HA LO INDUSTRIES INC, PRER14A, 2000-03-23

HA LO INDUSTRIES INC
PRER14A, 2000-03-23
MISC DURABLE GOODS

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)

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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
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<S> <C>
HA-LO INDUSTRIES, INC.
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):

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<S> <C> <C>
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, without par value.
Series A Convertible Preferred Stock, without par value
(2) Aggregate number of securities to which transaction
applies:
17,000,000 shares of Common Stock
5,100,000 shares of Preferred Stock
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
$10.0625 per share, which is equal to the average of the
high and low prices of the Common Stock as reported on the
New York Stock Exchange on January 27, 2000. There is no
market for the Preferred Stock; however, because each such
share of Preferred Stock is initially convertible into one
share of Common Stock, the value of the Preferred Stock is
for purposes of this calculation equal to the market value
of the Common Stock.
(4) Proposed maximum aggregate value of transaction:
$241,381,250, which equals the sum of (i) $19 million in
cash payable in the merger, (ii) $171,062,500 in Common
Stock issuable in the merger (calculated as indicated in
(3) above), and (iii) $51,318,750 in Preferred Stock
issuable in the merger (calculated as indicated in (3)
above).
(5) Total fee paid:
$48,277
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
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[LOGO]

PROPOSED MERGER--YOUR VOTE IS VERY IMPORTANT

The board of directors of HA-LO Industries, Inc. has unanimously approved a
merger agreement that would result in HA-LO acquiring all of
Starbelly.com, Inc. If we complete the merger, Starbelly.com stockholders will
receive approximately $240 million which we will pay as follows:

(1) paying $19 million in cash (less Starbelly.com's merger expenses in excess
of $500,000);

(2) paying the balance by issuing:

(a) 17 million shares of HA-LO common stock valued in the merger agreement
at $170 million; and

(b) 5.1 million shares of HA-LO convertible preferred stock valued in the
merger agreement at $51 million.

The merger consideration includes HA-LO common stock and HA-LO convertible
preferred stock issuable upon exercise of Starbelly.com's outstanding stock
options which will be assumed by HA-LO.

You will continue to own your shares after the merger. Immediately after the
merger, pre-merger shareholders of HA-LO will own approximately 69% of the
outstanding common stock, and the former stockholders of Starbelly.com will own
approximately 31% of the outstanding common stock (assuming all of the preferred
shares are converted into common stock and all assumed options are exercised and
all preferred shares issued upon exercise are converted into common stock).

The board of directors and stockholders of Starbelly.com have approved the
merger. We cannot complete the merger unless it is approved by HA-LO's
shareholders. A vote in favor of the merger also constitutes a vote in favor of:

- the issuance of common stock pursuant to the merger agreement;

- the amendment of the Company's articles of incorporation to permit the
issuance of convertible preferred stock in the merger and upon exercise of
options assumed in the merger and the reservation of 5.1 million shares of
common stock for issuance upon conversion of the convertible preferred
stock; and

- the adoption of a new stock option plan under which HA-LO will assume
Starbelly.com's stock option plan and the options outstanding under that
plan.

We have scheduled a special meeting for you to vote on the merger. In
addition, at the special meeting you will be asked to:

- approve an amendment to our articles of incorporation to increase the
number of shares of common stock that HA-LO is authorized to issue from
100 million to 250 million and to increase the number of shares of
preferred stock that HA-LO is authorized to issue from 10 million to
20 million; and

- approve an amendment to our articles of incorporation to authorize the
board of directors to provide for the future issuance of preferred stock
without the approval of the holders of our common stock.

YOUR VOTE IS VERY IMPORTANT. Please take the time to vote by completing the
enclosed proxy card and returning it in the return envelope provided, even if
you plan to attend the special shareholders' meeting. You should note that if
you sign, date and mail your proxy card without indicating how you wish to vote,
your proxy will be counted as a vote in favor of the proposals submitted at the
special
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meeting. If you hold your shares in the name of a bank or broker, you should
follow the instructions on the form you receive from your bank or broker.

The date, time and place of our meeting are:

April 28, 2000, 10:00 a.m., Chicago time
Harris Bank, Room
111 West Monroe Street
Chicago, Illinois 60603

This document provides you with detailed information about the meeting, the
proposed merger and the other matters to be considered at the special meeting.
We encourage you to read this entire document carefully. IN PARTICULAR, YOU
SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 15 WHICH DESCRIBES
CERTAIN RISKS THAT YOU SHOULD CONSIDER IN EVALUATING THE MERGER. You may also
obtain information about our company from publicly available documents that we
have filed with the Securities and Exchange Commission.

______________________________________
John R. Kelley, Jr.
President and Chief Executive Officer
HA-LO Industries, Inc.
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[LOGO]

HA-LO INDUSTRIES, INC.
5980 WEST TOUHY AVENUE
NILES, ILLINOIS 60714

------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
APRIL 3, 2000

------------------------

Notice is hereby given that a Special Meeting of Shareholders of HA-LO
Industries, Inc., an Illinois corporation ("HA-LO" or the "Company"), will be
held at HARRIS BANK, ROOM , 111 WEST MONROE STREET, CHICAGO, ILLINOIS
60603 on Friday, April 28, 2000 at 10:00 a.m., Chicago time, for the following
purposes:

(1) To consider and vote upon a proposal to approve the merger of
Starbelly.com with a wholly owned subsidiary of HA-LO. A vote in favor of
the merger also constitutes a vote in favor of (a) the issuance of
17 million shares of common stock pursuant to the merger agreement and
upon exercise of Starbelly.com's outstanding stock options which will be
assumed by HA-LO, (b) the amendment of the Company's articles of
incorporation to permit the issuance of 5.1 million shares of convertible
preferred stock in the merger and upon exercise of assumed options,
(c) the reservation of 5.1 million shares of common stock for issuance
upon conversion of the convertible preferred stock and (d) the adoption
of a new stock option plan under which HA-LO will assume Starbelly.com's
stock option plan and the options outstanding under that plan.

(2) To consider and vote upon a proposal to amend Article Four of the
Company's articles of incorporation to increase the number of shares of
common stock HA-LO is authorized to issue from 100 million to
250 million and to increase the number of shares of preferred stock that
HA-LO is authorized to issue from 10 million to 20 million.

(3) To consider and vote upon a proposal to amend Article Four of the
Company's articles of incorporation to authorize your board of directors
to provide for the future issuance of preferred stock without the further
approval of the holders of our common stock.

(4) To consider and vote upon a proposal to postpone or adjourn the special
meeting, if proposed by your board of directors.

(5) To transact such other business as may properly come before the special
meeting or any postponement or adjournment thereof.

You are entitled to exercise dissenters' rights in connection with the
merger in accordance with the Illinois Business Corporation Act of 1983, as
amended (the "IBCA"). In order to exercise dissenters' rights, you must:

- deliver to HA-LO, before the vote is taken at the special meeting, a
written demand for payment of your shares of HA-LO common stock if the
merger is completed;
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- NOT vote in favor of the proposal to merge Starbelly.com and HA-LO's
wholly owned subsidiary; and

- comply with the other requirements contained in Sections 11.65 and 11.70
of the IBCA.

For additional details regarding dissenters' rights, please read carefully
the section of the accompanying proxy statement captioned "The Special
Meeting--Dissenters' Rights."

If you were a shareholder of record at the close of business on March 27,
2000, you are entitled to notice of and to vote at the meeting and at any
postponements or adjournments thereof. A complete list of the shareholders
entitled to vote at the meeting will be subject to inspection by any shareholder
at the Company's principal executive office, 5980 West Touhy Avenue, Niles,
Illinois 60714, during usual business hours, for a period of ten days prior to
the meeting.

By Order of the Board of Directors,

JOHN R. KELLEY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Niles, Illinois
April 3, 2000

------------------------

THE BOARD OF DIRECTORS EXTENDS A CORDIAL INVITATION TO ALL SHAREHOLDERS TO
ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN AS PROMPTLY AS POSSIBLE THE ENCLOSED PROXY IN
THE ACCOMPANYING REPLY ENVELOPE. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE
THEIR PROXIES AND VOTE IN PERSON.

REFERENCES TO ADDITIONAL INFORMATION

The accompanying proxy statement incorporates important business and
financial information about HA-LO from documents we have filed with the
Securities and Exchange Commission but have not included in or delivered with
this document. If you write or call us, we will send you these documents without
charge. Please contact:

HA-LO Industries, Inc.
5980 West Touhy Avenue
Niles, Illinois 60714
Attention: Gregory J. Kilrea, Chief Financial Officer
(847) 647-2300

PLEASE REQUEST DOCUMENTS FROM US BY APRIL 14, 2000. If you request any
incorporated documents, we will mail the requested documents by first class
mail, or another equally prompt means, as soon as possible after we receive your
request.

See "Where To Find More Information" on page 82 for more information about
the documents referred to in the proxy statement.
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SUMMARY TERM SHEET

HA-LO INDUSTRIES, INC.
PROPOSED MERGER WITH STARBELLY.COM, INC.

- --------------------------------------------------------------------------------

- - We are proposing a merger with Starbelly.com, Inc., a company that intends to
create a leading business to business e-commerce marketplace for the
custom-decorated merchandise industry. If the merger is completed,
Starbelly.com will become our wholly-owned subsidiary. See "The Merger" on
page 35.

- - The total merger consideration will be approximately $240 million which we
will pay by:

Q paying $19 million in cash (less certain expenses),

Q paying the balance by issuing:

- 17 million shares of our common stock valued in the merger agreement at
$170 million, and

- 5.1 million shares of our convertible preferred stock valued in the
merger agreement at $51 million.

The merger consideration includes shares issuable upon exercise of
Starbelly.com's outstanding stock options which we will assume. See "Description
of the Convertible Preferred Stock" on page 53 and "Assumption of Outstanding
Starbelly.com Options" on page 56.

- - Following the merger, our shareholders will own approximately 69% of our
common stock, and the former stockholders of Starbelly.com and holders of
Starbelly.com stock options will own approximately 31% of our common stock, if
all of their stock options are exercised and all shares of our convertible
preferred stock are converted into common stock. Our shareholders will
continue to own their shares after the merger.

- - The merger cannot be completed unless certain conditions are satisfied.
Approval of the merger by our shareholders is one of these conditions. See
"The Merger Agreement--Terms of the Merger--Conditions to the Merger" on
page 63.

- - If the merger is approved, the convertible preferred stock we will issue in
the merger and upon exercise of the assumed Starbelly.com stock options:

Q ranks senior to the Company's common stock;

Q can be voted on all matters on which the holders of the Company's common
stock are entitled to vote;

Q will be convertible initially on a one-for one basis into shares of our
common stock; and

Q are redeemable at the option of the holder during a 30-day period
commencing on the first anniversary of the merger at a cash price of $10
per share, plus any accrued and unpaid dividends.

- - We will register for resale the shares of our common stock received by the
Starbelly.com stockholders in the merger and the shares of our common stock
issuable to the Starbelly.com stockholders upon their conversion of
convertible preferred stock. We will register these shares in several steps
over a two-year period. We will also register for issuance the shares of
common stock and convertible preferred stock issuable upon exercise of the
Starbelly.com stock options that we are assuming in the merger and the shares
of common stock issuable upon conversion of the convertible preferred stock.
See "The Merger Agreement--Other Agreements Related to the Merger--
Registration Rights Agreements" on page 69.

- - We will account for the merger as a purchase of Starbelly.com. See "The
Merger--Accounting Treatment" on page 51.

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- - We have agreed to pay Starbelly.com for its and its stockholders'
merger-related expenses (up to $500,000) under certain circumstances involving
a termination of the merger, and under certain other circumstances, we would
additionally be responsible for their actual damages (up to $10 million). You
should be aware that we would be responsible for both these expenses and these
actual damages (up to the stated limits) if our shareholders do not approve
the merger. See "The Merger Agreement--Termination Fees" on page 67.

See "Description of the Convertible Preferred Stock" on page 53.

- - If the merger is approved, your board of directors will be increased from
eight to eleven directors. All eight persons who are members of your board of
directors immediately before the merger will continue to serve as directors
immediately after the merger. The vacancies will be filled by your board of
directors after Starbelly.com's two most senior executives designate their
choices for these board seats. See "Your Board of Directors After the Merger"
on page 85.

- - If the merger is completed, and you have properly exercised your dissenters'
rights, you may require HA-LO to purchase your shares for cash at their fair
value. The procedures that you must follow are described under "The Special
Meeting, Voting and Proxies--Dissenters' Rights" on page 32.

See "Risk Factors" beginning on page 15 for certain matters you should consider.

This document contains important information about the proposed merger. Please
read it carefully.
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TABLE OF CONTENTS

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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1

SUMMARY OF PROXY STATEMENT.................................. 2
The Companies............................................. 2
About the Special Meeting................................. 3
The HA-LO Board of Directors Recommends Voting For the
Merger and the Other Proposals.......................... 4
Votes Necessary to Approve the Merger and the Other
Proposals............................................... 4
The Merger................................................ 4
Assumption of Stock Options............................... 10
Amendment to Our Articles of Incorporation to Increase
Authorized Shares....................................... 10
Amendment to Our Articles of Incorporation to Authorize
the Board to Issue Preferred Stock Without Stockholder
Approval................................................ 10
Your Board of Directors After the Merger.................. 10
Limits on Forward-Looking Statements...................... 11
Risk Factors.............................................. 11
Summary Unaudited Pro Forma Financial Information......... 12
HA-LO Summary Selected Historical Financial Data.......... 12
Starbelly.com Summary Selected Historical Financial
Data.................................................... 13
Unaudited Comparative Per Share Data...................... 13

RISK FACTORS................................................ 15
Risks Related to the Merger............................... 15
Risks Related to Starbelly.com's Business................. 17
Risk Factors Generally Affecting All E-commerce Businesses
and Internet Businesses................................. 23
Risks Related to HA-LO Capital Stock...................... 26

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 28

THE SPECIAL MEETING, VOTING AND PROXIES..................... 30
Purpose; Time and Place................................... 30
Record Date; Voting Rights................................ 30
Quorum.................................................... 30
Required Vote............................................. 31
Proxies................................................... 31
Cost of Solicitation...................................... 31
Postponement or Adjournment............................... 32
Dissenters' Rights........................................ 32

THE MERGER.................................................. 35
General................................................... 35
Background of the Merger.................................. 35
Recommendation of the HA-LO Board and Reasons for the
Merger.................................................. 38
Opinion of Financial Advisor to HA-LO..................... 40
Starbelly.com's Reasons for the Merger.................... 48
Merger Consideration...................................... 48
Effective Time of the Merger.............................. 49
Management and Operations After the Merger................ 49
Interests of Certain Persons in the Merger................ 49
Resale of HA-LO Shares.................................... 50
Accounting Treatment...................................... 51
New York Stock Exchange Listing........................... 51
Material Federal Income Tax Consequences.................. 51
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Regulatory Approvals...................................... 52

DESCRIPTION OF THE CONVERTIBLE PREFERRED STOCK.............. 53

ASSUMPTION OF OUTSTANDING STARBELLY.COM OPTIONS............. 56
Introduction.............................................. 56
Plan Summary.............................................. 56
Certain Tax Matters....................................... 59

COMPARATIVE MARKET PRICE DATA............................... 60

THE MERGER AGREEMENT........................................ 61
Closing Of The Merger..................................... 61
Consideration to be Received in the Merger................ 61
Terms Of The Merger....................................... 62
Other Covenants and Agreements............................ 64
Termination of the Merger Agreement....................... 66
Termination Fees.......................................... 67
Indemnification........................................... 67
Amendment and Waiver...................................... 68
Other Agreements Related to the Merger Agreement.......... 68

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 71
HA-LO and Starbelly.com Pro Forma Combined Condensed
Financial Statements.................................... 71

STARBELLY.COM SELECTED HISTORICAL FINANCIAL DATA............ 74

STARBELLY.COM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 75
Overview.................................................. 75
Results of Operations..................................... 75
Liquidity and Capital Resources........................... 76
Recently Issued Accounting Pronouncements................. 76

THE BUSINESS OF STARBELLY................................... 77
General................................................... 77
Distribution Channels..................................... 77
Target Customers.......................................... 79
Order Fulfillment......................................... 79
Advantages to Starbelly.com's Marketplace Solutions....... 80
Product Categories and Brands............................. 82
Technology................................................ 83
Sales and Marketing....................................... 83
Customers................................................. 84
Competition............................................... 84
Other Information......................................... 84

YOUR BOARD OF DIRECTORS AFTER THE MERGER.................... 85

STOCK OWNERSHIP............................................. 85

PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE AUTHORIZED CAPITAL STOCK........ 86

PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION RELATING TO THE ISSUANCE OF PREFERRED
STOCK..................................................... 88
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PROPOSED POSTPONEMENT OR ADJOURNMENT OF THE SPECIAL
MEETING................................................... 88

SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS.................. 89

WHERE TO FIND MORE INFORMATION.............................. 89

EXHIBIT A--Merger Agreement (as Amended).................... A-1
EXHIBIT B--Opinion of HA-LO's Financial Advisor............. B-1
EXHIBIT C--Sections 11.65 and 11.70 of the Illinois Business
Corporation Act........................................... C-1
EXHIBIT D--HA-LO Stock Option Plan for Starbelly.com
Employees................................................. D-1
EXHIBIT E--Amendments to HA-LO's Articles of
Incorporation............................................. E-1
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iii
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QUESTIONS AND ANSWERS ABOUT THE MERGER

1. AS A HA-LO SHAREHOLDER, WHAT DO I NEED TO DO NOW?

After carefully reading and considering the information contained in this
document, please complete and sign your proxy card. Then mail your signed proxy
card in the enclosed return envelope as soon as possible so that your shares may
be represented at the special meeting and voted as you wish.

