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Filed pursuant to Rule 424(b)(3)
Registration No. 333-36200
PROSPECTUS
4,853,115 SHARES
HA-LO INDUSTRIES, INC.
COMMON STOCK
(NO PAR VALUE PER SHARE)
This prospectus relates to 4,853,115 shares of HA-LO common stock that may
be offered for sale or otherwise transferred from time to time by the selling
shareholders identified in this prospectus. The 4,853,115 shares include not
less than 829,156 shares and not more than 2,357,367 shares of common stock
issuable upon the conversion of HA-LO Series A convertible participating
preferred stock. The aggregate net proceeds to the selling shareholders from the
sale of the shares of common stock will equal the sales price of such shares of
common stock, less any commissions. See "Plan of Distribution." We will not
receive any of the proceeds from the sale of the shares of common stock by the
selling shareholders. The expenses incurred in registering the 4,853,115 shares
of common stock, including legal and accounting fees, will be paid by us.
All of the 4,853,115 shares of common stock covered by this prospectus,
including the 829,156 shares issuable upon the conversion of convertible
preferred stock, were acquired by the selling shareholders from us in connection
with our May 2000 acquisition of Starbelly.com, Inc., an online custom decorated
merchandise business. See "Selling Shareholders."
Our common stock is listed on the New York Stock Exchange under the symbol
"HMK." The last reported sale price of our common stock on May 17, 2000 on the
New York Stock Exchange was $6 3/4 per share.
Our principal executive offices are located at 5980 West Touhy Avenue,
Niles, Illinois 60714, and our telephone number is (847) 647-2300.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is May 19, 2000.
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YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. NEITHER WE NOR THE SELLING SHAREHOLDERS HAVE
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE SELLING
SHAREHOLDERS ARE NOT OFFERING THESE SECURITIES IN ANY STATE WHERE THE OFFER IS
NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THE
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
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TABLE OF CONTENTS
OUR COMPANY ............................................................... 3
RISK FACTORS .............................................................. 5
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS ................ 18
USE OF PROCEEDS ........................................................... 19
SELLING SHAREHOLDERS ...................................................... 20
PLAN OF DISTRIBUTION ...................................................... 24
LEGAL MATTERS ............................................................. 26
EXPERTS ................................................................... 26
WHERE TO FIND MORE INFORMATION ............................................ 26
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................... 27
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OUR COMPANY
We are a full service, innovative brand marketing organization whose
diverse marketing disciplines, or competency groups, are centered around our
clients' brands. Brand marketing builds the value of the brand by connecting it
with target audiences to achieve strategic marketing objectives.
Our competency groups are organized into three operating segments:
promotional products, marketing services and telemarketing. The marketing
services segment is further divided into promotion marketing, brand strategy and
identity, presence marketing and consumer event marketing segments or divisions.
Each one of the segments has similar products and services, production
processes, types of customers, distribution methods and regulatory environments.
Our competency groups include:
PROMOTIONAL PRODUCTS, offered by HA-LO, physically connect brands 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, a subsidiary of ours, connects
brands with consumers at strategic points of contact through consumer and retail
promotion, merchandising and sponsorship activation.
BRAND STRATEGY AND IDENTITY, offered by LAGA, a subsidiary of ours,
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 our HA-LO Sports & Entertainment and Events
By HA-LO divisions, connects brands with target audiences through sports and
corporate sponsorships, licensing, corporate meetings, events and sales
incentive programs.
RELATIONSHIP MARKETING, offered by UPSHOT and Market USA, subsidiaries of
ours, connects brands with target audiences through consumer events-including
new product sampling and brand awareness programs--and through a range of
telemarketing services.
On May 3, 2000, we acquired Starbelly.com, Inc. The stockholders of
Starbelly.com (including holders of stock options) received the following
consideration in exchange for their stock held in Starbelly.com:
(1) approximately $19 million in cash (of which approximately $2.5 million
was paid toward the merger expenses of Starbelly.com and its
stockholders);
(2) the issuance of:
(a) 17 million shares of HA-LO common stock; and
(b) 5.1 million shares of HA-LO convertible preferred stock.
Starbelly.com intends to create a leading business to business
e-commerce marketplace for the custom-decorated merchandise industry. The
business-to-business e-commerce marketplace facilitates transactions between
users that either utilize the goods or services acquired to produce
additional goods or
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services, or sell such goods or services directly to consumers via the
Internet or otherwise. This is in contrast to the business-to-consumer
e-commerce marketplace that facilitates transactions between businesses and
traditional "retail" consumers through the Internet medium. Starbelly.com
intends to redefine the traditional market for customized soft and hard goods
with an interactive marketplace that allows its customers to customize
decorations on any product in real-time from any Internet web browser.
Starbelly.com coordinates key aspects of the custom-decorated
merchandise supply chain through integrated and automatic fulfillment
systems. These fulfillment systems act together as a single interface between
the end-user and the suppliers to the industry, such as suppliers of
undecorated merchandise (referred to as "blanks" by sellers of custom
decorated merchandise), decorators, customer service representatives, offsite
producers and shippers. Starbelly.com's systems are geared to eliminate
several links in the traditional supply chain, providing its customers with
exceptional convenience, a simplified customizing and ordering process,
faster delivery, status tracking, lower costs and a more enjoyable customer
experience. In addition, by accessing the national distribution network
directly, Starbelly.com is developing a virtual distribution network with key
distributors that provides it with inventory on a just-in-time basis of a
large selection of soft and hard goods, minimizing inventory requirements for
Starbelly.com and Starbelly.com's customers.
Starbelly.com intends to implement its custom-decorated merchandise
marketplace so as to provide multiple customized interfaces for four
different distribution channels. The custom-decorate merchandise marketplace
includes those industries which create, sell or otherwise produce promotional
products, marketing services, and advertising specialties, including novelty
items and uniforms. The customized interfaces to which we refer are four
separately designed e-commerce mediums which facilitate order placement for
these four distribution channels:
- the "BUSINESS-TO-BUSINESS" market, where our business customers can
set up customizable virtual storefronts carrying merchandise they
select and purchase through Starbelly.com;
- the "INTERNET PROPERTIES" market, where Starbelly.com provides
third-party Internet websites such as Internet portals with virtual
storefronts offering merchandise with those third parties' own logos
and brands;
- the "PROMOTIONAL PRODUCT DISTRIBUTION" market, comprised of 17,000
businesses which sell and distribute promotional products, to whom
Starbelly.com will offer their own private label, Internet presence
and access to Starbelly.com's fulfillment system; and
- the "BUSINESS-TO-CONSUMER" market, where consumers will be able to
access the Starbelly.com website to interactively design, customize
and order products.
Our principal executive offices are located at 5980 West Touhy Avenue,
Niles, Illinois 60714, and our telephone number at that address is (847)
647-2300.
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RISK FACTORS
Before deciding to invest in shares of our common stock, you should
consider carefully all of the information contained in this prospectus,
including the following factors which relate to the combined businesses of HA-LO
and Starbelly.com. All of the identified risks can be substantial and many of
these risks could materially and adversely affect our results of operations,
financial condition, business and prospects, as well as the market price of our
common stock.
RISKS RELATED TO HA-LO
WE MAY HAVE DIFFICULTIES OF MANAGING RAPID GROWTH
We have experienced rapid growth over the past several years as a result of
internal growth and acquisitions; continued rapid growth can be expected to
place significant demands on our management and resources. If we are unable to
manage growth effectively, our business, results of operations or financial
condition could be materially adversely affected. We can give you no assurance
that we will be able to successfully integrate acquired businesses into our
existing operations, realize the intended benefits of such acquisitions, or
retain sales representatives and key employees previously associated with
acquired businesses.
WE MAY EXPERIENCE QUARTERLY FLUCTUATIONS IN SALES AND EARNINGS; FOURTH
QUARTER CONCENTRATION
Some of our 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 our net sales being recognized in the fourth quarter. We incur
general and administrative expenses evenly throughout the year, which
historically has resulted and may continue to result in a disproportionate share
of our net income being reported in the fourth quarter. In addition, the timing
of and method of accounting used to report the results of operations of acquired
businesses may cause substantial fluctuations in our operating results from
quarter to quarter. Therefore, the operating results for one quarter may not be
a reliable indicator of the results to be expected in any future quarter.
