DEPRECIATION> 18,923 14,985 13,997 15,691 15,295
<TOTAL-ASSETS> 238,053 207,585 170,045 144,364 147,063
<CURRENT-LIABILITIES> 106,273 83,706 63,890 51,437 53,400
<BONDS> 44,930 33,216 31,815 25,863 29,863
0 0 0 0 0
0 0 0 0 0
<COMMON> 66,242 67,176 59,741 56,319 55,446
<OTHER-SE> 19,231 16,686 13,073 9,899 6,586
<TOTAL-LIABILITY-AND-EQUITY> 238,053 207,585 170,316 144,364 147,063
<SALES> 465,721 315,447 200,921 94,828 375,736
<TOTAL-REVENUES> 465,721 315,447 200,921 94,828 375,736
<CGS> 313,756 214,868 136,980 64,386 261,362
<TOTAL-COSTS> 313,756 214,868 136,980 64,386 261,362
<OTHER-EXPENSES> 124,548<F1> 86,047<F1> 56,691<F1> 28,299<F1> 96,154<F1>
<LOSS-PROVISION> 25 168 0 243 78
<INTEREST-EXPENSE> 2,670 1,479 842 385 1,706
<INCOME-PRETAX> 24,747 13,053 6,408 1,759 16,514
<INCOME-TAX> 9,902<F2> 5,224<F2> 2,562<F2> 704<F2> 6,636<F2>
<INCOME-CONTINUING> 14,846<F2> 7,829<F2> 3,845<F2> 1,055<F2> 9,879<F2>
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 14,846<F2> 7,829<F2> 3,845<F2> 1,055<F2> 9,879<F2>
<EPS-PRIMARY> .37<F2> .20<F2> .10<F2> .03<F2> .26<F2>
<EPS-DILUTED> .36<F2> .19<F2> .09<F2> .03<F2> .25<F2>
<FN>
<F1>INCLUDES NON-RECURRING CHARGES PRIMARILY RELATED TO ACQUISITIONS.
<F2>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>