2. IF MY HA-LO SHARES ARE HELD IN "STREET NAME" BY MY BROKER OR BANK, WILL IT
VOTE MY SHARES FOR ME?

Your broker or bank will vote your shares only if you provide instructions
on how to vote. You should contact your broker and ask what directions your
broker will need from you. Your broker will not be able to vote your shares
without instructions from you.

3. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

Yes. You can change your vote at any time before your shares are voted at
the special meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you can
complete and submit a new, later dated proxy card. If you choose either of these
two methods, you must submit your notice of revocation or your new proxy card to
HA-LO at the address given below. Third, you can attend the HA-LO special
meeting and vote in person. Simply attending the meeting, however, will not
revoke your proxy. If you have instructed a broker to vote your shares, you must
follow directions received from your broker to change your vote.

4. AS A HA-LO SHAREHOLDER, SHOULD I SEND IN MY SHARE CERTIFICATES?

No. HA-LO shareholders will keep their existing share certificates.

5. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?

We are working to complete the merger as quickly as possible and expect the
merger to be completed promptly following the special meeting.

6. WHERE CAN I FIND MORE INFORMATION ABOUT HA-LO?

You may obtain additional information about HA-LO by calling or writing to
us or you may obtain documents through the Internet. See "Where To Find More
Information" on page 89.

7. WHAT DO I DO IF I DECIDE TO EXERCISE DISSENTERS' RIGHTS?

Each HA-LO shareholder is permitted to exercise dissenters' rights with
respect to the merger. For information regarding how to exercise dissenters'
rights, see the section "The Special Meeting, Voting and Proxies--Dissenters'
Rights" on page 32.

8. WHOM DO I CONTACT IF I HAVE QUESTIONS ABOUT THE MEETING OR THE MERGER?

If you would like additional information, you should contact:

HA-LO Industries, Inc.
5980 Touhy Avenue
Niles, Illinois 60714
Attention: Gregory J. Kilrea, Chief Financial Officer
(847) 647-2300

1
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SUMMARY OF PROXY STATEMENT

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS
REFERRED TO IN "WHERE YOU CAN FIND MORE INFORMATION" (PAGE 89). WE HAVE ATTACHED
THE MERGER AGREEMENT AS EXHIBIT A TO THIS DOCUMENT. WE ENCOURAGE YOU TO READ THE
MERGER AGREEMENT. IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER. THE PAGE
REFERENCES BELOW WILL DIRECT YOU TO FURTHER INFORMATION IN THIS DOCUMENT
REGARDING THE TOPIC COVERED UNDER THAT CAPTION.

THE COMPANIES

HA-LO

HA-LO is a full service, innovative brand marketing organization whose
diverse marketing disciplines, or competency groups, are centered around its
client's 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 HA-LO, 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 HA-LO,
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
HA-LO, connects brands with target audiences through consumer events--including
new product sampling and brand awareness programs--and through a range of
telemarketing services.

HA-LO's principal executive offices are located at 5980 West Touhy Avenue,
Niles, Illinois 60714, and its telephone number at that address is
(847) 647-2300.

STARBELLY.COM (PAGE 77)

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 services, or sell such goods or services directly to consumers via the
Internet. 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

2
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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 blank suppliers, 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.

- the "BUSINESS-TO-BUSINESS" market, where Starbelly.com's 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.

ABOUT THE SPECIAL MEETING (PAGE 30)

The special meeting is scheduled to be held at 10:00 a.m., Chicago time, on
Friday, April 28, 2000, at Harris Bank, Room , 111 W. Monroe Street,
Chicago, Illinois. March 27, 2000 is the record date for determining the holders
of HA-LO common stock entitled to vote at the special meeting. On the record
date, [48,954,836] shares of HA-LO common stock were outstanding and entitled to
vote.

At the special meeting, you will consider and vote on proposals to approve:

(1) the merger, including (a) issuance of 17 million shares of HA-LO common
stock in the merger and upon exercise of options assumed in the merger;
(b) an amendment to Article Four of the Company's articles of
incorporation to permit the issuance of 5.1 million shares of convertible
preferred stock in the merger and upon the exercise of options assumed in
the merger; (c) the reservation of 5.1 million shares of common stock for
issuance upon conversion of the convertible preferred stock; and (d) the
adoption of a new stock option plan under which HA-LO will assume
Starbelly.com's stock option plan and the options outstanding under that
plan;

3
<PAGE>
(2) an amendment to the Company's articles of incorporation to increase the
number of shares of common stock HA-LO is authorized to issue from
100 million to 250 million and to increase the number of shares of
convertible preferred stock HA-LO is authorized to issue from 10 million
to 20 million;

(3) an amendment to the Company's articles of incorporation to authorize
your board of directors to provide for the future issuance of convertible
preferred stock without the further approval of the holders of our common
stock;

(4) any postponement or adjournment of the special meeting proposed by your
board of directors.

(5) such other business as may properly come before the special meeting and
any postponements and adjournments thereof.

THE HA-LO BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE MERGER AND THE
OTHER PROPOSALS (PAGE 38)

YOUR BOARD OF DIRECTORS, BY A UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE OTHER PROPOSALS TO BE CONSIDERED AT THE MEETING. THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AND THE
OTHER PROPOSALS. WE CANNOT COMPLETE THE MERGER UNLESS IT IS APPROVED BY HA-LO'S
SHAREHOLDERS.

THE BOARD OF DIRECTORS AND THE STOCKHOLDERS OF STARBELLY.COM HAVE APPROVED
THE MERGER.

VOTES NECESSARY TO APPROVE THE MERGER AND THE OTHER PROPOSALS (PAGE 31)

Approval of the merger of Starbelly.com and HA-LO's wholly owned subsidiary
and each of the other proposals to be considered at the meeting (other than a
proposal to postpone or adjourn the meeting) requires the affirmative vote of a
majority of the outstanding shares of HA-LO common stock. Broker non-votes and
abstentions will count as votes cast AGAINST each of these proposals.

Approval of any proposal by your board of directors to postpone or adjourn
the meeting requires the affirmative vote of a majority of the shares of HA-LO
common stock represented in person or by proxy at the meeting. Broker non-votes
and abstentions will NOT count as votes cast for a proposal to postpone or
adjourn the meeting and therefore will NOT have the effect of a no vote on that
proposal.

Each HA-LO shareholder has one vote per share on each proposal.

THE MERGER (PAGE 35)

The merger agreement provides for the merger of Starbelly.com with and into
our merger subsidiary, as a result of which our merger subsidiary will survive
the merger under the new name "Starbelly.com, Inc." and Starbelly.com will cease
its separate existence.

CONSIDERATION TO BE RECEIVED IN THE MERGER

If we complete the merger, Starbelly.com stockholders will receive
approximately $240 million which we will pay as follows:

(1) paying $19 million in cash (less Starbelly.com's merger expenses in excess
of $500,000);

(2) paying the balance by issuing:

(a) 17 million shares of HA-LO common stock valued in the merger agreement
at $170 million; and

4
<PAGE>

(b) 5.1 million shares of HA-LO convertible preferred stock valued in the
merger agreement at $51 million.

The merger consideration includes shares of HA-LO common stock and HA-LO
convertible preferred stock issuable upon exercise of Starbelly.com's
outstanding stock options which will be assumed by HA-LO and will entitle the
holder to receive upon exercise the same number of shares of HA-LO common stock
and HA-LO convertible preferred stock as such holder would have received in the
merger if the option had been exercised immediately prior to the merger.

The formula establishing the number of shares of HA-LO common stock valued
in the merger agreement at $170 million and the number of shares of HA-LO
convertible preferred stock valued in the merger agreement at $51 million was
based on the lower of $10.00 or the average closing price of HA-LO common stock
on the New York Stock Exchange for each trading day over a 25-day period
consisting of the trading days during the 15 calendar days prior to the
execution of the merger agreement and the trading days during the 10 calendar
days following execution of the merger agreement. Since the average closing
price during the measurement period was $10.05, the number of shares of our
common stock (17 million) and the number of shares of our convertible preferred
stock (5.1 million) issuable in the merger was based on a $10.00 per share
price.

SHARE ISSUANCE AND OWNERSHIP

We will issue in the merger and reserve for issuance upon exercise of the
assumed stock options 17 million shares of our common stock and 5.1 million
shares of our convertible preferred stock.

You will continue to own your shares after the merger.

Immediately after the merger, pre-merger shareholders of HA-LO will own
approximately 69% of the outstanding common stock, and the former stockholders
of Starbelly.com will own approximately 31% of the outstanding common stock
(assuming all of the convertible preferred shares are converted into common
stock and all assumed options are exercised and all convertible preferred shares
issued upon exercise are converted into common stock).

We will account for the merger as a purchase of Starbelly.com as described
under "The Merger--Accounting Treatment" (page 51).

REASONS FOR THE MERGER (PAGE 38)

Your board of directors has identified numerous benefits HA-LO may expect to
result from the merger, including the following:

- position HA-LO to capitalize on expanding e-commerce markets, especially
Internet- or intranet-based business-to-business markets;

- enhance HA-LO's customer service;

- rapidly expand, through electronic linkage, HA-LO's offering of
customizable blank products and pre-designed decorations;

- increase HA-LO's productivity;

- build HA-LO's brand recognition in e-commerce markets while enhancing our
reputation as an agent of change and a business leader;

- build HA-LO's promotional products customer base while encouraging repeat
business from existing customers;

- reduce HA-LO's costs to market and fulfill orders for custom-decorated
promotional products;

5
<PAGE>
- infuse HA-LO's organization with new talent and cultural change; and

- increase HA-LO's pricing and marketing flexibility for custom-decorated
promotional products.

In addition to the factors described above, your board of directors also
considered the following negative factors relating to the merger:

- the challenges inherent in combining our operations with those of
Starbelly.com, including the radical departure from our existing business
model and managing potential conflicts in the business cultures of our
companies;

- the status of Starbelly.com's technology, some of which is still in the
developmental stage and therefore may not function as expected;

- the potential departure of sales force personnel;

- the potential of our competitors aggressively recruiting our employees;

- our need to borrow funds to pay the cash portion of merger consideration
and merger expenses, provide working capital to fund Starbelly.com's
future operations and pay the redemption price of the convertible
preferred stock if holders exercise their redemption rights; and

- the dilution of our shareholders' voting interest.

GRANT OF REGISTRATION RIGHTS TO THE STARBELLY.COM STOCKHOLDERS (PAGE 69)

We will register for resale, in four steps, the shares of our common stock
received by the Starbelly.com stockholders in the merger and the shares of our
common stock issuable to the Starbelly.com stockholders upon their conversion of
convertible preferred stock. We will register 25% of these shares within ten
days after completion of the merger, an additional 15% within three months after
completion of the merger, an additional 33 1/3% of these shares within nine
months after completion of the merger and the remaining shares within two years
after completion of the merger. In addition to registration on this schedule, we
are required to register for resale any shares of our common stock issuable upon
conversion of our convertible preferred stock by Chase Venture Capital
Associates, L.P., or any of its affiliates, within 30 days after notice of its
conversion, to the extent not already registered.

We will also register for issuance the shares of common and convertible
preferred stock issuable upon exercise of the Starbelly.com stock options that
we are assuming in the merger and the shares of common stock issuable upon
conversion of the convertible preferred stock.

AVAILABILITY OF DISSENTERS' RIGHTS (PAGE 32)

You will be entitled to exercise dissenters' rights in accordance with the
Illinois Business Corporation Act of 1983, as amended (the "IBCA"). In order to
exercise dissenters' rights, you must:

- deliver to HA-LO, before the vote is taken at the special meeting, a
written demand for payment of you shares of HA-LO common stock if the
merger is completed;

- NOT vote in favor of the proposal to merge Starbelly.com and HA-LO's
wholly owned subsidiary; and

- comply with the other requirements contained in Sections 11.65 and 11.70
of the IBCA. See "The Special Meeting--Dissenters' Rights."

Under the Delaware General Corporation Law, Starbelly.com stockholders are
entitled to exercise appraisal rights, and receive the "fair value" of their
Starbelly.com shares. Under Delaware law, the Delaware Court of Chancery would
make any determinations of "fair value" for Starbelly.com

6
<PAGE>
stockholders exercising appraisal rights. However, Starbelly.com stockholders
having approximately 94% of the stockholder voting power have already approved
the merger and have granted irrevocable proxies to two of our executive officers
so that these stockholders cannot revoke their approval before the merger closes
(unless the merger agreement is earlier terminated and except as Delaware law
may otherwise require revocation of proxies). Accordingly, appraisal rights will
not be available to these persons.

OPINION OF FINANCIAL ADVISOR TO HA-LO (PAGE 40)

HA-LO's financial advisor, Credit Suisse First Boston, has delivered a
written opinion to the HA-LO board of directors as to the fairness, from a
financial point of view, to HA-LO of the aggregate merger consideration of
$240,000,000. The full text of Credit Suisse First Boston's written opinion is
attached to this document as Exhibit B. We encourage you to read this opinion
carefully in its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the review undertaken.
Credit Suisse First Boston's opinion is directed to the HA-LO board of directors
and does not constitute a recommendation to any shareholder as to any matter
relating to the merger.

LOANS TO STARBELLY.COM

On January 6, 2000, while negotiating the merger agreement but before the
merger agreement was signed, we loaned Starbelly.com $5 million on an unsecured
basis, and, upon signing the merger agreement, we extended Starbelly.com an
additional unsecured $5 million loan. Under the merger agreement, we extended
Starbelly.com additional unsecured loans of $5 million each on March 1, 2000 and
April 1, 2000 because we did not complete the merger by such dates. These loan
amounts are not part of the merger consideration, although under certain
circumstances (1) Starbelly.com may not be required to pay back all or a portion
of these loans if we become obligated to pay Starbelly.com termination fees, and
(2) the maturity dates of the loans may be accelerated if we properly terminate
the merger agreement. See "HA-LO Loans to Starbelly.com" (page 70).

CONDITIONS THAT MUST BE MET TO COMPLETE MERGER (PAGE 63)

HA-LO and Starbelly.com will not complete the merger unless a number of
conditions are satisfied or, if permitted, waived by them. These include:

1. HA-LO shareholders must approve the merger, including the issuance of
HA-LO shares to the Starbelly.com stockholders;

2. There must be no law, regulation or order preventing the merger;

3. The New York Stock Exchange must approve the shares of HA-LO common
stock issuable in the merger for listing on the New York Stock Exchange;
and

4. Consents and approvals from all third parties, including governmental
entities, have been received.

EVENTS THAT ALLOW TERMINATION OF THE MERGER AGREEMENT (PAGE 66)

HA-LO and Starbelly.com mutually can agree to terminate the merger agreement
at any time without completing the merger. In addition, the merger agreement may
be terminated if:

- Starbelly.com has breached the merger agreement and the damages we would
suffer as a result would reasonably be expected to exceed $14 million;

- we have breached the merger agreement and the damages Starbelly.com would
suffer as a result would reasonably be expected to exceed $40 million;

7
<PAGE>
- any final decision of a governmental authority prohibits concluding the
merger;

- our shareholders fail to approve the merger at the special meeting or if
the merger is not completed by April 29, 2000;

- we have not, by February 28, 2000, provided evidence reasonably
satisfactory to Starbelly.com that we have a working capital credit
facility with substantially the same terms as our current facility; or

- because of your board of directors' fiduciary duties to our shareholders,
your board acts upon a proposal to enter into certain business
combinations with someone other than Starbelly.com.