DEPENDENCE UPON SALES REPRESENTATIVES AND KEY PERSONNEL
Our success is largely attributable to our ability to attract, motivate and
retain high quality sales representatives. Our sales force currently consists of
approximately 750 core sales representatives. We are not dependent upon any one
or any affiliated group of sales representatives for a material amount of our
revenues; however, when a sales representative's relationship with us
terminates, customers serviced by such representative may cease to purchase our
products. We can give you no assurance that we will not experience a significant
turnover rate in the future. In addition, our success has been the result, in
large part, of the skills and efforts of our senior management. Our success and
continued growth will depend on our ability to recruit, hire, motivate and
retain other highly qualified managerial personnel, including personnel
previously employed by or associated with businesses acquired by us. The loss of
one or several members of our senior management or our inability to attract and
retain highly qualified managerial personnel could have a material adverse
effect on our business, future growth, results of operations or financial
condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We currently have offices in North America, Europe and Asia, and an
important component of our growth strategy is to expand our international
distribution capabilities. We seek to acquire additional
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international businesses to further enhance our abilities to meet the needs of
our multi-national clients; however, we can give you no assurance that we will
be able successfully to identify suitable international acquisition candidates,
acquire such candidates on economically favorable terms or integrate acquired
businesses into our existing operations. In addition, there are certain risks
inherent in conducting international business, including exposure to currency
fluctuations, longer collection cycles, compliance with foreign laws, unexpected
changes in regulatory requirements, staffing and managing foreign operations,
political instability, currency control laws and potentially adverse tax
consequences. We can give you no assurance that one or more of such factors will
not have a material adverse effect on our existing international operations and
on our international expansion plans.
RISKS ASSOCIATED WITH COMPETITION
The promotional products industry is highly fragmented and competitive,
with few barriers to entry. We believe that our national and international
distribution capabilities, professional sales force and complementary,
value-added marketing services provide us with a competitive advantage; however,
these capabilities also may result in higher administrative costs than those
incurred by certain of our smaller competitors. In addition, certain of our
competitors are manufacturers as well as distributors and may enjoy an advantage
over us with respect to the cost of the goods they manufacture. Our existing
competitors, and companies that may enter the market, may have substantially
greater financial and other resources than we do. We also compete for
advertising dollars with other media, such as television, radio, newspapers,
magazines and billboards. We can give you no assurance that we will be able to
continue to compete successfully against current and future competitors or that
competitive pressures faced by us will not materially adversely affect our
business, operating results and financial condition.
VOLATILITY OF STOCK PRICE
Our common stock historically has been subject to significant price
fluctuations in response to a variety of factors, including quarterly variations
in operating results, announcing acquisitions, strategic alliances and joint
ventures, general conditions in the promotional products industry, and general
economic and market conditions. In addition, the stock market has experienced
significant price and volume fluctuations that have adversely affected the
market prices of equity securities of some companies and that often have been
unrelated to the operating performance of such companies.
RISKS RELATING TO THE HA-LO CONVERTIBLE PREFERRED STOCK
At any time during the 30-day period commencing on May 3, 2001, the holders
of the convertible preferred stock issued in the Starbelly.com merger and upon
exercise of assumed options will have the right to require us to redeem all or
any part of their shares at a price per share in cash equal to the liquidation
preference of $10.00 per share, plus any accrued and unpaid dividends. If
holders of a significant number of shares of convertible preferred stock elect
to have their shares redeemed, we will be required to borrow the funds necessary
to pay the redemption price or to raise such funds through the public or private
sale of debt or equity securities. As of May 1, 2000, the closing price of HA-LO
common stock on the NYSE was $7.00 per share. There can be no assurance that
adequate financing will be available to pay the redemption price or that the
terms of any such financing will be satisfactory to us.
If we default on our obligation to redeem any shares of convertible
preferred stock, for so long as we are in default, the shares of convertible
preferred stock that we failed to redeem will accrue dividends, at a rate of 8%
of the liquidation price per annum on the $10.00 per share issuance price of
such shares, beginning on the first date on which we failed to redeem such
shares of convertible preferred stock until the redemption price has been paid
in full. The rate at which dividends accrue will increase by 4% of the
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liquidation price per annum on each six month anniversary of the date of default
until the redemption price (including accrued dividends) has been paid in full.
RISKS RELATED TO STARBELLY.COM'S BUSINESS
STARBELLY.COM'S EXTREMELY LIMITED OPERATING HISTORY MAKES FUTURE FORECASTING
DIFFICULT
Starbelly.com was incorporated in March 1999. From March until June 1999
Starbelly.com focused on developing its business model, technology and
operations, hiring personnel and raising capital. Since June 1999, Starbelly.com
has been selling products and offering services in the business-to-business
channel and through the Internet, both on a limited basis. As a result of
Starbelly.com's extremely limited operating history, it is difficult to
accurately forecast Starbelly.com's revenues or to predict Starbelly.com's
operating expenses. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in an early stage
of development, particularly companies engaged in new and rapidly evolving
markets such as electronic commerce.
STARBELLY.COM'S BUSINESS SYSTEM IS NEW AND UNPROVEN
Starbelly.com has designed a new business system that redefines the process
of ordering custom-decorated merchandise and the fulfillment process with
respect to those orders. Starbelly.com has only been delivering products under
this system since June 1999 on a limited basis. Starbelly.com's success depends
upon its ability to implement Starbelly.com's system on the Internet. Moreover,
the volume of orders Starbelly.com has filled is substantially below designed
capacity and the levels that are necessary for Starbelly.com to achieve
profitability. As a result, the success of Starbelly.com's system on the
Internet and in a high volume order environment has yet to be proven.
Refinements or modifications to Starbelly.com's business systems and
technologies may be necessary or advisable as we evaluate its continuing
operations, particularly its ongoing ability to receive undecorated products, or
"blanks," on a timely basis and in the necessary quantities, and its ability to
scale our business through partnerships with additional distributors and
"pre-press" and contract decoration providers.
OUR POTENTIAL CUSTOMERS MAY NOT ACCEPT STARBELLY.COM'S SOLUTIONS OR SYSTEMS
Many of the new customers we intend to pursue have long-standing
business relationships and personal ties to their existing distributors or
other suppliers of decorated products. Those customers may be reluctant to
disrupt these relationships. Customers are also often reluctant to change
their existing ordering habits, or to adopt new technologies, such as
Internet ordering, to replace existing relationships. To successfully market
Starbelly.com's products through the Internet, we will generally be required
to educate potential customers on the use and benefits of the Starbelly.com
system, which may require us to incur substantial expense. Although we
believe Starbelly.com's new method for providing customized decorated
products will provide significant cost and time savings for Starbelly.com's
existing and potential customers, there can be no assurance that such
customers will accept it. If they do not, our future operating results would
be materially and adversely affected. Starbelly.com's success depends
substantially on its ability to initiate, manage and expand its relationships
with customers, and our failure to do this could limit our anticipated growth
in revenues and seriously harm our business.
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STARBELLY.COM HAS INCURRED SIGNIFICANT LOSSES SINCE INCEPTION, AND STARBELLY.COM
ANTICIPATES THAT IT WILL CONTINUE TO INCUR LARGE FUTURE LOSSES
Starbelly.com has incurred significant losses since inception and expects
to continue to incur significantly larger losses in the future. Starbelly.com's
net loss was approximately $8.6 million during the period from its inception on
March 22, 1999 to December 31, 1999. Starbelly.com expects to continue to incur
significant marketplace development, technology, sales and marketing and
administrative expenses for Starbelly.com's business. In fact, we currently
expect to increase its operating expenses significantly in
connection with expanding Starbelly.com's sales and marketing channels,
developing its Web site, services and technologies and hiring additional
personnel. Starbelly.com will need to generate significant revenue to achieve
and maintain profitability, and we cannot be certain that it will achieve
this. Even if Starbelly.com does reach profitability, Starbelly.com may not
be able to sustain or increase its profitability.