Starbelly.com has extended to April 20, 2000 the date by which HA-LO must
provide evidence reasonably satisfactory to Starbelly.com that we have a working
capital credit facility with substantially the same terms as our current
facility. We are currently discussing a new credit facility which would provide
for borrowings of up to $80 million and will be secured by the Company's
domestic assets. It is contemplated that borrowings under the new facility would
bear interest based on a defined ratio at either between prime and prime plus
0.75% or the London Interbank Offered Rate (LIBOR) plus between 1.25% and 2.25%.
The term of this facility is expected to be three years.

TERMINATION FEES (PAGE 67)

We have agreed to pay Starbelly.com for up to $500,000 of merger-related
expenses incurred by Starbelly.com and its stockholders, plus their actual
damages up to a maximum of $10 million, if (1) our shareholders do not approve
the merger, (2) we cannot provide evidence by February 28, 2000 that we have a
credit facility substantially similar to our current facility (which condition
has been modified by Starbelly.com by extending such deadline to April 20, 2000)
or (3) if your board of directors acts on a third-party proposal to enter into a
business combination with someone other than Starbelly.com. We have also agreed
that we will reimburse Starbelly.com for up to $500,000 of its expenses related
to the merger agreement if Starbelly.com terminates the agreement because we
materially breach it. If, however, our breach were to be in bad faith, we would
also be liable to Starbelly.com for its actual damages, up to a maximum of
$10 million.

Starbelly.com has agreed to reimburse us for up to $500,000 of our expenses
related to the merger agreement if we terminate the merger agreement because
Starbelly.com materially breaches it. In addition, Starbelly.com would be
required to pay us, within six months, all amounts outstanding under the loans
we have extended to Starbelly.com. If, however, Starbelly.com's breach were to
be in bad faith, Starbelly.com would also be liable to us for our actual
damages, up to a maximum of $10 million, and Starbelly.com would be immediately
required to pay us all amounts outstanding under the loans we have extended.

ACCOUNTING TREATMENT

8
<PAGE>

MATERIAL FEDERAL INCOME TAX CONSEQUENCES.

TREATMENT OF US, OUR SHAREHOLDERS, OUR MERGER SUBSIDIARY AND STARBELLY.COM

We have been advised by our counsel, Neal, Gerber & Eisenberg, that the
merger will be treated for federal income tax purposes as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended. Accordingly,
our existing shareholders will not recognize any gain or loss as a result of the
merger for federal income tax purposes. Similarly, neither we, nor our merger
subsidiary nor Starbelly.com, each of which is a party to the reorganization,
within the meaning of Section 368(b) of the Code, will recognize any gain or
loss as a result of the merger for federal income tax purposes. In rendering
this advice, Neal, Gerber & Eisenberg relied upon factual representations made
by officers of HA-LO.

TREATMENT OF HOLDER OF STARBELLY.COM COMMON STOCK

It is a condition to the obligation of Starbelly.com to complete the merger
that it receive an opinion dated the closing date from a law firm retained as
counsel to Starbelly.com, which opinion may be based on such certificates and
letters as are acceptable to that law firm, to the effect that, for federal
income tax purposes, the Starbelly.com stockholders will not recognize income,
gain or loss upon the merger, except to the extent of any cash consideration
actually received or deemed received.

We will not seek a ruling from the Internal Revenue Service regarding the
merger and the advice and opinion of counsel referred to above will not be
binding on the Internal Revenue Service which may disagree with counsel's
conclusions.

REGULATORY APPROVALS (PAGE 52)

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
the merger cannot be completed until both companies, as well as Starbelly.com's
two largest stockholders, have given certain information and materials to the
Federal Trade Commission and Department of Justice and a required waiting period
has expired or been terminated. The companies submitted pre-merger notification
and report forms during the week of January 31, 2000 and received notification
of early termination of the waiting period on February 14, 2000.

DESCRIPTION OF THE CONVERTIBLE PREFERRED STOCK (PAGE 53)

If the merger is completed, as part of the merger consideration, we will
issue 5.1 million shares of convertible preferred stock in the merger and upon
exercise of the assumed Starbelly.com stock options. The convertible preferred
stock ranks senior to the Company's common stock, and in parity with or senior
to all other existing and future classes of our capital stock and series of
convertible preferred stock. Preferred shareholders can vote on all matters on
which the holders of the Company's common stock are entitled to vote. Each share
of convertible preferred stock will have the number of votes equal to the number
of shares of common stock then issuable upon conversion of such shares. Each
share of convertible preferred stock will be convertible initially into one
share of our common stock at any time before redemption. However, if the average
closing price of the Company's common stock equals or exceeds $24 for ten
consecutive trading days, the convertible preferred stock will automatically
convert into common stock at the then effective conversion ratio. The holders of
convertible preferred stock can require us during a 30-day period commencing on
the first anniversary of the effective date of the merger to redeem all or any
number of their shares at a cash price of $10 per share, plus any accrued and
unpaid dividends.

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<PAGE>

ASSUMPTION OF STOCK OPTIONS (PAGE 56)

Under Starbelly.com's option plan, as amended, and before we complete the
merger, Starbelly.com may grant options to purchase up to an aggregate of
3,355,000 shares of its common stock. As of March 15, 2000, options for
2,894,334 shares of Starbelly.com common stock were issued and outstanding,
395,000 shares have been issued for exercised options, and 65,666 shares remain
available for grants. The merger agreement provides that as of the effective
date of the merger HA-LO will assume Starbelly.com's outstanding stock options.
Therefore, a vote in favor of the merger also constitutes a vote in favor of the
adoption by HA-LO of a new stock option plan under which HA-LO will assume
Starbelly.com's outstanding options.

AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED SHARES (PAGE
86)

The board of directors unanimously recommends that Article Four of our
articles of incorporation be amended to increase the number of shares of our
common stock HA-LO is authorized to issue from 100 million to 250 million and to
increase the number of shares of preferred stock that HA-LO is authorized to
issue from 10 million to 20 million. If approved, the increased number of
authorized shares of common stock will be available for us to issue from time to
time without further vote of our shareholders, except as required under Illinois
law or the rules of the stock exchange where our common stock is traded.
(Similarly, if the matters relating to preferred stock issuance described in the
next paragraph are approved, the increased number of authorized shares of
preferred stock will be available for us to issue from time to time without
further vote of our shareholders, except as required under applicable law or the
rules of the stock exchange where our common stock is traded.) As of March 27,
2000, [48,954,836] shares of our common stock were issued and outstanding. If
the merger is approved, this number will increase to [65,954,836] shares when we
issue our common stock in the merger and upon exercise of stock options assumed
in the merger and to [71,054,836] shares if all of the convertible preferred
shares issued in the merger and upon exercise of assumed options were each to be
converted into common stock. If the merger is approved, an aggregate of
5.1 million shares of convertible preferred stock will be issued in the merger
or reserved for issuance upon exercise of stock options assumed in the merger.
The board of directors believes that the proposed authorized share increase will
ensure that the Company has a sufficient number of preferred shares authorized
to allow it to act upon transactions that may be proposed in the future. If the
merger is approved, the merger will be completed even if this proposal to amend
our articles of incorporation is not approved.

AMENDMENT TO OUR ARTICLES OF INCORPORATION TO AUTHORIZE THE BOARD TO ISSUE
PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL (PAGE 88)

While the board of directors is authorized to establish the terms of any
preferred stock the Company proposes to issue, the articles of incorporation
require that the board determine the liquidation and dividend rights of
preferred stock to be issued as a class by filing articles of amendment to the
articles of incorporation. However, the adoption of an amendment to the articles
of incorporation requires the approval of the Company's shareholders. In order
to provide the board of directors with greater flexibility in establishing the
terms of any preferred stock the Company proposes to issue in the future and
avoid delays which would result from obtaining shareholder approval prior to
issuing any preferred stock, the board of directors recommends that our articles
of incorporation be amended to authorize the board of directors to provide for
the issuance of preferred stock without the approval of the Company's
shareholders. If the merger is approved, the merger will be completed even if
this proposal to amend our articles of incorporation is not approved.

YOUR BOARD OF DIRECTORS AFTER THE MERGER (PAGE 85)

At the time of the merger, your board of directors will be increased from
eight to eleven directors. All eight persons who are members of your board of
directors immediately before the merger will

10
<PAGE>

continue to serve as directors immediately after the merger. Immediately
following the merger and continuing until the next shareholder's meeting
convened to elect directors, Starbelly.com's two most senior executives will
each have a right to designate persons whom your board will place in the three
vacancies created by the board expansion. Under this arrangement, Bradley
Keywell, Starbelly.com's co-founder and chief executive officer, is entitled to
designate one person to fill a vacancy on the HA-LO board of directors until the
next meeting of shareholders convened to elect directors. Under a three-year
employment agreement we have agreed to enter into with Mr. Keywell at the merger
closing, so long as Mr. Keywell's employment agreement is in effect, he will
have a right to request the board of directors to nominate his designee, and if
he does so, our management (within legal limits) is required to present such
designee to our shareholders as a nominee for election. We have agreed to a
similar arrangement with Eric Lefkofsky, Starbelly.com's co-founder and
president, except Mr. Lefkofsky is entitled to designate two persons to fill
vacancies on the HA-LO board of directors until the next meeting of shareholders
convened to elect directors. Under a three-year employment agreement we have
agreed to enter into with Mr. Lefkofsky when we complete the merger, so long as
Mr. Lefkofsky's employment agreement is in effect, he will have the right to
request the board of directors to nominate and present two designees for
election by our shareholders.

LIMITS ON FORWARD-LOOKING STATEMENTS (PAGE 28)

This document contains forward-looking statements that are subject to risks
and uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of HA-LO, Starbelly.com and the
combined company as well as statements preceded by, followed by or that include
the words "believes," "expects," "anticipates," "intends," or similar
expressions. You should understand that important factors, in addition to those
discussed elsewhere in this document and in the documents that are incorporated
herein by reference, could affect the future results of the combined companies
and could cause those results to differ materially from those expressed in our
forward-looking statements.

RISK FACTORS

Before deciding how to vote at the special meeting, you should carefully
review "Risk Factors" on page 15.

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<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following table presents summary unaudited pro forma financial
information derived from the Unaudited Pro Forma Combined Condensed Financial
Statements included elsewhere in this proxy statement and has been presented
assuming the merger will be accounted for as a purchase business combination.
The Unaudited Pro Forma Condensed Combined Financial Statements do not purport
to present the financial position or results of operations of HA-LO had the
transaction and events assumed therein occurred on the date specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in HA-LO's Annual Report on Form 10-K, which is
incorporated by reference, "Starbelly.com's Management's Discussion and Analysis
of Financial Condition and Results of Operations" (page 75) and "HA-LO and
Starbelly.com Pro Forma Combined Condensed Financial Statements" (page 71)
included in this proxy statement.

HA-LO AND STARBELLY.COM SUMMARY PRO FORMA FINANCIAL INFORMATION
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999(1)
--------------------
(UNAUDITED)
<S> <C>
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED):(2)
Net sales............................................... $650,759
Net loss................................................ (59,817)
Pro forma loss per share (diluted)...................... (0.97)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
PRO FORMA BALANCE SHEET DATA:(2)
Total assets.............................................. $605,764
Working capital........................................... 138,844
Long-term debt, net of current portion.................... 44,788
Redeemable convertible participating preferred stock...... 51,000
Shareholders' equity...................................... 383,117
</TABLE>

- ------------------------

(1) Starbelly.com commenced operations on March 22, 1999. Therefore, financial
information for periods prior to this date does not exist for Starbelly.com,
and the pro forma data only includes Starbelly.com results for this
less-than-12-month period.

(2) The unaudited pro forma combined financial data presented (a) may not
indicate the results that would have been obtained had the merger actually
occurred on the date assumed, (b) is based on preliminary estimates of the
fair value of the net assets to be acquired and certain assumptions
management deems appropriate and (c) should be read in conjunction with
other historical and pro forma financial statements and the related notes
included elsewhere or incorporated by reference in this document.

HA-LO SUMMARY SELECTED HISTORICAL FINANCIAL DATA

The following tables set forth selected historical financial data and other
operating information for HA-LO for each of the fiscal years 1995 to 1999. The
selected financial information for each of the fiscal years has been derived
from the Consolidated Financial Statements of HA-LO, which have been audited by
Arthur Andersen LLP, independent auditors to HA-LO, and from the underlying
accounting records of HA-LO.

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All information contained in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Combined Condensed Financial
Information" and the Consolidated Financial Statements and related notes of
HA-LO incorporated by reference herein.

HA-LO INDUSTRIES, INC.
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL:

INCOME STATEMENT DATA:
Net sales............................... $310,116 $375,736 $465,721 $589,669 650,412
Net income(loss)........................ 7,309 10,092 15,458 24,750 (13,538)
Pro forma net income(1)................. 5,902 9,879 14,846 24,520 N/A
Pro forma net income (loss) per share,
diluted............................... 0.17 0.25 0.36 0.53 (0.28)
Weighted average shares outstanding,
diluted............................... 34,586 40,266 41,112 46,447 48,598

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................ $124,331 $147,063 $238,053 $347,017 380,303
Working capital......................... 42,286 60,706 78,741 162,751 139,367
Long-term debt, net of current
portion............................... 13,263 29,863 44,930 -- --
Shareholders' equity(2)................. 52,091 62,032 85,473 235,491 236,546
</TABLE>

- ------------------------

(1) Certain companies acquired and accounted for using the pooling-of-interests
accounting method had elected to be treated as subchapter 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%.

(2) Includes cash dividends of $7,761,000, $6,887,000, $5,296,000 and
$11,518,000, declared by acquired companies in 1995, 1996, 1997 and 1998,
respectively, prior to HA-LO's acquisition of such companies.

STARBELLY.COM SUMMARY SELECTED HISTORICAL FINANCIAL DATA

For Starbelly.com's selected historical financial data and other operating
information for period from inception, March 22, 1999, through December 31,
1999, see "Starbelly.com Selected Historical Financial Data" (page 74).

UNAUDITED COMPARATIVE PER SHARE DATA

The following table sets forth certain historical per share data of HA-LO
and Starbelly.com and combined per share data on an unaudited pro forma basis,
based on the assumption that the merger occurred on March 22, 1999 (date of
inception of Starbelly.com) and was accounted for using the purchase method of
accounting. The pro forma comparative per share data has been adjusted to give
effect to the issuance in the merger of 17 million shares of common stock and
5.1 million shares of convertible preferred stock, assuming exercise of all the
assumed Starbelly.com stock options. The Starbelly.com equivalent share pro
forma information shows the effect of the merger from the perspective of an
owner of Starbelly.com common stock. The information was computed by multiplying
the combined company's pro forma per share information by the exchange ratio of
approximately .83 of

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<PAGE>

a share of HA-LO common stock (including shares of common stock issuable upon
conversion of HA-LO convertible preferred stock issued in the merger) for each
outstanding share of Starbelly.com common stock. See "Description of the
Convertible Preferred Stock." The pro forma comparative share data does not
purport to represent what HA-LO's financial position or results of operation
would actually have been had the merger occurred at the beginning of the
earliest period presented or to project HA-LO's financial position or results of
operation for any future date or period. This data should be read in conjunction
with the "Unaudited Pro Forma Combined Condensed Financial Information" and the
Consolidated Financial Statements and related notes of HA-LO included or
incorporated by reference herein and the Financial Statements and related notes
of Starbelly.com included elsewhere herein.

<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED
DECEMBER 31, 1999
HA-LO HISTORICAL PER COMMON SHARE DATA: -----------------
<S> <C>

Basic earnings per share--continuing operations........... $(0.28)
Diluted earnings per share--continuing operations......... (0.28)
Dividends per common share................................ --
Book value per common share............................... 4.85

STARBELLY.COM HISTORICAL PER COMMON SHARE DATA:

Basic earnings per share--continuing operations........... $(0.51)
Diluted earnings per share--continuing operations......... (0.51)
Dividends per common share................................ --
Book value per common share............................... 0.07

UNAUDITED PRO FORMA COMBINED:

Basic earnings per share--continuing operations........... $(0.97)
Diluted earnings per share--continuing operations......... (0.97)
Dividends per common share(1)............................. --
Book value per common share............................... 5.83

UNAUDITED PRO FORMA COMBINED STARBELLY.COM EQUIVALENT
SHARE(2):

Basic earnings per share--continuing operations........... $(0.80)
Diluted earnings per share--continuing operations......... (0.80)
Dividends per common share................................ --
Book value per common share............................... 4.84
</TABLE>

- ------------------------

(1) There are no pro forma cash dividends per share as HA-LO does not intend to
pay cash dividends in the foreseeable future.

(2) The equivalent pro forma amounts are determined by multiplying the pro forma
combined loss per share from continuing operations, pro forma combined book
value per share and pro forma combined dividends per share by the merger
exchange ratio.

14
<PAGE>
RISK FACTORS

When deciding how to vote on the merger, you should consider carefully all
of the information contained in this document, including the following factors
which relate to the merger and to the combined businesses of HA-LO and
Starbelly.com. All of the identified risks can be substantial and many of such
risks could materially and adversely affect HA-LO's results of operations,
financial condition, business and prospects, as well as the market price of our
common stock.

RISKS RELATED TO THE MERGER

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 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.

COMBINING THE COMPANIES COULD HAVE 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 on the revenues, levels of expenses and operating
results of the combined company. For a discussion of other factors and
assumptions related to estimated merger benefits. See "The
Merger--Recommendation of the HA-LO Board and Reasons for the Merger"
(Page 38).

MERGER COSTS MAY BE MORE THAN EXPECTED

We estimate that the direct costs of the merger will be from $4.0 million to
$4.5 million. These direct costs include $500,000 of direct merger costs for
which we have agreed to reimburse Starbelly.com and Starbelly.com's stockholders
for their direct merger costs. These costs are not included in the unaudited pro
forma data appearing elsewhere in this proxy statement. 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.

THE PRICE PER SHARE OF OUR COMMON STOCK AT THE EFFECTIVE TIME OF THE MERGER MAY
BE GREATER THAN THE PRICE USED TO ESTABLISH THE NUMBER OF SHARES TO BE ISSUED
IN THE MERGER

Under the merger agreement, the formula establishing the number of shares of
HA-LO common stock and convertible preferred stock into which the Starbelly.com
common stock will be converted was based on the lower of $10.00 or the average
closing price of HA-LO common stock on the New York Stock Exchange for each
trading day over a 25 day period consisting of the trading days during the
15 calendar days prior to the execution of the merger agreement and the trading
days during the 10 calendar days following the execution of the merger
agreement. Since this average closing price during the measurement period was
$10.05, the number of shares of our common stock and our convertible preferred
stock issuable in the merger was based on a $10.00 share price. Accordingly, it
is possible that the market price of our common stock at the effective time of
the merger will be higher than $10.00 per share. If this is the case, the value
of the consideration to be received by Starbelly.com stockholders will be more
than the price on which the number of shares issuable in the merger was based.
HA-LO's financial advisor, Credit Suisse First Boston, has delivered a written
opinion dated

15
<PAGE>

January 17, 2000 to the HA-LO board of directors as to the fairness, from a
financial point of view, to HA-LO of the aggregate merger consideration of
$240,000,000. As is customary, the opinion was necessarily based on financial,
economic, market and other conditions as they existed and could be evaluated on
the date of the opinion. Credit Suisse First Boston did not express any opinion
as to the actual value of the HA-LO common stock when issued in the merger or
the prices at which our common stock will trade subsequent to the merger. Your
board of directors will not request that Credit Suisse First Boston update its
opinion. The historical market prices of our common stock are included under
"Comparative Market Price Data--HA-LO Common Stock" (page 60).

REDUCTION OF HA-LO SHAREHOLDERS' VOTING POWER; NEW MAJOR SHAREHOLDERS

The issuance of shares of HA-LO common stock and convertible preferred stock
in the merger and upon exercise of assumed options will substantially dilute the
voting interest of the current HA-LO shareholders. The convertible preferred
stock will entitle the holders to one vote per share on all matters submitted to
holders of our common stock. These convertible preferred stock voting rights
will dilute the voting power of our common shareholders. As a result of the
merger, Starbelly.com stockholders will own approximately 31% of the voting
power of HA-LO after the merger (including shares that may be issued upon
conversion of our convertible preferred stock and exercise of all assumed
options). Following the merger, (1) Coventry Partners Family Limited
Partnership, of which Bradley Keywell, the chief executive officer of
Starbelly.com, is a beneficial owner, will have approximately 8.2% of the voting
power of HA-LO common stock and (2) Bloomfield Partners Family Limited
Partnership, of which Eric Lefkofsky, the president of Starbelly.com, is a
beneficial owner, will have approximately 8.2% of the voting power of HA-LO
common stock (assuming conversion of our convertible preferred stock and
exercise of all the assumed Starbelly.com stock options).

THE MERGER WILL HAVE AN IMPACT ON VOTING AND MANAGEMENT OF OUR COMPANY.

The parties have agreed that, at the closing of the merger, our by-laws will
be amended to increase the size of your board of directors from eight to eleven
directors. Under the merger agreement, at the closing of the merger, Bradley
Keywell and Eric Lefkofsky are entitled to request for nomination three
directors to your board. Mr. Keywell is entitled to designate one person to fill
a vacancy on the HA-LO board of directors until the next meeting of shareholders
convened to elect directors, and Mr. Lefkofsky is entitled to designate two
persons to fill vacancies on the HA-LO board of directors until the next meeting
of shareholders convened to elect directors. Furthermore, under a three-year
employment agreement we have agreed to enter into with Mr. Keywell at the merger
closing, so long as Mr. Keywell's employment agreement is in effect, he will
have the right to request the board of directors to nominate his designee, and
if he does so, our management (within legal limits) is required to present such
designee to our shareholders as a nominee for election. Under a three-year
employment agreement we have agreed to enter into with Mr. Lefkofsky at the
merger closing, so long as Mr. Lefkofsky's employment agreement is in effect, he
will have the right to request the board of directors to nominate and present
two designees for election by our shareholders.

IF THE MERGER IS NOT APPROVED BY OUR SHAREHOLDERS, WE ARE OBLIGATED TO PAY A
SUBSTANTIAL TERMINATION FEE.

We have agreed to pay Starbelly.com up to $500,000 of its expenses plus its
actual damages up to a maximum of $10 million if our shareholders do not approve
the merger. While we cannot predict with any certainty the approximate amount of
expenses and actual damages Starbelly.com could incur or suffer if the merger is
not concluded, it is possible that these amounts could be material to HA-LO.

16
<PAGE>
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. Starbelly.com's 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 Starbelly.com evaluates 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 Starbelly.com's business through partnerships with
additional distributors and "pre-press" and contract decoration providers.

STARBELLY.COM'S POTENTIAL CUSTOMERS MAY NOT ACCEPT STARBELLY.COM'S SOLUTIONS OR
SYSTEMS

Many of the new customers Starbelly.com intends 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, Starbelly.com will generally be required to educate
potential customers on the use and benefits of the Starbelly.com system, which
may require Starbelly.com to incur substantial expense. Although Starbelly.com
believes its 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 Starbelly.com's failure to do
this could limit its anticipated growth in revenues and seriously harm its
business.

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 $2.5 million during the period from its inception on
March 22, 1999 to September 30, 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, Starbelly.com
currently expects to increase its operating expenses significantly in connection
with expanding Starbelly.com's sales and marketing

17
<PAGE>
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 in the future
particularly in the early stages of its business due to a variety of factors,
many of which are outside of Starbelly.com's 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; Starbelly.com's 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 Starbelly.com's
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
its operating results and financial condition.

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.

18
<PAGE>
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 Starbelly.com's 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, Starbelly.com's 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 Starbelly.com's ability to expand or its financial results.

IF WE FAIL TO SUCCESSFULLY DEVELOP THE STARBELLY.COM BRAND, STARBELLY.COM'S
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. Starbelly.com's failure to successfully
develop Starbelly.com's brand may adversely affect its 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
Starbelly.com does not generate a corresponding increase in Starbelly.com's
revenue as a result of its branding efforts or otherwise fails to promote the
Starbelly.com brand successfully, or if Starbelly.com incurs excessive expenses
in its efforts, its 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 its business will suffer.

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

19
<PAGE>

Starbelly.com's products and technology, its ability to retain customers and key
personnel and its operating results and financial condition.

STARBELLY.COM'S MANAGEMENT TEAM IS NEW AND MAY NOT BE ABLE TO WORK TOGETHER
SUCCESSFULLY

Starbelly.com's 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.

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. HA-LO and
Starbelly.com may encounter difficulties in integrating the operations of the
two businesses. The companies may not be able to successfully blend their
products, services and technology to create the advantages which the merger is
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 on the combined company's
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. HA-LO or Starbelly.com may
also experience a disruption in their 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, STARBELLY.COM 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 will enter into
three-year employment agreements with Mr. Keywell and Mr. Lefkofsky if we
complete the merger, the contractual relationships can be terminated under
certain circumstances, and some of these circumstances may not be within our
control.

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 Starbelly.com's business, results of
operations and financial condition. In addition, employees may leave
Starbelly.com and subsequently seek to compete against Starbelly.com, 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

20
<PAGE>
Starbelly.com's software infrastructure. Any discontinuation of such services,
or any reduction in performance that requires Starbelly.com to replace such
services, would be disruptive to Starbelly.com's 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 Starbelly.com's 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 Starbelly.com's 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 Starbelly.com's 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, STARBELLY.COM'S 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 Starbelly.com's 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 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

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<PAGE>
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 Starbelly.com's business, operating results and financial
condition.

A SYSTEM FAILURE WOULD ADVERSELY AFFECT STARBELLY.COM'S 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 Starbelly.com's
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
Starbelly.com's 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 Starbelly.com to a risk of loss or litigation or possible liability.

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, Starbelly.com expects 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
Starbelly.com 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 Starbelly.com will be able to
compete successfully against current and future competitors, and competitive
pressures could have a material adverse effect on Starbelly.com's business,
operating results and financial condition.

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FEDERAL, STATE AND LOCAL ENVIRONMENTAL LAWS AND REGULATIONS, AND FAILURE TO
COMPLY WITH THEM COULD HARM STARBELLY.COM'S 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
Starbelly.com's costs. In addition, Starbelly.com may be directly responsible
for the remediation of any environmental contamination caused by decorators
residing on its properties. Any such liability could have a material adverse
effect on Starbelly.com's operations.

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
Starbelly.com 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 viable commercial marketplace,

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Starbelly.com's business operating results and financial condition would be
materially and adversely affected.

RAPID TECHNOLOGICAL CHANGE COULD MATERIALLY AFFECT STARBELLY.COM

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 Starbelly.com
to continually improve the performance, features and reliability of its
e-commerce services, particularly in response to competitive offerings.
Starbelly.com's success will depend, in part on its 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. Starbelly.com 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 Starbelly.com will
use new technologies effectively or adapt its Web site, proprietary technology
and transaction processing systems to customer requirements or emerging industry
standards. If Starbelly.com is unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or customer requirements, Starbelly.com's 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 its 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. Starbelly.com 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 Starbelly.com 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 Starbelly.com's business, operating
results and financial condition.

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STARBELLY.COM MAY HAVE LIABILITY FOR INTERNET CONTENT IN ITS 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. For example, Starbelly.com
has not in all cases obtained formal written consent for use of photo images and
related market materials and may be exposed to liability for such unauthorized
usage. Such claims have been brought and sometimes successfully pressed, against
online services. In addition, Starbelly.com does not and cannot practically
screen all of the content generated by its users, and Starbelly.com could be
exposed to liability with respect to such content. Although Starbelly.com
carries general liability insurance, its insurance may not cover claims of these
types or may not be adequate to indemnify Starbelly.com 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 its reputation, business, operating results and
financial condition.

FUTURE GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT STARBELLY.COM'S
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 its
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.

STARBELLY.COM RELIES ON INTELLECTUAL PROPERTY RIGHTS THAT MAY NOT ADEQUATELY
PROTECT STARBELLY.COM UNDER CURRENT LAWS

To establish and protect Starbelly.com's trademarks, services marks and
other proprietary rights in its products and services, Starbelly.com relies 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. Starbelly.com
cannot assure us or 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. Starbelly.com cannot assure us or
you that its methods of protecting its proprietary rights in the United States
or abroad will be adequate. Starbelly.com also cannot assure us or you that
competing companies will not independently develop technology similar to its
proprietary technology.

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.

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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 Starbelly.com believes that its
proprietary rights do not infringe on the intellectual property rights of
others, other parties may assert infringement claims against Starbelly.com or
claims that Starbelly.com has violated a patent or infringed a copyright,
trademark or other intellectual property right belonging to such other parties.
Starbelly.com may be subject to claims of this type in the future as it develops
and introduces new products and methods of doing business in the future. Any
infringement claims, even if not meritorious, could result in Starbelly.com's
expenditure of significant financial and managerial resources, which could harm
its 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 Starbelly.com on commercially reasonable terms or that
Starbelly.com will be able to successfully integrate such third-party content.
Such content licenses may expose Starbelly.com 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 Starbelly.com's 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. Starbelly.com could incur
substantial costs in defending itself against these claim 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,
Starbelly.com may not be able to enforce the agreements it has with its
employees regarding restrictions on their ability to compete against
Starbelly.com.

RISKS RELATED TO HA-LO CAPITAL STOCK

INCREASED NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND CONVERTIBLE PREFERRED
STOCK COULD HAVE AN ANTI-TAKEOVER EFFECT

If the proposed amendments to our articles of incorporation are approved,
the resulting increase in the authorized number of shares of our common stock
and our convertible preferred stock, and the ability of the board of directors
to issue convertible preferred stock without further shareholder action, could
delay or prevent a change in control of HA-LO. Within legal limits imposed by
the Illinois Business Corporation Act and the rules of the New York Stock
Exchange, your board of directors could issue shares of authorized (but yet
unissued) common stock or convertible preferred stock in one or more
transactions that would make a change in control of HA-LO more difficult, and
therefore less likely. By potentially discouraging initiation of any such
unsolicited takeover attempt, the proposed amendments may limit the opportunity
for our shareholders to dispose of their shares at the higher price generally
available in takeover attempts or that may be available under a merger proposal.
The proposed amendments may permit HA-LO's management, the current board of
directors and the new directors filling vacancies created at the time of the
merger to retain their positions, and place them in

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a better position to resist changes that shareholders may wish to make if they
are dissatisfied with the conduct of HA-LO's business. In addition, the issuance
of these additional shares of our common stock or convertible preferred stock
could also dilute the earnings per share and book value per share of outstanding
shares of our common stock or convertible preferred stock. These additional
shares could be used to dilute the stock ownership or voting rights of a person
seeking to obtain control of HA-LO. However, your board of directors is not
aware of any attempt to take control of HA-LO and the board has not presented
these proposals with the intent that they be used as a type of anti-takeover
device.

RISKS RELATING TO THE HA-LO CONVERTIBLE PREFERRED STOCK

At any time during the 30-day period commencing on the first anniversary of
the effective date of the merger, the holders of the convertible preferred stock
issued in the merger and upon exercise of the assumed options will have the
right to require the Company 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, HA-LO
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. 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 HA-LO.