STARBELLY.COM'S OPERATING RESULTS ARE EXPECTED TO BE VOLATILE AND DIFFICULT
TO PREDICT
Starbelly.com's operating results may fluctuate significantly,
particularly in the early stages of its business due to a variety of factors,
many of which are outside of our control. Factors that may harm
Starbelly.com's business or cause its operating results to fluctuate include
the size, timing, and variance of customer orders, particularly large orders
from a limited number of customers; Starbelly.com's ability to retain
existing customers, attract new customers and maintain customer satisfaction;
the ability to successfully launch the Starbelly.com Web site and customer
virtual storefront websites, and the level of traffic to such sites; changes
in inventory availability from third-party suppliers; general economic
conditions and economic conditions specific to the Internet, electronic
commerce or the custom-decorated merchandise industry, the level of use of
the Internet and acceptance of the Internet and commercial online services
for the purchase of custom-decorated products; our ability to upgrade and
develop systems and infrastructure and to attract new personnel in a timely
and effective manner, technical difficulties, system downtime or Internet
brownouts; the amount and timing of operating costs and capital expenditures
relating to expansion of Starbelly.com's business, operations and
infrastructure; potential governmental regulation; unforeseen events
affecting the custom-decorated merchandise industry; decreases in the prices
at which Starbelly.com can sell its products; the timing of the introduction
or enhancement of products by Starbelly.com, Starbelly.com's customers and
Starbelly.com's competitors; and defects and other quality problems with
Starbelly.com's products. Any change in one or more of these factors, as well
as others, could cause our operating results to fluctuate.
We believe Starbelly.com's customers will tend to order sporadically,
and their purchases may vary significantly from quarter to quarter.
Starbelly.com's customers are unlikely to forecast expected purchases in
advance, frequently may not order as expected (E.G., with regard to timing,
quantities or product mix), and may place purchase orders only shortly before
the scheduled delivery date. These order habits are likely to cause
Starbelly.com's revenue to fluctuate significantly, particularly in the early
stages of its business.
A number of factors will also cause gross margins for Starbelly.com's
products to fluctuate in future periods. As the markets for Starbelly.com's
products mature, and as Starbelly.com faces additional competition, it is
likely that the average unit prices of such products will decrease in
response to competitive pricing pressures, increased sales discounts, new
product introductions by Starbelly.com's competitors or other factors. In
response, we believe Starbelly.com will likely need to reduce the cost of its
products through increased efficiencies and reductions in the amount
Starbelly.com pays for materials or labor. At the same time, Starbelly.com
will likely also seek to increase sales of higher margin products. If these
efforts are not successful, Starbelly.com's revenue and gross margins will
decline, significantly harming our operating results and financial condition.
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STARBELLY.COM FACES A NUMBER OF CHALLENGES IN FULFILLING ORDERS, AND MAY NOT
BE ABLE TO PRODUCE ITS PRODUCTS IN REQUESTED VOLUMES OR MEET CUSTOMERS' ORDERS
A cornerstone of Starbelly.com's strategy is the ability to deliver to
Starbelly.com's customers customized goods in certain key product categories
within seven business days of their confirmed online order. Starbelly.com
does not maintain an inventory of custom-decorated merchandise nor does it
control a distribution system for these products. Instead, Starbelly.com
depends on distributors to carry a wide variety of blanks and to ship these
products to a decorator who then decorates the products. Fulfilling these
orders in this timeframe presents significant challenges.
In order to provide timely service for Starbelly.com's customers, while
eliminating Starbelly.com's need to hold inventory, Starbelly.com relies on
contract carriers (such as UPS and Federal Express) to ship blanks from
distributors to on-site or off-site contract decorators and to ship finished
products from those decorators to Starbelly.com's customers. Starbelly.com is
therefore subject to the risks, including employee strikes and inclement
weather, associated with such carriers' ability to provide delivery services to
meet Starbelly.com's needs. Starbelly.com also relies on its distributors to
carry sufficient quantities of goods and to accurately apprise Starbelly.com as
to the current inventories for the products Starbelly.com sells. The failure of
distributors to provide blanks to decorators on time and without abnormal
amounts of defects, and the failure of contract carriers to timely ship products
to or from decorators, would tarnish Starbelly.com's reputation and brands, and
could adversely affect Starbelly.com's sales and prospects.
As Starbelly.com expands, Starbelly.com expects it will enter into
agreements and form alliances with other contract decoration facilities
throughout the United States and, eventually, the world. Accordingly, the
success of our expansion will depend on a number of factors, including
Starbelly.com's ability to integrate the operations of new decorators into its
existing operations; to coordinate and manage those decorators in multiple and
perhaps geographically distant locations; and to establish and maintain adequate
quality control, management and information systems and financial controls over
those decorators. If Starbelly.com is not successful in these efforts, our
ability to expand and grow could be materially and adversely affected.
Furthermore, Starbelly.com's ability to expand its fulfillment capacity and its
business will depend in part upon Starbelly.com's ability to obtain the
agreement of additional contractors to permit Starbelly.com to embed its
business processes into their such contractors' operations and equipment. If
Starbelly.com is unable to convince other decorators to agree to such terms,
Starbelly.com may need to directly invest in employees and equipment to increase
its decorating capacity, which may adversely affect our ability to expand or our
financial results.
IF WE FAIL TO SUCCESSFULLY DEVELOP THE STARBELLY.COM BRAND, OUR REVENUE MAY BE
ADVERSELY AFFECTED
We believe that establishing and maintaining the Starbelly.com brand is a
critical aspect of developing and maintaining strategic customer relationships,
and that the importance of brand recognition will increase as the number of
customers ordering products grows. Our failure to successfully develop
Starbelly.com's brand may adversely affect our ability to generate revenue.
Starbelly.com intends to increase its sales and marketing staff and to increase
spending on programs, including advertising campaigns and marketing events, to
create and maintain brand loyalty among its customers. If we do not generate a
corresponding increase in Starbelly.com's revenue as a result of our branding
efforts or otherwise fail to promote the Starbelly.com brand successfully, or if
Starbelly.com incurs excessive expenses in its efforts, our business, results of
operations and financial condition may be significantly harmed. In addition, if
Starbelly.com's customers do not perceive Starbelly.com products to be of high
quality, or if Starbelly.com introduces new products that are not accepted by
the market, the value of the Starbelly.com brand will decline and our business
will suffer.
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STARBELLY.COM MAY HAVE DIFFICULTY MANAGING ITS GROWTH
Starbelly.com's business has grown rapidly since its inception in March
1999. Starbelly.com incorporated in March 1999 with no employees, and by
March 15, 2000 Starbelly.com had 174 full time employees and 31 independent
contractors engaged on a full-time basis. To help manage future growth
effectively, Starbelly.com must maintain and enhance its financial and
accounting system and controls, hire and integrate new personnel and manage
expanded operations. Starbelly.com's failure to manage recent or future
expansion successfully could have a material adverse effect on the quality of
Starbelly.com's products and technology, its ability to retain customers and
key personnel and our operating results and financial condition.
STARBELLY.COM'S MANAGEMENT TEAM IS NEW AND MAY NOT BE ABLE TO WORK TOGETHER
SUCCESSFULLY
Our success depends to a significant degree upon the continued joint
contributions of Starbelly.com's key management, none of whom were hired before
March 1999 and many of whom have been hired much more recently. Because of the
limited time during which Starbelly.com's management team has been working
together, there can be no assurance that its management will be able to work
effectively as a team to meet the many challenges Starbelly.com faces or be able
to work effectively under HA-LO management.
MANAGEMENT MAY HAVE DIFFICULTY INTEGRATING THE BUSINESS AND CORPORATE CULTURES
OF HA-LO AND STARBELLY.COM
The merger and related transactions involve the integration of two business
organizations that have previously operated independently. We may encounter
difficulties in integrating the operations of the two businesses. We may not be
able to successfully blend our products, services and technology to create the
advantages which the merger was intended to create. Also, HA-LO's client base
may not be willing to shift significant portions of their promotional product
purchasing to the Internet. Furthermore, any delays or unexpected obstacles or
costs in connection with such integration could have a material adverse effect
our business, operating results or financial condition and the expected value of
the merger.
There is also the risk that the operations, management and personnel of the
two companies may not be compatible, and either HA-LO or Starbelly.com may
experience the loss of key personnel for that reason. We may also experience a
disruption in our employee base as a result of uncertainty following the merger
and during the integration process. As a result, key employees may seek
employment elsewhere, including with competitors.
IF STARBELLY.COM LOSES KEY PERSONNEL OR IS UNABLE TO HIRE ADDITIONAL QUALIFIED
PERSONNEL, WE MAY NOT BE SUCCESSFUL
The loss of the services of one or more of key personnel could seriously
harm Starbelly.com's business. Starbelly.com depends on the continued services
and performance of its senior management and other key personnel, particularly
Bradley Keywell, Starbelly.com's founder and chief executive officer, and Eric
Lefkofsky, Starbelly.com's founder and president. Although we have entered into
three-year employment agreements with Mr. Keywell and Mr. Lefkofsky, the
contractual relationships can be terminated under certain circumstances, and
some of these circumstances may not be within our control.
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Starbelly.com's future success also depends upon the continued service of
its other executive officers and its key software development, merchandising,
technical, marketing, finance and support personnel and its ability to attract
additional personnel in each of these areas. Competition for qualified personnel
in these areas is intense, particularly at the senior level, and Starbelly.com
might not be able to hire the kind and number of employees Starbelly.com is
targeting. Starbelly.com's failure to attract and retain these key employees
could have a material adverse effect on our business, results of operations and
financial condition. In addition, employees may leave Starbelly.com and
subsequently seek to compete against us, even though they have signed agreements
not to do so.
STARBELLY.COM DEPENDS ON THIRD PARTIES TO PROVIDE RELIABLE SOFTWARE, SYSTEMS,
AND RELATED SERVICES
Starbelly.com depends on certain third-party service and software
providers, including Oracle and Level 3. Starbelly.com depends on these
third-party providers to continue to offer, maintain and update
Starbelly.com's software infrastructure. Any discontinuation of such
services, or any reduction in performance that requires us to replace such
services, would be disruptive to our business. Starbelly.com depends on its
software providers for the development and maintenance of electronic commerce
processing systems. The failure of such systems could have a material adverse
effect on our business and operations.
In the past, certain of Starbelly.com's third-party service providers
have experienced interruptions or failures in their system or services. If
such failures were to occur in the future, Starbelly.com's customers could be
prevented from accessing or purchasing products through the Starbelly.com Web
site. Any reduction in performance, disruption in Internet or online access
or discontinuation of services provided by any of Starbelly.com's Internet
service providers could have a material adverse effect on our business,
operating results and financial condition.
Some of Starbelly.com's agreements with third-party service and software
providers have terms of, or expire within, one year or less and in some cases
are subject to cancellation for any reason or no reason upon short notice. Any
cancellation of services by any those third-party providers, or failure to renew
services upon expiration, without notice sufficient to allow Starbelly.com to
transition to a new service provider in a timely and cost-effective manner would
have a material adverse effect on our business, operating results and financial
condition.
IF DEMAND EXCEEDS THE CAPACITY CONSTRAINTS OF STARBELLY.COM'S INTERNET
TECHNOLOGY SYSTEMS OR FULFILLMENT SYSTEMS OR IF STARBELLY.COM DOES NOT CONTINUE
TO DEVELOP THESE SYSTEMS PROPERLY, OUR BUSINESS COULD BE ADVERSELY AFFECTED
Starbelly.com's revenues depend on the number of businesses and consumers
who use its Web site or Web sites it has designed for purchase of
custom-decorated merchandise. Accordingly, the satisfactory performance,
reliability and availability of these Web sites, transaction-processing systems
and network infrastructure are critical to Starbelly.com's operating results, as
well as its ability to attract and retain customers and maintain adequate
customer service levels. Any system interruptions that result in the
unavailability of Starbelly.com's Web sites or reduced performance of the
transaction system would reduce the volume of sales, which could have a material
adverse effect on our business, operating results and financial condition.
Starbelly.com uses an internally developed system for its Web site and
those Web sites which Starbelly.com develops for its customers.
Starbelly.com-developed customer Web sites handle substantially all aspects
of transaction processing, including product customization, customer
profiling and confirmations. Starbelly.com may experience periodic system
interruptions from time to time. A substantial increase in the volume of
11
<PAGE>
traffic on Starbelly.com's Web sites, or the number of orders placed by
customers in excess of projected amounts will require Starbelly.com to expand
and upgrade further its technology, transaction-processing systems and
network infrastructure. Starbelly.com may also experience temporary capacity
constraints due to sharply increased traffic during sales or other
promotions, which could cause unanticipated system disruptions, slower
response times, degradation in levels of customer service, impaired quality
and delays in reporting accurate financial information. There can be no
assurance that Starbelly.com's transaction-processing system and network
infrastructure will be able to accommodate its system traffic in the future,
or that Starbelly.com will, in general, be able to accurately project the
rate or timing of such increases or upgrade Starbelly.com's system and
infrastructure to accommodate future traffic levels on its Web sites and
those Starbelly.com develops for its customers.
In the future, Starbelly.com intends to upgrade and expand its system and
to integrate newly developed or purchased modules with Starbelly.com's existing
systems in order to improve its accounting, control and reporting methods and
support increased transaction volume. Starbelly.com's inability to add
additional software and hardware or to develop and upgrade further its existing
technology, transaction processing systems or network infrastructure to
accommodate increased traffic on its Web site or those Web sites Starbelly.com
develops for its customers or its inability to handle increased sales volume
through Starbelly.com's transaction-processing systems may cause unanticipated
system disruptions, slower response times, degradation in levels of customer
service, impaired quality and speed of order fulfillment, and delays in
reporting accurate financial information. There can be no assurance that
Starbelly.com will be able, in a timely manner, to effectively upgrade and
expand its transaction-processing systems or to integrate smoothly any newly
developed or purchased modules with its existing systems. Any inability to do so
could have a material effect on our business, operating results and financial
condition.
A SYSTEM FAILURE WOULD ADVERSELY AFFECT OUR BUSINESS
Starbelly.com's ability to successfully receive and transmit orders online
and provide high-quality customer service largely depends on the efficient and
uninterrupted operation of its computer and communications hardware systems.
Some of the Starbelly.com systems or their components are untested in
high-volume operations. Some Starbelly.com intranet and database systems are
located in Chicago, Illinois. These systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins and similar events. The failure of Starbelly.com's intranet and
database systems could have a material adverse effect on our business, operating
results and financial condition.
Starbelly.com's servers and related technology are currently housed on-site
with redundant systems located off-site. Despite the implementation of network
security measures, Starbelly.com's servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and confirm
customer orders or to provide orders to distributors or decorators. The
occurrence of any of the foregoing risks could have a material adverse effect on
our business, operating results and financial condition. Any virus infecting
Starbelly.com's system or other damage to Starbelly.com's system could adversely
affect the computer systems of a third party. Such an event could expose us to a
risk of loss or litigation or possible liability.
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<PAGE>
STARBELLY.COM MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE INCREASINGLY
COMPETITIVE CUSTOM-DECORATED MERCHANDISE MARKET
The custom-decorated merchandise market is a rapidly evolving and intensely
competitive industry, and electronic commerce generally is a new and rapidly
evolving medium. Starbelly.com competes primarily with various producers of
custom-decorated merchandise. As the market for custom decorated products
continues to grow, we expect other competitors, including established retail and
mail order suppliers or other electronic commerce companies, to develop online
services that compete with Starbelly.com's services. The level of competition is
likely to increase as current competitors increase the sophistication of their
offerings and as new participants enter the market. Many of Starbelly.com's
potential competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than Starbelly.com does and may enter into strategic or
commercial relationships with larger, more established and well-financed
companies. Certain of Starbelly.com's competitors may be able to secure services
and products from suppliers on more favorable terms, devote greater resources to
marketing and promotional campaigns and devote substantially more resources to
Web site and systems development than we can. In addition, new technologies and
the expansion of existing technologies may increase competitive pressures.