If the Company defaults on its obligation to redeem any shares of
convertible preferred stock, for so long as the Company is in default, the
shares of convertible preferred stock that the Company 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 the Company 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 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.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this proxy statement 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 "Questions and Answers About the Merger," "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," "The
Merger--Background of the Merger," "--Recommendation of the HA-LO Board and
Reasons for the Merger," "--Opinion of Financial Adviser to HA-LO,"
"--Management and Operations After the Merger," "Unaudited Pro Forma Combined
Condensed Financial Information," and other statements in this proxy statement
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 its
markets;

2. the anticipated levels and sources of merger benefits resulting from
the merger and estimated timing of achieving those benefits;

3. the ability to convince customers to use Starbelly.com's services and
systems;

4. the anticipated manner in which identified merger benefits will be
achieved;

5. the estimated amount of costs and capital expenditures necessary to
achieve the merger benefits;

6. the estimated future costs, operating losses and capital expenditures
associated with Starbelly.com's business;

7. the ability of the combined entity to further diversify through
acquisitions or development of new business and the marketing and
delivery of new products and services;

8. the ability to attract and retain qualified employees; and

9. 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 HA-LO's 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 HA-LO's
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;

3. changes in technology;

4. changes in political, social and economic conditions;

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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. regulatory delays or conditions imposed by regulatory bodies in
approving the merger;

8. adverse regulatory treatment;

9. the ability of HA-LO and Starbelly.com to implement and realize
anticipated cost savings and revenue enhancements from the merger;

10. the actual costs required to effect the merger and to realize
anticipated cost savings and revenue enhancements;

11. the actual duration of Starbelly.com's continuing operating losses;

12. the loss of any significant customers;

13. changes in business strategy or development plans;

14. actual future costs of operating expenses;

15. actual costs of continuing investments in technology;

16. the availability of capital to finance possible acquisitions and to
refinance debt;

17. the ability of management to implement the strategy of acquisitions and
process improvements;

18. changes in the capital markets affecting the ability to finance capital
requirements; and

19. 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. HA-LO does 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.

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THE SPECIAL MEETING, VOTING AND PROXIES

This document is being furnished to HA-LO's shareholders in connection with
the solicitation of proxies by the board of directors for use at the HA-LO
special meeting.

PURPOSE; TIME AND PLACE

The HA-LO special meeting is scheduled to be held at 10:00 a.m., Chicago
time, on Friday, April 28, 2000, at Harris Bank, Room , 111 W. Monroe Street,
Chicago, Illinois. The purpose of the special meeting is:

(1) To consider and vote upon a proposal to approve the merger of
Starbelly.com with a wholly owned subsidiary of HA-LO. A vote in favor of
the merger also constitutes a vote in favor of: (a) the issuance of
17 million shares of common stock pursuant to the merger agreement;
(b) the amendment of the Company's articles of incorporation to permit
the issuance of 5.1 million shares of convertible preferred stock in the
merger and upon exercise of the assumed options; (c) the reservation of
5.1 million shares of common stock for issuance upon conversion of the
convertible preferred stock; and (d) the adoption of a new stock option
plan under which HA-LO will assume Starbelly.com's stock option plan and
the options outstanding under that plan.

(2) To consider and vote upon a proposal to amend Article Four of the
Company's articles of incorporation to increase the number of shares of
common stock that HA-LO is authorized to issue from 100 million to
250 million and to increase the number of shares of preferred stock that
HA-LO is authorized to issue from 10 million to 20 million;

(3) To consider and vote upon a proposal to amend Article Four of the
Company's articles of incorporation to authorize the board of directors
to provide for the issuance of preferred stock without the further
approval of the holders of our common stock;

(4) To consider and vote upon a proposal to postpone or adjourn the special
meeting, if proposed by your board of directors; and

(5) To transact such other business as may properly come before the special
meeting or any postponement or adjournment thereof.

YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND DETERMINED THAT
THE TRANSACTIONS CONTEMPLATED BY IT ARE FAIR TO AND IN THE BEST INTERESTS OF
HA-LO AND THE HA-LO SHAREHOLDERS. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE MERGER AND FOR THE OTHER PROPOSALS.

RECORD DATE; VOTING RIGHTS

Holders of record of shares of HA-LO common stock at the close of business
on March 27, 2000, the record date, will be entitled to notice of and to vote at
the special meeting. As of the record date, 48,954,836 shares of HA-LO common
stock were issued and outstanding and entitled to vote. Each outstanding share
of HA-LO common stock is entitled to one vote upon each matter presented at the
special meeting.

QUORUM

The holders of a majority of the issued and outstanding shares of HA-LO
common stock must be present in person or represented by proxy at the HA-LO
special meeting for a quorum to be present. Abstentions and broker non-votes
(I.E., proxies from brokers or nominees indicating that those persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to

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a matter with respect to which brokers or nominees do not have discretionary
power to vote) will be considered present for the purpose of establishing a
quorum.

REQUIRED VOTE

Approval of the proposed merger requires the affirmative vote of a majority
of the outstanding shares of common stock. Broker non-votes and abstentions will
count as votes cast AGAINST this proposal.

Approval of the proposals to amend our articles of incorporation to increase
the number of shares of our common stock that HA-LO is authorized to issue from
100 million to 250 million and to increase the number of shares of our preferred
stock that HA-LO is authorized to issue from 10 million to 20 million, and to
permit the board of directors to authorize the future issuance of preferred
stock without the further approval of the holders of our common stock requires
the affirmative vote of a majority of the outstanding shares of common stock.
Broker non-votes and abstentions will count as votes cast AGAINST these
proposals.

PROXIES

You may vote either in person or by properly executed proxy. By completing
and returning the form of proxy, you authorize the persons named therein to vote
all your HA-LO shares on your behalf. Each properly completed and returned proxy
will be voted in accordance with the instructions indicated on that proxy. If no
instructions are given, properly executed proxies will be voted:

- FOR approval of the merger (and the related transactions described in this
proxy statement);

- FOR approval of the amendment to our articles of incorporation to increase
the number of authorized shares of our common stock and our convertible
preferred stock; and

- FOR approval of the amendment to our articles of incorporation to
authorize the board of directors to provide for the future issuance of
convertible preferred stock without the further approval of the holders of
our common stock.

Your board of directors does not know of any matters to be presented at the
special meeting other than those described in this proxy statement. If other
matters are properly brought before the meeting, the persons named as proxies
intend to use their judgment in voting on those matters.

You may revoke a previously granted proxy at any time before it is voted at
the special meeting. If you wish to revoke your proxy, you must do one of the
following:

- deliver to the Secretary of HA-LO written instructions to revoke your
proxy; or

- deliver to the Secretary of HA-LO another duly executed and subsequently
dated proxy; or

- attend the meeting and vote in person.

Attending the special meeting will not, by itself, revoke a previously
granted proxy. Harris Bank, HA-LO's stock transfer agent, will receive and
tabulate proxies and ballots.

PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH YOUR PROXY CARDS.

COST OF SOLICITATION

HA-LO will pay all expenses for soliciting proxies for the special meeting.
Our officers and employees, who will receive no compensation above their regular
salaries for their services, may solicit proxies from our shareholders in person
or by mail, telephone, telecopy or telegram. We have asked banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward

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solicitation materials to the beneficial owners of our common stock held of
record by those holders, and, upon request, we will reimburse them for their
reasonable forwarding expenses.

POSTPONEMENT OR ADJOURNMENT

The special meeting may be postponed or adjourned to another date and/or
place for any proper purpose (including, without limitation, for the purpose of
soliciting additional proxies). We are asking for your vote to approve a
postponement or an adjournment if proposed by your board of directors.

DISSENTERS' RIGHTS

The rights of HA-LO shareholders who dissent in connection with the merger
are governed by specific legal provisions contained in sections 11.65 and 11.70
of the IBCA. Although we describe in the paragraphs below the dissenters' rights
available under Illinois law, we encourage you to read sections 11.65 and 11.70
of the IBCA, a copy of which we have attached to this proxy statement as
Exhibit C.

If the merger is completed, HA-LO shareholders who have fully complied with
the relevant provisions of the IBCA may have the right to require us to purchase
their shares of HA-LO common stock for cash at the fair value of such shares,
plus any accrued interest, as of the merger closing. Beneficial owners of shares
of HA-LO common stock whose shares are held by another person, such as a
trustee, broker or nominee, should instruct the record holder to follow the
procedures outlined below if such persons wish to dissent with respect to any or
all of their shares. Under the IBCA, no shareholder who is entitled to exercise
dissenters' rights has any right to challenge the validity of the merger or to
have the merger set aside or rescinded, except in an action to determine whether
the merger is fraudulent against the shareholder or HA-LO or constitutes a
breach of a fiduciary duty owed to the shareholder.

We must purchase shares of HA-LO common stock upon demand from a dissenting
shareholder if such shareholder has complied with the relevant IBCA
requirements. The procedures to be followed include the following requirements:

- The shareholder of record MUST NOT vote all of his shares to approve the
merger. The shareholder MAY vote part of his shares in favor of the
merger. In such a case, the shareholder will retain the right to have us
purchase those shares that were not voted in favor of the merger.

- A beneficial owner of shares who is not the record owner may assert
dissenters' rights as to shares held on such person's behalf only if the
beneficial owner submits to us the record owner's written consent to the
dissent before or at the same time the beneficial owner asserts
dissenters' rights.

- The notice of meeting to the shareholders of HA-LO relating to the
proposal to approve the merger must inform the shareholders of their right
to dissent and the procedure to dissent. If, before the special meeting,
we give our shareholders material information about the merger that will
objectively enable our shareholders to vote on the merger and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder does not vote in favor of the
approval of the merger and the shareholder delivers to us, before the vote
is taken at the special meeting, a written demand for purchase of his
shares if the merger is completed.

Within ten days after the merger is completed or 30 days after the
shareholder delivers to us written demand for payment, whichever is later, we
will send each shareholder who has delivered a written demand for payment the
following items:

- a statement setting forth our opinion as to the estimated fair value of
the shares;

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- our latest balance sheet as of the end of a fiscal year ending not earlier
than 16 months before the delivery of the statement, together with the
statement of income for that year and the latest available interim
financial statements; and

- either (1) a commitment to pay for the shares of the dissenting
shareholder at their estimated fair value upon the delivery to us of the
share certificate or certificates (or other evidence of ownership with
respect to the shares), or (2) instructions to the dissenting shareholder
to sell his or her shares within ten days after delivery of our statement
to the shareholder.

Under the IBCA, we are permitted to instruct the shareholder to sell his or
her shares (rather than pay for them directly) because our shares trade on the
New York Stock Exchange, a public market where the shares may be readily sold.
If the shareholder does not sell within that ten-day period after we give the
instruction to sell, the shareholder is considered to have sold his or her
shares at the average New York Stock Exchange closing price of our shares of
common stock during that ten-day period.

A HA-LO shareholder who properly demands for payment retains his or her
rights as a HA-LO shareholder until the merger closes. If we have not properly
instructed the dissenting shareholder to sell his or her shares, when the merger
closes we must pay to each dissenter who delivers his or her share certificates
(or other evidence of share ownership) the amount we estimate to be the fair
value of the shares, plus accrued interest, and a written explanation of how we
calculated the interest. The term "fair value" means the value of the shares
immediately before the merger closing excluding any appreciation or depreciation
in anticipation of the merger, unless such exclusion would be inequitable. The
term "interest" means interest from the date of the merger closing until the
date of payment, at the average rate we pay on our principal bank loans or, if
we have no loans, at a rate that is fair and equitable under all the
circumstances.

If the dissenting shareholder does not agree with our estimated fair value
of the shares or the amount of interest due, the shareholder, within 30 days
from the delivery of our statement of fair value, must notify us in writing of
the shareholder's estimated fair value and amount of interest due and demand
payment for the difference between the shareholder's estimate of fair value and
interest due and the amount we paid for the shares (if we elected to pay for the
shares) or the sale proceeds from the shareholder's sale of the shares (if we
instructed the shareholder to sell the shares).

If, within 60 days after our delivery of our estimate of fair value of the
shares and interest due, we and the dissenting shareholder have not agreed in
writing upon the fair value of the shares and interest due, we must either pay
the difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county where either our registered office
or our principal office is located, requesting the court to determine the fair
value of the shares and interest due. This court has full and exclusive
jurisdiction to determine the fair value of the shares. We will make all
dissenters, whether or not residents of Illinois, whose demands remain
unsettled, parties to the proceeding as an action against their shares and all
parties will be served with a copy of the petition. We may serve non-residents
with notice of the proceeding by registered or certified mail or by publication
as provided by law. Our failure to commence an action will not, by itself, limit
or affect the right of the dissenting shareholders to commence an action.

The court may appoint one or more persons as appraisers to receive evidence
and recommend a fair value amount. The appraisers have the power described in
the order appointing them, or in any amendment to it. Each dissenter who is a
party to the proceeding is entitled to judgment for the amount, if any, by which
the court finds that the fair value of his shares, plus interest, exceeds the
amount we paid or the proceeds of sale by the shareholder, whichever amount
applies.

The court will calculate the proceeding's costs, including the reasonable
compensation and expenses of any appraisers the court has appointed. Generally,
the court will not include the fees and expenses of attorneys and experts for
the parties in this calculation. If the court determines the fair value of the
shares to be significantly greater than the value we estimated to be the fair
value, then we

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may be required to pay some or all of these calculated costs. Similarly, if the
court determines the fair value of the shares to be significantly greater than
the value a dissenter estimated to be the fair value, then that dissenter may be
required to pay some or all of these costs. However, the court may also charge
the fees and expenses of attorneys and experts for the parties to the proceeding
in amounts the court finds equitable:

- against us (and in favor of any or all dissenters) if the court finds that
we did not substantially comply with the requirements of the IBCA, or

- against either us or a dissenter (and in favor of any other party) if the
court finds that the charged party acted arbitrarily, vexatiously, or not
in good faith with respect to the rights the IBCA provides.

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THE MERGER

GENERAL

The Agreement and Plan of Merger and Plan of Reorganization, dated as of
January 17, 2000, by and among HA-LO, Starbelly.com and HA-LO Industries, Inc.,
a Delaware corporation (our "merger subsidiary"), is the legal document that
governs the merger transactions described in this proxy statement. The merger
agreement provides for the merger of Starbelly.com with and into our merger
subsidiary, as a result of which our merger subsidiary will survive the merger
under the new name "Starbelly.com, Inc.," and Starbelly.com will cease its
separate existence. For a description of the merger agreement, see "The Merger
Agreement" (page 61).

If we complete the merger, Starbelly.com stockholders will receive
approximately $240 million, which amount we will pay as follows:

(1) paying $19 million in cash (less Starbelly.com's merger expenses in
excess of $500,000);

(2) paying the balance by issuing:

(a) 17 million shares of HA-LO common stock valued in the merger
agreement at $170 million; and

(b) 5.1 million shares of HA-LO preferred convertible stock valued in the
merger agreement at $51 million.

The consideration we will pay to complete the merger includes the HA-LO common
stock and HA-LO preferred stock we will issue upon exercise of Starbelly.com's
outstanding stock options, which will be assumed by HALO and will entitle the
holder to receive upon exercise the same number of shares of HA-LO common stock
and HA-LO convertible preferred stock as such holder would have received in the
merger if the option had been exercised immediately prior to the merger.

The formula establishing the number of shares of HA-LO common stock valued
in the merger agreement at $170 million and the number of shares of HA-LO
convertible preferred stock valued in the merger agreement at $51 million was
based on the lower of $10.00 or the average closing price of HA-LO common stock
on the New York Stock Exchange for each trading day over a 25-day period
consisting of the trading days during the 15 calendar days prior to the
execution of the merger agreement and the trading days during the 10 calendar
days following execution of the merger agreement. Since the average closing
price during the measurement period was $10.05, the number of shares of our
common stock (17 million) and of our convertible preferred stock (5.1 million)
issuable in the merger was based on a $10.00 per share price.

You will continue to own your shares after the merger. Immediately after the
merger, pre-merger shareholders of HA-LO will own approximately 69% of the
outstanding common stock, and the former stockholders of Starbelly.com will own
approximately 31% of the outstanding common stock (assuming all of the
convertible preferred shares are converted into common stock and all assumed
options are exercised and all convertible preferred shares issued upon exercise
are converted into common stock).

BACKGROUND OF THE MERGER

During HA-LO's first 25 years of business, from 1972 until 1997, HA-LO's
sole line of business was the traditional sale and distribution of promotional
and related products. In 1997, HA-LO acquired Market USA, a leading
telemarketing company; in 1998, HA-LO acquired a branding identity company
(LAGA) and two well-known companies in the brand marketing and promotion
business (UPSHOT and Siebel Marketing Group). These acquisitions were made as
part of HA-LO's mission to transform itself into a brand marketing organization
and to become more competitive in the new economy.