Increased competition may result in reduced operating margins, as well as loss
of market share and brand recognition. There can be no assurance that we will be
able to compete successfully against current and future competitors, and
competitive pressures could have a material adverse effect on our business,
operating results and financial condition.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL LAWS AND REGULATIONS, AND FAILURE TO
COMPLY WITH THEM COULD HARM OUR BUSINESS
Starbelly.com's vendors, who perform decorating services, including those
residing in Starbelly.com's Chicago headquarters, are subject to a variety of
federal, state, and local environmental laws and regulations related to the use,
storage, discharge and disposal of wastewater and other chemicals used in their
processes. They may incur significant costs to comply with current or future
environmental laws and regulations, or be adversely affected by the cost of
compliance with these laws and regulations, which would effectively increase our
costs. In addition, we may be directly responsible for the remediation of any
environmental contamination caused by decorators residing on our properties. Any
such liability could have a material adverse effect on our operations.
RISKS RELATED TO THE INTEGRATION OF THE BUSINESSES
UNCERTAINTIES IN ACHIEVING BENEFITS OF MERGER AND INTEGRATING THE BUSINESSES
We cannot assure you that we will realize any of the anticipated benefits
of the Starbelly.com merger. Whether we achieve these benefits will depend in
part upon our ability to integrate our businesses in an efficient manner. We
cannot be certain that this will occur. To achieve the merger benefits, we will
incur significant costs, expend significant capital and fund substantial
anticipated Starbelly.com operating losses. Our costs could be higher than
anticipated and we may have to expend additional capital and fund
higher-than-expected operating losses to achieve the anticipated benefits of the
merger.
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<PAGE>
COMBINING THE COMPANIES COULD HAVE AN ADVERSE IMPACT
The integration of our business and Starbelly.com's business will require
substantial attention from management. The diversion of management's attention
and any difficulties encountered in the transition and integration process
could have a material adverse effect our revenues, levels of expenses and
operating results.
MERGER COSTS MAY BE MORE THAN EXPECTED
We estimate that the direct costs of the Starbelly.com merger will be from
$4.0 million to $4.5 million. These direct costs include $500,000 of direct
merger costs for which we reimbursed Starbelly.com and Starbelly.com's
stockholders for their direct merger costs. We also estimate that we will have
to expend capital equal to approximately $13.0 million and fund estimated
Starbelly.com operating losses of approximately $16.0 million during the twelve
months following the merger to achieve the expected merger benefits referred to
above. If these costs, capital expenditures or operating losses are higher than
estimated, the merger benefits may be reduced or delayed.
RISK FACTORS GENERALLY AFFECTING ALL E-COMMERCE BUSINESSES AND INTERNET
BUSINESSES
STARBELLY.COM DEPENDS ON THE CONTINUED GROWTH OF ELECTRONIC COMMERCE
Starbelly.com's viability is substantially dependent upon the widespread
acceptance and use of the Internet as an effective medium for commerce. The use
of the Internet as a means of effecting transactions, particularly in the market
for custom-decorated products, is at an early stage of development. For
Starbelly.com to be successful, businesses and consumers must accept and utilize
new ways of conducting business and exchanging information. Convincing
businesses and consumers to evaluate and purchase custom-decorated products
online may be particularly difficult, as such these parties have traditionally
relied on advertising specialty retailers and specialty catalogs to purchase
such products. Advertising specialty retailers are retailers who focus their
efforts on selling to customers merchandise that is custom decorated with the
customer's brands, which those customers use for the promotion of their brands.
Rapid growth in the use of and interest in the Web, the Internet and commercial
online services is a recent phenomenon, and there can be no assurance that
acceptance and use will continue to develop or that a sufficiently broad base of
customers will adopt, and continue to use, the Internet and commercial online
services as a medium of commerce, particularly for evaluating and purchasing
custom-decorated products.
Demand for recently introduced services and products over the Internet and
commercial online services is subject to a high level of uncertainty. A minority
of these services and products have proved to be profitable. The development of
the Internet and commercial online services into a viable commercial marketplace
is subject to a number of factors, including continued growth in the number of
users of such services, concerns about transaction security, continued
development of the necessary technological infrastructure, development of
enabling technologies, uncertain and increasing government regulation and the
development of complementary services and products.
To the extent that the Internet and other online services continue to
experience growth in the number of users, their frequency of use or increase in
their bandwidth requirements, there can be no assurance that the infrastructure
for the Internet and other online services will be able to support the demands
placed upon them. In addition, the Internet or other online services could lose
their viability due to delays in the development or adoption of new standards
and protocols required to handle increased levels of Internet or other online
service activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the Internet
or other online services also could result in slower response times and
adversely affect usage of the Internet and other online services generally and
us in particular. If the use of the Internet and other online services does not
continue to grow or grows more slowly than expected, if the infrastructure for
the Internet and other online services do not effectively support growth that
may occur or if the Internet and other online services do not become a
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<PAGE>
viable commercial marketplace, our business operating results and financial
condition would be materially and adversely affected.
RAPID TECHNOLOGICAL CHANGE COULD MATERIALLY AFFECT US
The Internet and the electronic commerce industry are characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render Starbelly.com's existing technology and systems obsolete. The
emerging nature of these products and services and their rapid evolution will
require us to continually improve the performance, features and reliability of
Starbelly.com's e-commerce services, particularly in response to competitive
offerings. Our success will depend, in part on our ability to enhance existing
services and to develop and license new services and technologies that address
the increasingly sophisticated and varied needs of Starbelly.com's prospective
customers. We will also need to respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development or licensing of online sites and other proprietary technology
entails significant technical and business risks and requires substantial
expenditures and lead time. There can be no assurance that we will use new
technologies effectively or adapt Starbelly.com's Web site, proprietary
technology and transaction processing systems to customer requirements or
emerging industry standards. If we are unable, for technical, legal, financial
or other reasons, to adapt in a timely manner in response to changing market
conditions or customer requirements, our business, operating results and
financial condition could be materially and adversely affected.
STARBELLY.COM'S MARKETPLACE OR DATABASE MAY BE SUSCEPTIBLE TO SECURITY BREACHES
A fundamental requirement for electronic commerce and communications is the
secure transmission of confidential information over public networks.
Starbelly.com will rely on encryption and authentication technology licensed
from third parties to provide the security and authentication necessary to
effect secure transmission of confidential information, such as customer credit
card numbers. In addition, Starbelly.com intends to maintain an extensive,
confidential database of customer profiles and transaction information. There
can be no assurance that advances in computer capabilities, new discoveries in
the field of cryptography, or other events or developments will not result in a
compromise or breach of the algorithms Starbelly.com uses to protect customer
transaction data contained in its customer database. Further, Starbelly.com's
servers may be vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions. If any such compromise of Starbelly.com's security were
to occur, it could have a material adverse effect on our reputation, business,
operating results and financial condition. A party who is able to circumvent
Starbelly.com's security measures could misappropriate proprietary information
or cause interruptions in its operations. We may be required to expend
significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of transactions conducted on the Internet and commercial online
services and the privacy of users may also inhibit the growth of the Internet
and commercial online services, especially as a means of conducting commercial
transactions. To the extent that Starbelly.com's activities or third-party
contractors involve the storage and transmission of proprietary information,
such as credit card numbers or other personal information, security breaches
could expose us to a risk of loss or litigation and possible liability. There
can be no assurance that Starbelly.com's security measures will prevent security
breaches or that failure to prevent such security breaches will not have a
material adverse effect on our business, operating results and financial
condition.
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<PAGE>
WE MAY HAVE LIABILITY FOR INTERNET CONTENT IN STARBELLY.COM'S MARKETPLACE
As a publisher and distributor of online content, Starbelly.com faces
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that it receives, stores, publishes or distributes. Such claims have been
brought and sometimes successfully pressed, against online services. There is a
risk that Starbelly.com may be exposed to these claims in connection with the
future operations of its various Web sites. In addition, Starbelly.com does not
and cannot practically screen all of the content generated by its users, and we
could be exposed to liability with respect to such content. Although we carry
general liability insurance, our insurance may not cover claims of these types
or may not be adequate to indemnify us for all liability that may be imposed.