As HA-LO's product and services mix was changing, and technological and
on-line innovations began to change all businesses, HA-LO management realized
the need to develop an Internet strategy

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to reflect changing economic times. In 1999, the Company formed Upshot Direct, a
company formed to satisfy increasing client demand for complete direct marketing
and database solutions in both online and offline environments. Company
management also began an analysis of ways in which the Company's traditional
promotional products business could be made more efficient and effective by
employing the Internet and other technological advances, whether through
acquisition or internal development.

In August 1999, Linden Nelson, vice chairman of the board of HA-LO,
contacted Bradley Keywell, the co-founder and chief executive officer of
Starbelly.com, to schedule a meeting to discuss the online and offline
promotional products business. Mr. Nelson and Mr. Keywell had been acquainted
professionally and personally for several years.

Mr. Nelson visited the offices of Starbelly.com to meet with Mr. Keywell, at
which time the only substance of the meeting was for Mr. Nelson to learn about
the business of Starbelly.com and see its office and operations. Neither a
transaction nor a business combination between the two companies was discussed
at that meeting.

Shortly thereafter, Mr. Nelson, as well as Jon Sloan, HA-LO's Vice President
of National Accounts, and Tom Hunt, HA-LO's Vice President of Operations, met
with Mr. Keywell, Eric Lefkofsky, the co-founder and president of Starbelly.com,
and other Starbelly.com representatives to begin initial exploration of possible
business relationships.

During the next several weeks, HA-LO and Starbelly.com exchanged certain
information and ideas concerning the others' operations and business strategies.

On October 14, 1999, Mr. Nelson and John Kelley, then the president of
HA-LO's subsidiary, UPSHOT, and other representatives of HA-LO met with
Mr. Keywell and Mr. Lefkofsky, Richard Heise, a director and a representative of
certain principal stockholders of Starbelly.com, and other representatives of
Starbelly.com, to identify potential strategic advantages of combining the
companies. During the meeting, the parties discussed the potential business
synergies and efficiencies that could be realized from the combination. The
parties considered several of these strategic advantages and business synergies
in a combination of the companies to be particularly complimentary, including:

- the fusing of HA-LO's well-established customer base with Starbelly.com's
integrated front-end customer interface and back-end fulfillment
technology;

- HA-LO's well established sales force and Starbelly.com's growing need for
a substantial sales-force;

- HA-LO's desire to decrease reliance upon, and significant expenditures
for, promotional product catalogs and Starbelly.com's ability to market
its products from a relatively low-cost online catalog; and

- HA-LO's experience in international markets and Starbelly.com's desire to
market its products abroad.

Following this meeting, a series of additional meetings were held between
mid-October and early December, 1999 at which representatives of HA-LO and
Starbelly.com further explored the potential benefits of a business combination.
During this period, senior management of HA-LO and members of HA-LO's board of
directors visited Starbelly.com's headquarters to familiarize themselves with
the company's operations and resources.

On December 1, 1999, Mr. Kelley, now president and chief executive officer
of HA-LO, and Lou Weisbach, chairman of the board of HA-LO, interviewed several
investment banking firms after which they selected Credit Suisse First Boston
Corporation to serve as HA-LO's financial advisor in connection with the merger.

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On December 6, 1999, the parties executed a Confidentiality Agreement, dated
as of November 24, 1999, in which each party agreed to maintain the
confidentiality of non-public information furnished by the other.

Throughout this period and through the execution of the merger agreement,
Starbelly.com was not precluded from and continued to pursue additional
financing opportunities, which, if funded, would have made the consummation of
the merger less likely. Starbelly.com also commenced financial analyses relating
to a possible initial public offering. HA-LO also continued its analysis of
pursuing an Internet strategy through internal development or alternative
acquisitions. Starbelly.com and HA-LO did not enter into any exclusivity or
other similar agreements during the pendency of their discussions. In pursuing
alternative acquisitions, HA-LO's management identified those companies which
were developing or had developed an Internet-based solution for the customizable
merchandise market. HA-LO's management, having found that few such companies
existed, made preliminary assessments as to the status and sophistication of the
technology and personnel of these companies. HA-LO management obtained
publicly-available information (including information posted on the Internet
websites of these companies) and information from secondary sources (including
confidential discussions with HA-LO clients familiar with the identified
companies). From these preliminary assessments, management concluded that, when
compared with Starbelly.com, these companies lacked a sufficiently developed
level of technology, management and workforce. Accordingly, your board of
directors did not authorize management to contact any of these companies to
explore possible acquisition opportunities.

During the week of December 5, 1999, representatives of the companies met
and began the process of the preparation of a term sheet regarding a possible
acquisition of Starbelly.com by HA-LO. Between December 6 and December 18, the
principals of the parties held extensive discussions and merger negotiations
continued. A non-binding term sheet was executed on December 18, 1999 and the
initial draft of the merger agreement was circulated on December 29, 1999.

Between December 6, 1999 and January 15, 2000, representatives of HA-LO and
of Starbelly.com performed detailed management due diligence of the other. In
connection with its review, HA-LO retained Ernst & Young to conduct a due
diligence investigation of Starbelly.com's technology capacity and capabilities.

As part of the due diligence investigations conducted by the parties during
this period, Starbelly.com provided to HA-LO extensive information concerning
its business, properties, contracts, customers, litigation, accounting and tax
matters, intellectual property and technology, employees and employee benefit
plans, financial condition, results of operations and prospects. HA-LO provided
to Starbelly.com agreements with respect to prior aquisitions by HA-LO,
documents with respect to liability insurance, leases, employment agreements and
consulting agreements. The information provided by HA-LO included confidential
financial projections which had been prepared by its senior management for
internal use only and not with a view toward public disclosure. The information
provided by Starbelly.com included confidential financial projections which had
been prepared by its management for use in pursuing additional financing
opportunities. HA-LO's and Starbelly.com's projections are based on many
assumptions made by each company's management about future events, many of which
are beyond the control of HA-LO and Starbelly.com. Further, these projections
have not been updated since they were delivered in connection with the parties'
due diligence investigations. There can be no assurance that the results
reflected in these projections will be achieved, and actual results may be
materially different from these projections. See "Cautionary Statement
Concerning Forward-Looking Statements."

The HA-LO projections prepared by HA-LO senior management (which do not give
effect to the proposed merger with Starbelly.com) consisted of summary income
statements for 2000, 2001 and 2002, including earnings per share, and revenue,
cash flow, growth rate and margin statistics for 2000 through 2004. The
projected revenues provided by HA-LO were $758.4 million, $821.0 million and

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$891.4 million for 2000, 2001 and 2002, respectively. Pre-tax income was
projected at $19.6 million, $31.2 million and $44.8 million, respectively, for
those periods.

The Starbelly.com projections prepared by Starbelly.com senior management
(which do not give effect to the proposed merger with HA-LO) consisted of
selected income statement data for 2000 and 2001 and balance sheet and cash flow
data for 2000, 2001 and 2002. The projected revenues provided by Starbelly.com
were $15.7 million for 2000 and $70.8 million for 2001. Net losses were
projected at $32.3 million and $34.9 million, respectively, for those periods.

During the last week of December 1999, Michael Linderman, president of
HA-LO's promotional products division, met with Mr. Lefkofsky to discuss sales
and operational matters, and representatives of both parties continued to focus
on issues relating to the integration of HA-LO and Starbelly.com.

On January 6, 2000, a working group meeting attended by representatives of
HA-LO and Starbelly.com was held to discuss various aspects of the proposed
merger, including the terms of the merger agreement and related documents and
strategic and operational issues. HA-LO's legal counsel, Neal, Gerber &
Eisenberg, and its financial advisor, as well as Starbelly.com's legal counsel,
Altheimer & Gray, and its financial advisor, Hambrecht & Quist, LLC, also
attended the meeting.

Negotiations between HA-LO and Starbelly.com continued throughout the next
week. On January 16, 2000 the HA-LO board held a special meeting to evaluate the
merger. At the meeting, members of senior management of HA-LO presented a
comprehensive analysis of the proposed transaction, including an overview of
Starbelly.com and its operations, financial condition and competitive position,
the reasons for and disadvantages of the merger and strategic alternatives to
the proposed combination. Neal, Gerber & Eisenberg reviewed the terms of the
merger agreement. Credit Suisse First Boston made a financial presentation,
which is more fully described below under "The Merger--Opinion of Financial
Advisor of HA-LO" (page 39). During this meeting, Credit Suisse First Boston
advised the board that, subject to its review and satisfaction with the terms of
the final merger agreement and related documents, it was prepared to render its
opinion as to the fairness, from a financial point of view, to HA-LO of the
aggregate merger consideration of $240,000,000. After the meeting concluded,
representatives of HA-LO and Starbelly.com and their respective legal counsel
negotiated final terms and completed the merger agreement and the related
documents.

On January 17, 2000, the HA-LO board held a special telephonic meeting,
reviewed the merger agreement and approved the merger. At the meeting, Neal,
Gerber & Eisenberg summarized material changes to the agreements which had been
agreed to since the previous day's board meeting, and Credit Suisse First Boston
rendered its oral opinion which opinion was confirmed by delivery of a written
opinion dated January 17, 2000, to the effect that, as of the date of the
opinion and based upon and subject to the matters described in the opinion, the
aggregate merger consideration of $240,000,000 was fair, from a financial point
of view, to HA-LO. Officers of HA-LO and Starbelly.com executed the merger
agreement later that day, and, prior to the commencement of trading on
January 18, 2000, HA-LO issued a press release announcing the execution of the
merger agreement.

RECOMMENDATION OF THE HA-LO BOARD AND REASONS FOR THE MERGER

THE HA-LO BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTEREST OF, HA-LO AND THE HA-LO SHAREHOLDERS. ACCORDINGLY, THE HA-LO BOARD
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE MERGER.

The HA-LO board of directors has identified benefits it expects to result
from the merger. The board of directors believes that the merger will include
the following benefits for HA-LO:

- position HA-LO to capitalize on expanding e-commerce markets, especially
Internet- or intranet-based business-to-business markets;

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- enhance HA-LO's customer service through centralization of most customer
service functions using West Telemarketing and Synchrony customer service
software currently used by Starbelly.com to automate order placement,
tracking, invoicing and sourcing;

- rapidly expand, through electronic linkage, HA-LO's offering of
customizable blank products and pre-designed decorations;

- increase HA-LO's productivity through the centralization of order
placement, product catalogs, automatic tracking and invoicing, thus
freeing salespeople from performing routine duties and permitting them to
focus more on customer sales and development;

- build HA-LO's brand recognition in e-commerce markets while enhancing our
reputation as an agent of change and a business leader;

- build HA-LO's promotional products customer base while encouraging repeat
business from existing customers;

- reduce HA-LO's costs to market and fulfill orders for custom-decorated
promotional products;

- infuse HA-LO's organization with new talent and cultural change; and

- increase HA-LO's pricing and marketing flexibility for custom-decorated
promotional products.

We expect to incur non-recurring merger-related costs estimated at
$4.0 million to $4.5 million. The estimate includes direct transaction costs
consisting of legal, financial advisory, accounting, consulting, printing,
mailing, proxy and shareholder meeting fees and expenses. We anticipate
unquantified operational and administrative cost savings following the merger
closing; however, your board of directors views potential revenue growth (on the
basis of the financial projections more particularly described above in
"--Background of the Merger") to be of far greater importance than anticipated
cost savings in its determination to recommend the merger proposal.

When making its determination, the HA-LO board considered, among other
things, the following factors:

- the business, operations, prospects and strategic alliances of each of
HA-LO and Starbelly.com;

- the judgment, advice and analyses of our management with respect to the
strategic, financial and potential operational benefits of the merger,
based in part on the business, financial and legal due diligence
investigations performed on Starbelly.com;

- management's belief that the medium- and long-term trend in the
promotional products distribution industry involves increasing reliance on
Internet- and intranet-based solutions like those in development or
already developed by Starbelly.com;

- unquantified cross-selling opportunities and operating efficiencies that
may result from the merger;

- the advice of counsel that the merger should be tax-free to HA-LO for U.S.
federal income tax purposes;

- the number of shares of our common stock to be issued to the Starbelly.com
stockholders in the merger and upon conversion of the convertible
preferred stock and exercise of the assumed Starbelly.com options;

- the number of shares of convertible preferred stock to be issued in the
merger and upon exercise of the assumed options and the terms of those
shares;

- the terms of the merger agreement; and

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- the opinion of Credit Suisse First Boston to the effect that, as of the
date of the opinion and based upon and subject to the matters described in
the opinion, the aggregate merger consideration of $240,000,000 was fair,
from a financial point of view, to HA-LO. A copy of the Credit Suisse
First Boston opinion is attached as Exhibit B to this proxy statement and
is described below under "The Merger--Opinion of Financial Advisor to
HA-LO" (page 40).

In addition to the factors described above, the board of directors of HA-LO
also considered the following negative factors relating to the merger:

- the challenges inherent in combining our operations with those of
Starbelly.com, including the radical departure from our existing business
model and managing potential clashes in the business cultures of our
companies;

- the status of Starbelly.com's technology, some of which is still in the
developmental stage, and therefore may not function as expected;

- the potential departure of sales force personnel;

- the potential of our competitors aggressively recruiting our employees;

- our need to borrow approximately $23.0 million to pay the merger
consideration and merger expenses, provide working capital of
approximately $29.0 million to fund the operations and capital
expenditures of Starbelly.com for the next twelve months and pay the
redemption price of $51.0 million if the holders of the convertible
preferred stock exercise their redemption rights in the thirteenth month
following the closing. The board considered the impact of the additional
interest expense on future profitability, the ability of HA-LO to secure
financing in an amount sufficient to provide the funds needed for these
items and the likelihood of the redemption rights being exercised.

- the substantial debt service obligations relating to the additional
indebtedness we will incur; and

- the dilution of our shareholders' voting interest.

The foregoing discussion of the information and factors considered by your
board of directors is not intended to be exhaustive but includes all important
factors considered by the board. In reaching its determination to approve and
recommend the merger, your board did not assign any relative or specific weights
to the foregoing factors, and individual directors may have given differing
weights to different factors. Your board of directors is unanimous in its
recommendation that HA-LO shareholders vote for the merger.

OPINION OF FINANCIAL ADVISOR TO HA-LO

GENERAL

Credit Suisse First Boston has acted as HA-LO's financial advisor in
connection with the merger. HA-LO selected Credit Suisse First Boston based on
Credit Suisse First Boston's experience, expertise and reputation, and
familiarity with HA-LO's business. Credit Suisse First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.

In connection with Credit Suisse First Boston's engagement, HA-LO requested
that Credit Suisse First Boston evaluate the fairness, from a financial point of
view, to HA-LO of the aggregate merger consideration of $240,000,000. On
January 17, 2000, at a meeting of the HA-LO board of directors held to evaluate
the merger, Credit Suisse First Boston rendered to the HA-LO board of directors
an oral opinion, which opinion was confirmed by delivery of a written opinion
dated January 17, 2000, to the

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effect that, as of the date of the opinion and based upon and subject to the
matters described in the opinion, the aggregate merger consideration of
$240,000,000 was fair, from a financial point of view, to HA-LO.

The full text of Credit Suisse First Boston's written opinion dated
January 17, 2000 to the HA-LO board of directors, which sets forth the
procedures followed, assumptions made, matters considered and limitations on the
review undertaken, is attached as Exhibit B and is incorporated into this
document by reference. Holders of HA-LO common stock are urged to, and should,
read this opinion carefully and in its entirety. Credit Suisse First Boston's
opinion is addressed to the HA-LO board of directors and relates only to the
fairness of the merger consideration from a financial point of view, does not
address any other aspect of the proposed merger or any related transaction, does
not address the fairness of the merger consideration to the holders of HA-LO
common stock and does not constitute a recommendation to any shareholder as to
any matter relating to the merger. The summary of Credit Suisse First Boston's
opinion in this document is qualified in its entirety by reference to the full
text of the opinion.

In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement and related documents, including shareholder agreements entered into
between HA-LO and certain stockholders of Starbelly.com, as well as publicly
available business and financial information relating to HA-LO and available
business and financial information relating to Starbelly.com. Credit Suisse
First Boston also reviewed other information relating to HA-LO and
Starbelly.com, including financial forecasts, provided to or discussed with
Credit Suisse First Boston by HA-LO and Starbelly.com, and met with the
managements of HA-LO and Starbelly.com to discuss the businesses and prospects
of HA-LO and Starbelly.com.

Credit Suisse First Boston also considered financial and stock market data
of HA-LO and financial information of Starbelly.com and compared those data with
similar data for other publicly held companies in businesses it deemed similar
to those of HA-LO and Starbelly.com and considered, to the extent publicly
available, the financial terms of other business combinations and other
transactions which have recently been effected. Credit Suisse First Boston also
considered other information, financial studies, analyses and investigations and
financial, economic and market criteria that it deemed relevant.

In connection with its review, Credit Suisse First Boston did not assume any
responsibility for independent verification of any of the information that was
provided to or otherwise reviewed by it and relied on that information being
complete and accurate in all material respects. With respect to financial
forecasts, Credit Suisse First Boston was advised, and assumed, that the
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of HA-LO and Starbelly.com
as to the future financial performance of HA-LO and Starbelly.com. In addition,
Credit Suisse First Boston relied upon the assessments of the management of
HA-LO and its advisors as to:

- the potential synergies and other strategic benefits (including the
amount, timing and achievability thereof) anticipated to result from the
merger;

- Starbelly.com's existing technology and products and the validity of, and
risks associated with, Starbelly.com's future products and technology;

- the ability of HA-LO to retain key employees of Starbelly.com; and

- the ability of HA-LO to fund the cash portion of the merger consideration
and the cash needs of HA-LO on an ongoing basis following the merger.

Credit Suisse First Boston assumed, with the consent of the board of
directors of HA-LO, that the merger will be treated as a tax-free reorganization
for federal income tax purposes and that all

41
<PAGE>
outstanding Starbelly.com warrants would be exercised for and converted into
shares of Starbelly.com common stock prior to the effective time of the proposed
merger or that Starbelly.com would receive from holders of Starbelly.com
warrants consents to the conversion of Starbelly.com warrants into their
allocated portion of the merger consideration as more fully described in the
merger agreement. In addition, Credit Suisse First Boston assumed that the
stockholders' agreements entered into between HA-LO and certain stockholders of
Starbelly.com in connection with the merger agreement will be in full force and
effect at the time of the consummation of the merger.

Credit Suisse First Boston was not requested to make, and did not make, an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of HA-LO or Starbelly.com, and was not furnished with any evaluations
or appraisals. Credit Suisse First Boston's opinion was necessarily based on
information available to, and financial, economic, market and other conditions
as they existed and could be evaluated by, Credit Suisse First Boston on the
date of its opinion. Credit Suisse First Boston did not express any opinion as
to the actual value of the HA-LO common stock when issued in the merger or the
prices at which the HA-LO common stock will trade after the merger. No other
limitations were imposed on Credit Suisse First Boston with respect to the
investigations made or procedures followed in rendering its opinion.

In preparing its opinion to the HA-LO board of directors, Credit Suisse
First Boston performed a variety of financial and comparative analyses,
including those described below. The summary of Credit Suisse First Boston's
analyses described below is not a complete description of the analyses
underlying Credit Suisse First Boston's opinion. The preparation of a fairness
opinion is a complex analytical process involving various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Credit Suisse First Boston made
qualitative judgments as to the significance and relevance of each analysis and
factor that it considered. Accordingly, Credit Suisse First Boston believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in tabular format,
without considering all analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.

In its analyses, Credit Suisse First Boston considered industry performance,
regulatory, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of HA-LO and Starbelly.com.
No company, transaction or business used in Credit Suisse First Boston's
analyses as a comparison is identical to HA-LO or Starbelly.com or the proposed
merger, and an evaluation of the results of those analyses is not entirely
mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed. The estimates contained in
Credit Suisse First Boston's analyses and the ranges of valuations resulting
from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by the analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, Credit Suisse First Boston's analyses and estimates are inherently
subject to substantial uncertainty.

Credit Suisse First Boston's opinion and financial analyses were only one of
many factors considered by the HA-LO board of directors in its evaluation of the
proposed merger and should not be viewed as determinative of the views of the
HA-LO board of directors or management with respect to the merger or the merger
consideration.

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<PAGE>
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston in connection with the preparation of its opinion and
reviewed with the HA-LO board of directors at a meeting of the board of
directors held on January 16, 2000. The financial analyses summarized below
include information presented in tabular format. In order to fully understand
Credit Suisse First Boston's financial analyses, the tables must be read
together with the text of each summary. The tables alone do not constitute a
complete description of the financial analyses. Considering the data set forth
in the tables below without considering the full narrative description of the
financial analyses, including the methodologies and assumptions underlying the
analyses, could create a misleading or incomplete view of Credit Suisse First
Boston's financial analyses.

STARBELLY.COM

IPO ANALYSIS. Credit Suisse First Boston estimated the present value of
Starbelly.com's fully-distributed equity value assuming an initial public
offering of Starbelly.com on September 30, 2000. Starbelly.com's
fully-distributed equity value was estimated by applying a range of revenue
multiples derived from the following selected publicly traded companies in the
e-commerce enabler and the e-commerce retailer industries, which Credit Suisse
First Boston deemed to be relevant, to projected 2001 revenues for
Starbelly.com:

<TABLE>
<CAPTION>
E-COMMERCE ENABLERS E-COMMERCE RETAILERS
- ------------------------------------- -------------------------------------
<S> <C>
- - Ariba, Inc. - Amazon.com, Inc.
- - Commerce One, Inc. - ebay Inc.
- - BroadVision, Inc. - priceline.com Inc.
- - Liberate Technologies - etoys Inc.
- - VerticalNet, Inc. - Homestore.com, Inc.
- - CheckFree Holdings Corp. - MP3.com Inc.
- - Quest Software, Inc. - Ticketmaster Online-CitySearch,
- - USINTERNETWORKING, INC. Inc.
- - Sterling Commerce, Inc. - drugstore.com Inc.
- - Silknet Software, Inc. - Tickets.com, Inc.
- - Allaire Corporation - PlanetRx.com Inc.
- - pcOrder.com, Inc. - Ashford.com, Inc.
- - Intraware, Inc. - Preview Travel, Inc.
- - Open Market, Inc. - Audible, Inc.
- - Harbinger Corp. - Garden.com, Inc.
- - Digital River, Inc.
- - MessageMedia, Inc.
</TABLE>

Credit Suisse First Boston reviewed, among other things, enterprise values,
calculated as equity value, plus debt, less cash, of the selected companies as
multiples of estimated 2001 revenues. Means and medians for e-commerce enablers
and retailers as a group were calculated by considering all of the selected
companies together as one group for purposes of the calculation. This review
indicated the following:

<TABLE>
<CAPTION>
ENTERPRISE VALUES AS MULTIPLES OF ESTIMATED 2001 REVENUES
-------------------------------------------------------------------
RANGE MEDIAN MEAN
----- ------ ----
<S> <C> <C> <C>
E-Commerce Enabler Companies................ 2.0x--122.7x 10.3x 28.0x
E-Commerce Retailer Companies............... 0.8x--20.8x 3.8x 6.9x
E-Commerce Enablers and Retailers........... 0.8x--122.7x 7.4x 18.7x
</TABLE>

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<PAGE>

Estimated financial data for the selected companies was based on publicly
available research analysts' estimates. Estimated financial data for
Starbelly.com was based upon Starbelly.com management estimates, adjusted to
reflect the discount customarily applied to management estimates by research
analysts evaluating initial public offerings. This IPO analysis assumed further
dilution of Starbelly.com's current stockholders from a round of venture capital
financing prior to the initial public offering. Credit Suisse First Boston then
discounted the implied fully-distributed equity value to present value using
discount rates ranging from 30% to 50%. This analysis indicated an implied
equity reference range for Starbelly.com of approximately $238.0 million to
$378.0 million.

HA-LO

DISCOUNTED CASH FLOW ANALYSIS. Credit Suisse First Boston estimated the
present value of the net operating profit after taxes, plus depreciation and
amortization, less capital expenditures and increases in working capital that
HA-LO could produce on a stand-alone basis over calendar years 2000 through
2004, based on two scenarios. The management case was based on estimates of the
management of HA-LO. The alternative case was based on adjustments to the
management case developed by, or discussed with and reviewed by, HA-LO
management to reflect lower margins and revenue growth than the management case.

Ranges of terminal values were estimated using multiples of terminal year
2004 earnings before interest, taxes, depreciation and amortization, commonly
referred to as EBITDA, of 9.0x to 11.0x. The free cash flows were then
discounted to present value using discount rates of 13.0% to 14.0%.

This analysis indicated the following:

<TABLE>
<CAPTION>
IMPLIED ENTERPRISE VALUE FOR HA-LO (DOLLARS IN MILLIONS)
-----------------------------------------------------------
MANAGEMENT CASE
--------------- ALTERNATIVE CASE
DISCOUNT RATE DISCOUNT RATE
TERMINAL ------------------------- -------------------------
EBITDA MULTIPLE 13.0% 14.0% 13.0% 14.0%
- --------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
9.0x..................................... $522.9 $501.5 $346.7 $332.7
11.0x.................................... $620.4 $594.8 $409.1 $392.5
</TABLE>

SELECTED COMPANIES ANALYSIS. Credit Suisse First Boston compared financial,
operating and stock market data of HA-LO to corresponding data of the following
publicly traded companies in the marketing services industry:

- Caribiner International, Inc.

- Catalina Marketing Corporation

- Cyrk, Inc.

- Equity Marketing, Inc.

- Snyder Communications, Inc.

In addition, Credit Suisse First Boston compared financial, operating and
stock market data of HA-LO to corresponding data of the following publicly
traded companies in the telemarketing industry:

- APAC Customer Services, Inc.

- SITEL Corporation

- TeleSpectrum Worldwide Inc.

- TeleTech Holdings, Inc.

- West TeleServices Corporation

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<PAGE>

Credit Suisse First Boston reviewed, among other things, estimated calendar
year 2000 enterprise values, calculated as equity value, plus net debt, as a
multiple of estimated calendar year 2000 sales, EBITDA and earnings before
interest and taxes, commonly known as EBIT.

This review indicated the following:

<TABLE>
<CAPTION>
ENTERPRISE VALUES AS MULTIPLES OF ESTIMATED 2000
---------------------------------------------------------------------------
SALES EDITDA EBIT
------------------- ------------------- -------------------
<S> <C> <C> <C>
Range for Marketing Service Companies.... 0.4x--5.1x 4.7x--15.7x 5.5x--19.9x
Average for Marketing Service
Companies.............................. 2.2x 10.1x 13.3x
Range for Telemarketing Companies........ 0.8x--2.6x 5.8x--13.8x 12.3x--17.6x
Average for Telemarketing Companies...... 1.6x 10.5x 15.7x
</TABLE>

All multiples were based on closing stock prices on January 13, 2000.
Estimated financial data for the selected companies was based on publicly
available research analysts' estimates, and estimated financial data for HA-LO
was based upon HA-LO management estimates. Taking into consideration the overall
range of multiples described for the selected companies implied by the average
multiples for the groups of companies for each operational metric, with
particular emphasis on the range of multiples of estimated calendar year 2000
EBITDA, this analysis indicated an implied enterprise reference range for HA-LO
of approximately $325.0 million to $400.0 million.

None of the selected companies is identical to HA-LO. Accordingly, an
analysis of the results of the Selected Companies Analysis involves complex
considerations of the selected companies and other factors that could affect the
public trading value of HA-LO and the selected companies.

SELECTED TRANSACTIONS ANALYSIS. Credit Suisse First Boston analyzed the
purchase prices and implied transaction multiples paid in the following recent
selected transactions in the promotional products, marketing services and
telemarketing industries:

<TABLE>
<CAPTION>
ACQUIROR TARGET
----------------------------------------- -----------------------------------------
<S> <C> <C> <C>
- - NCO Group, Inc. - Compass International Services
Corporation
- - HA-LO - Parsons International S.A.
- - CustomerONE Holding Corporation - LCS Industries, Inc.
- - HA-LO - Premier Promotions & Marketing, Inc.
- - HA-LO - Lipson Associates, Inc.
- - HA-LO - Promotional Marketing LLC
- - AHL Services, Inc. - Gage Marketing Support Service Group and
Adistra, LLC
- - APAC TeleServices, Inc. - ITI Marketing Services, Inc.
- - The Great Universal Stores, P.L.C. - Metromail Corporation
- - Electronic Data Systems Corporation - Neodata Corporation
- - Cyrk, Inc. - Simon Marketing, Inc.
- - Cyrk, Inc. - Tonkin, Inc.
- - HA-LO - Market USA, Inc.
- - Heritage Media Corporation - DIMAC Corporation
</TABLE>

Credit Suisse First Boston compared enterprise values in the selected
transactions as multiples of, among other things, latest twelve months sales,
EBITDA and EBIT and equity values in the selected transactions as a multiple of
latest twelve months net income.

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<PAGE>

This review indicated the following:

<TABLE>
<CAPTION>
ENTERPRISE VALUES AS EQUITY VALUE AS
MULTIPLES OF MULTIPLE OF
LATEST TWELVE MONTHS LATEST TWELVE MONTHS
------------------------------------------ --------------------
SALES EBITDA EBIT NET INCOME
------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Range............................. 0.6x--2.6x 5.0x--12.8x 6.1x--16.9x 13.3x--21.5x
Mean.............................. 1.6x 9.9x 11.2x 18.6x
Median............................ 1.5x 10.0x 12.6x 21.1x
</TABLE>

All multiples were based on financial information publicly available at the
time of the relevant transaction. Credit Suisse First Boston then applied a
range of selected multiples for the selected transactions of latest twelve month
sales, EBITDA and EBIT to corresponding financial data of HA-LO for estimated
calendar year 2000, based on HA-LO management estimates. Taking into
consideration the range of multiples for the selected transactions implied by
the average multiple for each operational metric, excluding, for each
operational metric, the transaction embodying the lowest multiple, with
particular emphasis on the range of multiples of estimated calendar year 2000
EBITDA, this analysis indicated an implied enterprise reference range for HA-LO
of approximately $360.0 million to $450.0 million.

No company or transaction used in the Selected Transactions Analysis is
identical to HA-LO or the proposed merger. Accordingly, an analysis of the
results of this analysis involves complex considerations of the companies
involved and the transactions and other factors that could affect the
acquisition value of the companies and HA-LO.

AGGREGATE REFERENCE RANGE. Based on the valuation methodologies employed in
the analyses described above, with particular emphasis on the "Selected Company
Analysis" for the low end of the reference range and the "Selected Transactions
Analysis" for the high end of the reference range, Credit Suisse First Boston
derived an implied equity reference range for HA-LO of approximately $6.38 to
$8.93 per share. Credit Suisse First Boston then estimated the implied aggregate
value of the consideration to be paid in the merger, assuming conversion of the
HA-LO convertible preferred stock and, alternatively, redemption of the HA-LO
convertible preferred stock. Based on the average of the stock price for the
HA-LO common stock for the 15 calendar days prior to January 13, 2000 of $8.68
per share, this analysis indicated the following implied aggregate reference
ranges for the merger consideration, as compared to the implied
fully-distributed equity reference range for Starbelly.com on a stand-alone
basis of approximately $238.0 million to $378.0 million:

<TABLE>
<CAPTION>
CONVERSION OF CONVERTIBLE PREFERRED REDEMPTION OF CONVERTIBLE PREFERRED
STOCK INTO HA-LO COMMON STOCK STOCK FOR CASH
----------------------------------- -----------------------------------
<S> <C> <C>
Implied Aggregate Reference
Range for Merger
Consideration.............. $182.0 million to $246.0 million $195.0 million to $245.0 million
</TABLE>

PRO FORMA MERGER ANALYSIS. Credit Suisse First Boston analyzed the
potential pro forma per share effect of the merger on HA-LO's estimated revenue,
EBITDA, EBIT and net income per share for calendar years 2000 to 2002 based on
the Starbelly.com alternative case, the HA-LO management case and the HA-LO
alternative case, after giving effect to synergies anticipated by HA-LO
management to result from the merger. Credit Suisse First Boston assumed that
the HA-LO convertible preferred stock issued as part of the merger consideration
was redeemed for cash or, alternatively, converted into HA-LO common stock.