Any imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could have a material adverse
effect on our reputation, business, operating results and financial condition.
FUTURE GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT OUR BUSINESS
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues including user privacy, pricing and
the characteristics and quality of products and services. An increase in
regulation or the application of existing laws to the Internet could
significantly increase Starbelly.com's costs of operations and harm our
business. For example, the Communications Decency Act of 1996 sought to prohibit
the transmission of certain types of information and content over the Web.
Additionally, several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. Imposition of access fees could increase
the cost of transmitting data over the Internet.
WE RELY ON INTELLECTUAL PROPERTY RIGHTS THAT MAY NOT ADEQUATELY PROTECT US UNDER
CURRENT LAWS
To establish and protect Starbelly.com's trademarks, services marks and
other proprietary rights in its products and services, we rely on a combination
of copyright, unfair competition, trademark, service mark and trade secret laws;
confidentiality agreements with licensees and other third parties; and
confidentiality agreements and policies covering employees. We cannot assure you
that these measures will be adequate, that Starbelly.com will be able to secure
registrations for all of its marks in the U.S. or internationally or that third
parties will not infringe upon or misappropriate its proprietary rights. Any
infringement, misappropriation or litigation relating to intellectual property
rights may divert Starbelly.com's management's attention and its funds to
litigate such claims. Provisions in Starbelly.com's license agreements with its
customers protecting against unauthorized use, copying, transfer and disclosure
of its licensed products may be unenforceable under the laws of specific
jurisdictions and foreign countries. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent, as do the laws
of the United States. We cannot assure you that our methods of protecting our
proprietary rights in the United States or abroad will be adequate. We also
cannot assure you that competing companies will not independently develop
technology similar to our proprietary technology.
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<PAGE>
Legal standards relating to the validity, enforceability and scope of
protection of certain property rights in Internet-related businesses are
uncertain and evolving. In particular, new domain name registration and
ownership property procedures may be adopted that may make it more difficult for
Starbelly.com and other Internet-related businesses to retain or obtain
desirable domain names.
Companies in Starbelly.com's industry and other electronic commerce-based
industries have been the subject of claims that their Web site content, method
of doing business and processes for conducting on-line transactions violate the
patent, trademark, copyright and other intellectual property rights of their
competitors or other third parties. Although we believe that our proprietary
rights do not infringe on the intellectual property rights of others, other
parties may assert infringement claims against us or claims that Starbelly.com
has violated a patent or infringed a copyright, trademark or other intellectual
property right belonging to such other parties. We may be subject to claims of
this type in the future as we develop and introduce new products and methods of
doing business in the future. Any infringement claims, even if not meritorious,
could result in our expenditure of significant financial and managerial
resources, which could harm our business.
Starbelly.com also intends to continue to strategically license certain
content for its Web site from third parties, including content which is
integrated with internally developed content and used on its Web site to provide
key services. There can be no assurance that these third party content licenses
will be available to us on commercially reasonable terms or that we will be able
to successfully integrate such third-party content. Such content licenses may
expose us to increased risks, including risks associated with the assimilation
of new content, the diversion of resources from the development of on-line
content and functionality, the inability to generate revenues from new content
sufficient to offset associated acquisition costs and the maintenance of
uniform, appealing content. The inability to obtain any of these licenses could
result in delays in Web site development or services until equivalent content
can be identified, licensed and integrated. Any such delays in development or
services could have a material adverse effect on our business, operating results
and financial condition.
Companies in Starbelly.com's industry whose employees accept positions
with competitors frequently claim that their competitors have engaged in
unfair hiring practices or have assisted the employee in breaching
noncompetition or nondisclosure agreements. Starbelly.com may be subject to
claim of this type in the future as it seeks to hire qualified employees. We
could incur substantial costs in defending ourselves against these claims or
litigation associated with these claims, regardless of their merit. On the
other hand, courts have taken a restrictive view with regard to the
enforcement of noncompetition and nonsolicitation covenants and nondisclosure
and secrecy agreements, particularly with respect to Internet-related
businesses. Therefore, we may not be able to enforce the agreements we have
with our employees regarding restrictions on their ability to compete against
Starbelly.com.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The forward-looking statements relate to anticipated financial
performance, management's plans and objectives for future operations, business
prospects, outcome of regulatory proceedings, market conditions and other
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements in certain circumstances. The following
discussion is intended to identify the forward-looking statements and certain
factors that could cause future outcomes to differ materially from those set
forth in the forward-looking statements.
Forward-looking statements include the information concerning possible or
assumed future results of operations of HA-LO, as well as other future events
set forth under "Risk Factors-Risks Related to the Merger--Uncertainties in
Achieving Benefits of the Merger and Integrating the Businesses," "--Risks
Related to Starbelly.com's Business," and other statements in this prospectus
identified by words such as "anticipate," "estimate," "expect," "intend,"
"believe," and "objective," and include, in particular, the statements as to:
1. the ability of the combined company to compete effectively in our
markets;
2. the ability to convince customers to use Starbelly.com's services and
systems;
3. the anticipated manner in which identified merger benefits will be
achieved;
4. the estimated amount of costs and capital expenditures necessary to
achieve the merger benefits;
5. the estimated future costs, operating losses and capital expenditures
associated with Starbelly.com's business;
6. the ability to attract and retain qualified employees; and
7. the ability of sales people who quit to take customers with them.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
combined company to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. These
factors may affect our operations, markets, products, services and prices. In
addition to any assumptions and other factors referred to specifically in
connection with forward-looking statements, factors that could cause our actual
results to differ materially from those contemplated in any forward-looking
statement include, among others, the following:
1. general economic and business conditions;
2. industry capacity;
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<PAGE>
3. changes in technology;
4. changes in political, social and economic conditions;
5. regulatory matters, including the possibility of new regulations
affecting e-commerce;
6. challenges associated with the integration of the operations of HA-LO
and Starbelly.com;
7. adverse regulatory treatment;
8. the ability of HA-LO and Starbelly.com to implement and realize
anticipated cost savings and revenue enhancements from the merger;
9. the actual costs required to effect the merger and to realize
anticipated cost savings and revenue enhancements;
10. the actual duration of Starbelly.com's continuing operating losses;
11. the loss of any significant customers;
12. changes in business strategy or development plans;
13. actual future costs of operating expenses;
14. actual costs of continuing investments in technology;
15. the availability of capital to finance possible acquisitions and to
refinance debt;
16. the ability of management to implement the strategy of acquisitions
and process improvements;
17. changes in the capital markets affecting the ability to finance
capital requirements; and
18. the other factors listed in our annual report on Form 10-K or in other
reports previously or hereafter filed by HA-LO with the Securities and
Exchange Commission, which are incorporated by reference herein.
Other factors and assumptions not identified above were also involved in
the derivation of these forward-looking statements, and the failure of these
other assumptions to be realized, as well as other factors, may also cause
actual results to differ materially from those projected. We do not assume any
obligation to update any forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting those
forward-looking statements.
USE OF PROCEEDS
All of the 4,853,115 shares of common stock (the "Shares") are being
offered by the shareholders named below (the "Selling Shareholders"). We will
not receive any of the proceeds from the sale of Shares by the Selling
Shareholders.
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SELLING SHAREHOLDERS
The following table sets forth with respect to the Selling Shareholders (i)
the number of Shares beneficially owned as of May 3, 2000 and prior to the
offering contemplated hereby, (ii) the maximum number of Shares which may be
sold in the offering pursuant to this Prospectus and (iii) the number of Shares
which will be beneficially owned after the offering, assuming the sale of all
Shares set forth in (ii) above:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES TO BE BENEFICIAL OWNERSHIP
PRIOR TO OFFERING OFFERED AFTER OFFERING
-------------------- ------------ ----------------------
SELLING SHAREHOLDERS SHARES(1) PERCENTAGE SHARES PERCENTAGE
-------------------- ----------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Chase Venture Capital Associates, 2,926,919(2) 4.4% 731,730 2,195,189 3.3%
L.P........................................
Flatiron Fund 1998/99, LLC................. 203,143(3) * 50,786 152,357 *
Flatiron Associates, LLC................... 20,729(4) * 5,182 15,547 *
Kenneth G. Pigott.......................... 82,916(5) * 20,729 62,187 *
David A. Ramon............................. 82,916(6) * 20,729 62,187 *
Carramore Limited Partnership.............. 2,826,525(7) 4.4% 706,631 2,119,894 3.3%
Richard A. Heise, Jr....................... 94,387(8) * 23,597 70,790 *
Minotaur Partners, L.P..................... 223,665(9) * 55,916 167,749 *
Delphic Financial Holdings, Ltd............ 52,188(10) * 13,047 39,141 *
GCWF Investment Partners................... 37,277(11) * 9,319 27,958 *
Thomas W. Furlong.......................... 7,456(12) * 1,864 5,592 *
Thaddeus G. Stephens....................... 2,982(13) * 746 2,236 *
M. Catherine Jaros......................... 270,527(14) * 67,632 202,895 *
Altheimer & Gray........................... 8,324(15) * 2,081 6,243 *
Peter H. Lieberman......................... 8,324(16) * 2,081 6,243 *
Mohanbir Sawhney........................... 41,620(17) * 10,405 31,215 *
Coventry Partners Family Limited Partnership 5,618,636(18) 8.7% 1,404,659 4,213,977 6.6%
Bloomfield Partners Family Limited Partnership 5,826,734(19) 9.1% 1,456,684 4,370,050 6.8%
Silicon Valley Bank........................ 19,617(20) * 4,904 14,713 *
Lefkofsky Family Limited Liability Company I 166,478(21) * 41,620 124,858 *
Steven Lefkofsky.......................... 20,810(22) * 5,203 15,607 *
Jodi Neff................................. 20,810(23) * 5,203 15,607 *
Andrew Parkinson.......................... 33,696(24) * 8,424 25,272 *
Bruce A. Zivian........................... 6,795(25) * 1,699 5,096 *
Carlos Perez.............................. 33,696(26) * 8,424 25,272 *
Clair Heise............................... 67,392(27) * 16,848 50,544 *
Cohan Investment Partnership.............. 13,497(28) * 3,374 10,123 *
Dara Khosrowshahi......................... 47,194(29) * 11,799 35,395 *
Ingram Capital, Inc....................... 67,392(30) * 16,848 50,544 *
Dennis Archer, Jr......................... 33,696(31) * 8,424 25,272 *
Donald Wilson............................. 33,696(32) * 8,424 25,272 *
Ellen Havdala............................. 13,497(33) * 3,374 10,123 *
Frank Torre Jr............................ 33,696(34) * 8,424 25,272 *
Jeffrey McClusky.......................... 33,696(35) * 8,424 25,272 *
James L. & Laurie A. Jerue................ 20,199(36) * 5,050 15,149 *
Joseph Madonia............................ 13,497(37) * 3,374 10,123 *
Kenneth A. Steel.......................... 26,995(38) * 6,749 20,246 *
Kevork Derderian.......................... 20,199(39) * 5,050 15,149 *
Mark Birringer............................ 20,199(40) * 5,050 15,149 *
Mark Seruya IRA........................... 20,199(41) * 5,050 15,149 *
Randall Abrahams.......................... 13,497(42) * 3,374 10,123 *
Richard Melman Revocable Trust............ 67,392(43) * 16,848 50,544 *
Richard Porter............................ 6,795(44) * 1,699 5,096 *
Richard Porter IRA........................ 13,497(45) * 3,374 10,123 *
Robert Levin.............................. 13,497(46) * 3,374 10,123 *
Robert & Jennifer Steel................... 27,089(47) * 6,772 20,317 *
Ronald Lott............................... 33,696(48) * 8,424 25,272 *
Stewart Flink............................. 33,696(49) * 8,424 25,272 *
Todd Pines................................ 33,696(50) * 8,424 25,272 *
Jeffrey Wolf.............................. 33,696(51) * 8,424 25,272 *
Thomas Parkinson.......................... 33,696(52) * 8,424 25,272 *
</TABLE>
- ----------------
* Less than 1%.
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(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares of common stock which such person has the right to
acquire within 60 days after the date of this prospectus. For purposes of
computing the percentage of outstanding shares of common stock held by each
person named above, any security which such person has the right to acquire
from us within 60 days after the date of this prospectus is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Consists of 2,926,919 shares of common stock issuable upon the conversion
of convertible preferred stock.
(3) Consists of 203,143 shares of common stock issuable upon the conversion of
convertible preferred stock.
(4) Consists of 20,729 shares of common stock issuable upon the conversion of
convertible preferred stock.
(5) Consists of 82,916 shares of common stock issuable upon the conversion of
convertible preferred stock.
(6) Consists of 82,916 shares of common stock issuable upon the conversion of
convertible preferred stock.
(7) Includes 268,363 shares of common stock issuable upon the conversion of
convertible preferred stock.
(8) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 8,962 shares of common stock issuable upon the conversion of
convertible preferred stock.
(9) Includes 21,236 shares of common stock issuable upon the conversion of
convertible preferred stock.
(10) Includes 4,955 shares of common stock issuable upon the conversion of
convertible preferred stock.
(11) Includes 3,539 shares of common stock issuable upon the conversion of
convertible preferred stock.
(12) Includes 708 shares of common stock issuable upon the conversion of
convertible preferred stock.
(13) Includes 283 shares of common stock issuable upon the conversion of
convertible preferred stock.
(14) Includes 25,685 shares of common stock issuable upon the conversion of
convertible preferred stock.
(15) Includes 790 shares of common stock issuable upon the conversion of
convertible preferred stock.
(16) Includes 790 shares of common stock issuable upon the conversion of
convertible preferred stock.
(17) Includes 3,952 shares of common stock issuable upon the conversion of
convertible preferred stock.
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(18) Includes 533,458 shares of common stock issuable upon the conversion of
convertible preferred stock.
(19) Includes 553,216 shares of common stock issuable upon the conversion of
convertible preferred stock.
(20) Includes 1,863 shares of common stock issuable upon the conversion of
convertible preferred stock.
(21) Includes 15,806 shares of common stock issuable upon the conversion of
convertible preferred stock.
(22) Includes 1,976 shares of common stock issuable upon the conversion of
convertible preferred stock.
(23) Includes 1,976 shares of common stock issuable upon the conversion of
convertible preferred stock.
(24) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(25) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 645 shares of common stock issuable upon the conversion of
convertible preferred stock.
(26) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(27) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 6,400 shares of common stock issuable upon the conversion of
convertible preferred stock.
(28) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,281 shares of common stock issuable upon the conversion of
convertible preferred stock.
(29) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 4,481 shares of common stock issuable upon the conversion of
convertible preferred stock.
(30) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 6,400 shares of common stock issuable upon the conversion of
convertible preferred stock.
(31) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(32) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(33) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,281 shares of common stock issuable upon the conversion of
convertible preferred stock.
(34) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(35) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(36) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,918 shares of common stock issuable upon the conversion of
convertible preferred stock.
(37) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,281 shares of common stock issuable upon the conversion of
convertible preferred stock.
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(38) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 2,563 shares of common stock issuable upon the conversion of
convertible preferred stock.
(39) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,918 shares of common stock issuable upon the conversion of
convertible preferred stock.
(40) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,918 shares of common stock issuable upon the conversion of
convertible preferred stock.
(41) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,918 shares of common stock issuable upon the conversion of
convertible preferred stock.
(42) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,281 shares of common stock issuable upon the conversion of
convertible preferred stock.
(43) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 6,400 shares of common stock issuable upon the conversion of
convertible preferred stock.
(44) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 645 shares of common stock issuable upon the conversion of
convertible preferred stock.
(45) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,281 shares of common stock issuable upon the conversion of
convertible preferred stock.
(46) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 1,281 shares of common stock issuable upon the conversion of
convertible preferred stock.
(47) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 2,572 shares of common stock issuable upon the conversion of
convertible preferred stock.
(48) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(49) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(50) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(51) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
(52) Consists of shares received as a dividend from Zebra Investments, L.P.,
including 3,199 shares of common stock issuable upon the conversion of
convertible preferred stock.
All of the Shares offered hereby were acquired by the Selling Shareholders
listed in the table above from us in connection with our acquisition in May 2000
of Starbelly.com, and have been registered under the Securities Act of 1933, as
amended, for resale by the Selling Shareholders in accordance with the
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provisions of the merger agreement. Following completion of the merger,
Bradley Keywell, who, with his family, holds 100% of the economic interests
in Bloomfield Partners Family Limited Partnership, became our President and
one of our directors. Following completion of the merger, Eric Lefkofsky,
who, with his family, holds 100% of the economic interests in Coventry
Partners Family Limited Partnership, became our chief operating officer, vice
president and one of our directors and also has the right to request our
board of directors to nominate his designee for election to our board.
Pursuant to Mr. Lefkofsky's request, our board has nominated Richard A.
Heise, Jr. for election to our board at our 2000 Annual Meeting of Shareholders.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Shareholders. The Shares covered by this prospectus may be offered and sold by
the Selling Shareholders, or by purchasers, transferees, donees, pledgees or
other successors in interest, directly or through brokers, dealers, agents or
underwriters who may receive compensation in the form of discounts, commissions
or similar selling expenses paid by a Selling Shareholder or by a purchaser of
the Shares on whose behalf such broker-dealer may act as agent. Sales and
transfers of the Shares may be effected from time to time in one or more
transactions, in private or public transactions, on the New York Stock Exchange
(the "NYSE"), in the over-the-counter market, in negotiated transactions or
otherwise, at a fixed price or prices that may be changed, at market prices
prevailing at the time of sale, at negotiated prices, without consideration or
by any other legally available means. Any or all of the Shares may be sold from
time to time by means of (a) a block trade, in which a broker or dealer attempts
to sell the Shares as agent but may position and resell a portion of the Shares
as principal to facilitate the transaction; (b) purchases by a broker or dealer
as principal and the subsequent sale by such broker or dealer into the public
market in any manner permitted by the selling shareholders under this
prospectus; (c) ordinary brokerage transactions (which may include long or short
sales) in which the broker solicits purchasers or executes unsolicited orders;
(d) the writing (sale) or settlement of non-traded or exchange-traded put or
call option contracts, and by means of the establishment or settlement of other
hedging transactions, including forward sale transactions; (e) the pledging of
the Shares as collateral to a broker/dealer or other pledgee to secure loans,
credit or other financing arrangements or obligations and, upon any subsequent
default, the disposition of the shares so pledged; and (f) any other legally
available means. In addition, the Selling Shareholders may loan their shares to
broker/dealers who are counterparties to hedging transactions and such
broker/dealers may sell the shares so borrowed into the public market.
To the extent required with respect to a particular offer or sale of the
Shares, a prospectus supplement will be filed pursuant to Section 424(b)(3) of
the Securities Act and will accompany this prospectus, to disclose (a) the
number of Shares to be sold, (b) the purchase price, (c) the name of any broker,
dealer or agent effecting the sale or transfer and the amount of any applicable
discounts, commissions or similar selling expenses, and (d) any other relevant
information.
The Selling Shareholders may transfer the Shares by means of gifts,
donations and contributions. This prospectus may be used by the recipients of
such gifts, donations and contributions to offer and sell the Shares received by
them, directly or through brokers, dealers or agents and in private or public
transactions; however, if sales pursuant to this prospectus by any such
recipient could exceed 500 Shares, then a prospectus supplement would need to be
filed pursuant to Section 424(b)(3) of the Securities Act to identify the
recipient as a Selling Shareholder and disclose any other relevant information.
Such prospectus supplement would be required to be delivered, together with this
prospectus, to any purchaser of such Shares.
In connection with distributions of the Shares or otherwise, the Selling
Shareholders may enter into hedging transactions with brokers, dealers or other
financial institutions. In connection with such
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transactions, brokers, dealers or other financial institutions may engage in
short sales of our common stock in the course of hedging the positions they
assume with Selling Shareholders. To the extent permitted by applicable law, the
Selling Shareholders also may sell the Shares short and redeliver the Shares to
close out such short positions.
The Selling Shareholders and any broker-dealers who participate in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any discounts, commissions or similar
selling expenses they receive and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. As a result, we have informed the Selling Shareholders
that Regulation M, promulgated under the Securities Exchange Act of 1934, as
amended, may apply to sales by the Selling Shareholders in the market. The
Selling Shareholders may agree to indemnify any broker, dealer or agent that
participates in transactions involving the sale of the Shares against certain
liabilities, including liabilities arising under the Securities Act. The
aggregate net proceeds to the Selling Shareholders from the sale of the Shares
will be the purchase price of such Shares less any discounts, concessions or
commissions.
The Selling Shareholders are acting independently of us in making decisions
with respect to the timing, price, manner and size of each sale. No broker,
dealer or agent has been engaged by us in connection with the distribution of
the Shares. There is no assurance, therefore, that the Selling Shareholders will
sell any or all of the Shares. In connection with the offer and sale of the
Shares, we have agreed to make available to the Selling Shareholders copies of
this prospectus and any applicable prospectus supplement and have informed the
Selling Shareholders of the need to deliver copies of this prospectus and any
applicable prospectus supplement to purchasers at or prior to the time of any
sale of the Shares offered hereby.
The Shares covered by this prospectus may qualify for sale pursuant to
Section 4(1) of the Securities Act or Rule 144 promulgated thereunder, and may
be sold pursuant to such provisions rather than pursuant to this prospectus.
We will not receive any proceeds from the sale of the Shares covered by
this prospectus and have agreed to pay all of the expenses incident to the
registration of the Shares, other than discounts and selling concessions or
commissions, if any, and fees and expenses of counsel for the Selling
Shareholders, if any.
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LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for us by
Neal, Gerber & Eisenberg, Chicago, Illinois. Certain partners of, attorneys
with and/or of counsel to Neal, Gerber & Eisenberg, counsel to the Company,
beneficially own shares of our common stock.
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm
as experts in auditing and accounting in giving said reports.
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy our filed reports, statements or
other information at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our public filings are also
available from commercial document retrieval services and at the Internet World
Wide Web site maintained by the SEC at "http://www.sec.gov." Reports, proxy
statements and other information about us also may be inspected at the NYSE
offices at 20 Broad Street, 17th Floor, New York, New York 10005.
The Company has filed with the SEC a Registration Statement on Form S-3
under the Securities Act with respect to the securities offered hereby. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in schedules and exhibits to the Registration
Statement as permitted by the rules and regulations of the SEC. Statements made
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Items and information omitted from this prospectus
but contained in the Registration Statement may be inspected and copied at the
Public Reference Room of the SEC.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important business and financial
information by referring you to another document separately filed with the SEC.
The information incorporated by reference is deemed to be part of this
prospectus, except for any information superseded by information contained
directly in this prospectus. This prospectus incorporates by reference the
following documents previously filed by us with the SEC. These documents contain
important information about our company and its business and finances.
<TABLE>
<CAPTION>
SEC FILINGS PERIOD
----------- ------
<S> <C>
Annual Report on Form 10-K ...................... Year ended December 31, 1999
Quarterly Report on Form 10-Q ................... Quarter ended March 31, 2000
Current Report on Form 8-K ...................... Dated May 12, 2000
Current Report on Form 8-K ...................... Dated January 21, 2000
Description of common stock contained in
Registration Statement, and amendments
and reports updating this description ........... Dated October 20, 1992
</TABLE>
All documents subsequently filed by us pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act, prior to the termination of the offering of the
Shares, shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in any document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for the purposes of this prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this prospectus, except
as so modified or superseded. We will provide without charge to each person,
including any beneficial owner, to whom a copy of this prospectus is delivered,
upon written or oral request of such person, a copy of any or all of the
information that has been incorporated by reference in this prospectus
(excluding exhibits to such information which are not specifically incorporated
by reference into such information). Requests for such information should be
directed to HA-LO Industries, Inc., 5980 West Touhy Avenue, Niles, Illinois
60714, Attention: Gregory J. Kilrea, Chief Financial Officer, Telephone (847)
647-2300.
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