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<PAGE>

This analysis indicated the following per share accretion (dilution) to
HA-LO's estimated revenue, EBITDA, EBIT and net income for each of estimated
calendar years 2000, 2001 and 2002:

<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK REDEEMED FOR CASH
--------------------------------------------------------
HA-LO MANAGEMENT CASE/
STARBELLY.COM ALTERNATIVE CASE
--------------------------------------------------------
ESTIMATED 2000 ESTIMATED 2001 ESTIMATED 2002
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue...................................... (32.7)% (16.9)% (2.8)%
EBITDA....................................... (87.9)% (43.9)% 10.3%
EBIT......................................... (295.5)% (173.0)% (64.0)%
Net Income................................... (545.3)% (305.9)% (135.6)%

<CAPTION>
CONVERTIBLE PREFERRED STOCK REDEEMED FOR CASH
--------------------------------------------------------
HA-LO ALTERNATIVE CASE / STARBELLY.COM ALTERNATIVE CASE
--------------------------------------------------------
ESTIMATED 2000 ESTIMATED 2001 ESTIMATED 2002
-------------- -------------- --------------
Revenue. )% (32.7 )% (16.4 )% (0.7
<S> <C> <C> <C>
EBITDA....................................... (87.9)% (48.0)% 25.3%
EBIT......................................... (295.5)% (235.5)% (83.9)%
Net Income................................... (545.3)% (458.1)% (204.7)%

<CAPTION>
CONVERTIBLE PREFERRED STOCK CONVERTED INTO COMMON STOCK
--------------------------------------------------------
HA-LO MANAGEMENT CASE / STARBELLY.COM ALTERNATIVE CASE
--------------------------------------------------------
ESTIMATED 2000 ESTIMATED 2001 ESTIMATED 2002
-------------- -------------- --------------
Revenue. )% (32.7 )% (23.4 )% (10.5
<S> <C> <C> <C>
EBITDA....................................... (87.9)% (48.3)% 1.6%
EBIT......................................... (295.5)% (167.3)% (66.8)%
Net Income................................... (545.3)% (280.0)% (126.3)%

<CAPTION>
CONVERTIBLE PREFERRED STOCK CONVERTED INTO COMMON STOCK
--------------------------------------------------------
HA-LO ALTERNATIVE CASE / STARBELLY.COM ALTERNATIVE CASE
--------------------------------------------------------
ESTIMATED 2000 ESTIMATED 2001 ESTIMATED 2002
-------------- -------------- --------------
Revenue. )% (32.7 )% (23.0 )% (8.6
<S> <C> <C> <C>
EBITDA....................................... (87.9)% (52.1)% 15.5%
EBIT......................................... (295.5)% (224.8)% (85.2)%
Net Income................................... (545.3)% (415.0)% (185.8)%
</TABLE>

The actual results achieved by the combined company may vary from projected
results and the variations may be material.

OTHER FACTORS. In the course of preparing its opinion, Credit Suisse First
Boston also reviewed and considered other information and data, including:

- the recent trading history of the HA-LO common stock;

- the potential pro forma liquidity of HA-LO assuming that the HA-LO
convertible preferred stock issued as part of the merger consideration was
redeemed for cash or, alternatively, converted into HA-LO common stock;
and

- HA-LO's stock price performance relative to the Standard & Poor's MidCap
400 Index.

MISCELLANEOUS. HA-LO has agreed to pay Credit Suisse First Boston for its
financial advisory services a total fee equal to approximately 1.21% of the
aggregate value of the transaction upon

47
<PAGE>

completion of the merger, against which any prior fees paid in connection with
the merger will be credited. HA-LO also has agreed to reimburse Credit Suisse
First Boston for its reasonable out-of-pocket expenses, including fees and
expenses of legal counsel and any other advisor retained by Credit Suisse First
Boston, and to indemnify Credit Suisse First Boston and related parties against
liabilities, including liabilities under the federal securities laws, arising
out of its engagement. Credit Suisse First Boston and its affiliates have in the
past provided, and are currently providing, financial services to HA-LO and its
affiliates unrelated to the proposed merger, for which services Credit Suisse
First Boston has received, and may receive, compensation. Specifically, Credit
Suisse First Boston acted as lead manager for a secondary offering of HA-LO
common stock in May 1998, for which Credit Suisse First Boston received a total
fee of approximately $4.6 million. In the ordinary course of business, Credit
Suisse First Boston and its affiliates may actively trade equity securities of
HA-LO for their own accounts and for the accounts of customers and, accordingly,
may at any time hold long or short positions in such securities.

Credit Suisse First Boston has consented to the description of its opinion
and the summary of the analyses performed by it in connection with its opinion
in this document. In giving such consent, Credit Suisse First Boston does not
admit that it comes within the category of persons whose consent is required
under the federal securities laws, or the rules and regulations of the SEC under
those laws, nor does it admit that it is an expert with respect to any part of
this proxy statement within the meaning of the term "experts" as used under
those laws, rules and regulations.

STARBELLY.COM'S REASONS FOR THE MERGER

- Starbelly.com expects that the merger will provide it with the opportunity
to penetrate in a short period of time a broad base of corporate clients
using its Internet solution. Starbelly.com expects the Internet to become
a significant distribution channel for custom-decorated products.
Starbelly.com believes that the synergy created by its Internet solution
and HA-LO's existing customer base will enable it to capture significant
share of the custom-decorated products market. Starbelly.com believes it
is a critical competitive advantage to be the first in the market.

- Starbelly.com also believes that the merger will give Starbelly.com access
to its custom-decorated products market through the largest, in terms of
sales, company in the industry. Starbelly.com strategically chose HA-LO
because of its dominant position in the promotional products market, its
high quality sales force and its high quality relationship with its
customers.

- Starbelly.com patterns believes that HA-LO's sales force has the ability
to influence its customers' purchasing patterns and will greatly assist
Starbelly.com in its efforts to cause those customers to purchase
promotional and other custom-decorated products through the Internet.

- Starbelly.com believes that it would require substantial time and talent
to develop the customer base that HA-LO already possesses. Moreover,
Starbelly.com believes that the time required to independently develop
such a customer base could be an impediment to the early market
penetration that Starbelly.com believes is important to obtaining a
significant market share.

MERGER CONSIDERATION

If we complete the merger, Starbelly.com stockholders will receive
approximately $240 million, which amount we will pay as follows:

(1) paying $19 million in cash (less Starbelly.com's merger expenses in
excess of $500,000);

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<PAGE>

(2) paying the balance by issuing:

(a) 17 million shares of HA-LO common stock valued in the merger
agreement at $170 million; and

(b) 5.1 million shares of HA-LO preferred convertible stock valued in the
merger agreement at $51 million.

In the merger, holders of Starbelly.com series B preferred stock will
receive cash and shares of HA-LO convertible preferred stock, holders of
Starbelly.com series A preferred stock will receive cash, shares of HA-LO common
stock and shares of HA-LO convertible preferred stock, and holders of
Starbelly.com common stock will receive shares of HA-LO common stock and shares
of HA-LO convertible preferred stock. The aggregate merger consideration will be
allocated among the holders of Starbelly.com common stock and series A and
series B preferred stock based on complicated formulas set forth in the merger
agreement which takes into account the relative value of each such class or
series of stock.

You will continue to own your shares after the merger. Immediately after the
merger, pre-merger shareholders of HA-LO will own approximately 69% of the
outstanding common stock, and the former stockholders of Starbelly.com will own
approximately 31% of the outstanding common stock (assuming all of the
convertible preferred shares are converted into common stock and all assumed
options are exercised and all convertible preferred shares issued upon exercise
are converted into common stock).

HA-LO's convertible preferred stock is described below under "Description of
the Convertible Preferred Stock" (page 53).

All outstanding options to purchase Starbelly.com common stock granted to
Starbelly.com employees, directors and consultants will be assumed by HA-LO in
the merger. See "Assumption of Outstanding Starbelly.com Options" (page 56).

EFFECTIVE TIME OF THE MERGER

The merger will be effective at the time a certificate of merger is duly
filed with each of the Secretary of State of Delaware or any later date or time
specified in the certificate of merger. The closing will occur as soon as
possible after all conditions to the merger are satisfied.

MANAGEMENT AND OPERATIONS AFTER THE MERGER

Following the merger closing, John R. Kelley, Jr. will remain chief
executive officer of HA-LO, and Bradley Keywell will assume the role of
president. Eric Lefkofsky, Starbelly.com's president, will become HA-LO's chief
integration officer, focusing on the e-transformation of the HA-LO Promotional
Products group, as well as HA-LO's marketing services divisions. In addition, it
is probable that Mr. Keywell and Mr. Lefkofsky will become members of your board
of directors.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

If the merger is completed, Marshall J. Katz, who is currently a director of
HA-LO, will receive a consulting fee in return for certain consulting services
he has performed for us with respect to the merger. The consulting fee we will
pay is comprised of $200,000 in cash and options to purchase 50,000 shares of
HA-LO common stock at an exercise price of $12.188 per share.

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<PAGE>

If the merger is completed, Bradley Keywell, Starbelly.com's chief executive
officer, will have the right to designate one person on the board to fill one of
the three vacancies created by the expansion of the board from eight to eleven
directors. Eric Lefkofsky, Starbelly.com's president, will have the right to
designate two persons to fill the remaining vacancies. Brad Keywell and his
family hold a 100% pecuniary interest in Bloomfield Family Limited Partnership.
Eric Lefkofsky and his family hold a 100% pecuniary interest in Coventry Family
Limited Partnership. Each of Bloomfield Family Limited Partnership and Coventry
Family Limited Partnership own, beneficially and of record, 7 million shares of
Class B common stock of Starbelly.com. Under the terms of the Merger Agreement,
7 million shares of Class B common stock would be converted into
5,193,790 shares of HA-LO common stock and 613,877 shares of HA-LO convertible
preferred stock at the closing of the merger. Assuming conversion of all the
HA-LO preferred stock issued in the merger into HA-LO common stock in accordance
with its terms, the shares of HA-LO stock issued to each of Bloomfield Family
Limited Partnership and to Coventry Family Limited Partnership upon the
consummation of the merger would represent approximately 8.2% of HA-LO's
outstanding capital stock (including shares issuable upon the exercise of stock
options assumed by HA-LO and all shares of preferred stock convertible into
common stock assumed by HA-LO). Based on the conversion formula set forth in the
merger agreement, the shares issued to each of the partnerships would be worth
approximately $58.0 million. To the extent Starbelly.com's expenses associated
with the Merger are in excess of $500,000, each of Bloomfield Family Limited
Partnership and Coventry Family Limited Partnership would receive fewer shares
of HA-LO's common and preferred stock, which would represent a lower percentage
of HA-LO common stock outstanding. Other than shares to be issued to their
respective family partnerships, neither Mr. Keywell, Mr. Lefkofsky, Bloomfield
Family Limited Partnership nor Coventry Family Limited Partnership beneficially
own, directly or indirectly, any securities of the registrant.

For a discussion of other agreements entered into or to be entered into
between HA-LO and each of Mr. Keywell, Mr. Lefkofsky, Coventry Partners Family
Limited Partnership and Bloomfield Partners Family Limited Partnership, see "The
Merger Agreement--Other Agreements Related to the Merger Agreement" on page 68.

RESALE OF HA-LO SHARES

The shares of our common and convertible preferred stock to be issued in the
merger are being offered in reliance on an exemption from the registration
requirements of the Securities Act of 1933 ("Securities Act") and various state
securities laws. The shares to be issued to the Starbelly.com stockholders in
the merger will be "restricted securities" under Rule 144 of the Securities Act,
and may be resold only if registered or in transactions permitted by Rule 144 or
other exemptions from registration. Under the merger agreement, we must file a
shelf registration statement with the Securities and Exchange Commission within
ten days after the merger closes to register for public resale a portion of the
common stock received the Starbelly.com stockholders, and we are required to
file additional registration statements at agreed upon times in the future to
register additional shares of common stock for resale by all of the
Starbelly.com stockholders, including common stock issued upon conversion of the
convertible preferred stock issued in the merger. Various Starbelly.com
stockholders who will receive 66% of the common stock we will issue in the
merger (assuming all of the convertible preferred shares are converted into
common stock and all assumed options are exercised and all convertible preferred
shares issued upon exercise are converted into common stock) have agreed to
additional restrictions on the resale of HA-LO common stock and convertible
preferred stock under separate agreements with us. See "The Merger
Agreement--Other Covenants and Agreements" (page 64) and "The Merger
Agreement--Other Agreements Related to the Merger Agreement" (page 68).

We have agreed to register for issuance the shares of common stock and
convertible preferred stock issuable upon exercise of outstanding Starbelly.com
options being assumed by HA-LO in the

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<PAGE>

merger, as well as the shares of common stock issuable upon conversion of such
shares of convertible preferred stock. See "The Merger Agreement--Other
Covenants and Agreements" (page 64).

This document does not cover resales of our common stock received by the
Starbelly.com stockholders in the merger, and no person is authorized to make
any use of this document for any resale.

ACCOUNTING TREATMENT

We intend to account for the merger as HA-LO's "purchase" of Starbelly.com.
Accordingly, Starbelly.com's results of operations will be included in our
consolidated results of operations after the completion date of the merger. In
preparing our consolidated financial statements, we will, if appropriate,
establish a new accounting basis for the Starbelly.com assets and liabilities.
After the merger, Starbelly.com's assets will take a new aggregate book value
equal to the merger consideration PLUS Starbelly.com's liabilities PLUS the
merger costs. This new aggregate book value is then allocated first to
Starbelly.com's current assets at fair market value, second to Starbelly.com's
specific intangibles at fair market value, and the remainder to Starbelly.com's
goodwill. We are then required to amortize this goodwill. In particular, we will
record goodwill in an amount equal to substantially all of the merger
consideration and merger expense, and amortize this amount over five years.
After the merger, the goodwill amortization charge will reduce our earnings for
financial reporting purposes over the five-year amortization period.

NEW YORK STOCK EXCHANGE LISTING

We expect to list for trading on the New York Stock Exchange the shares of
HA-LO common stock to be issued in connection with the merger and the shares of
common stock issuable upon conversion of the convertible preferred stock and the
exercise of the assumed options. It is a condition to the closing of the merger
that these shares be authorized for listing upon issuance.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

GENERAL

The following discussion is a summary description of the material United
States federal income tax consequences of the merger. The discussion is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury Regulations, judicial decisions and administrative
rulings and practices, all as in effect on the date of this proxy statement, and
all of which are subject to change at any time, possibly with retroactive
effect. Any such change could alter the tax consequences to us, Starbelly.com or
a Starbelly.com stockholder. The discussion does not address the effects of any
state, local or foreign tax laws or any federal tax laws other than federal
income tax laws.

TREATMENT OF US, OUR SHAREHOLDERS, OUR MERGER SUBSIDIARY AND STARBELLY.COM

We have been advised by our counsel, Neal, Gerber & Eisenberg, that the
merger will be treated for federal income tax purposes as a reorganization under
Section 368(a) of the Code. Accordingly, our existing shareholders will not
recognize any gain or loss as a result of the merger for federal income tax
purposes. Similarly, neither we, nor our merger subsidiary nor Starbelly.com,
each of which is a party to the reorganization, within the meaning of
Section 368(b) of the Code, will recognize any gain or loss as a result of the
merger for federal income tax purposes. In rendering this advice, Neal,
Gerber & Eisenberg relied upon factual representations made by officers of
HA-LO.

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TREATMENT OF HOLDERS OF STARBELLY.COM COMMON STOCK

REGULATORY APPROVALS

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
the Antitrust Division of the U.S. Department of Justice and the U.S. Federal
Trade Commission must review transactions such as the merger. The federal
agencies conducting these reviews determine whether the merger complies with
antitrust laws. The Hart-Scott-Rodino Act requires both companies, as well as
Starbelly.com's two largest stockholders, to notify these federal agencies of
the merger. The required waiting period must expire or terminate before the
merger can be completed. Both companies filed the notification reports with the
Antitrust Division and the Federal Trade Commission during the week of
January 31, 2000 and the waiting period with respect to such filings was
terminated by the Federal Trade Commission effective February 14, 2000.

AT ANY TIME BEFORE OR AFTER THE MERGER CLOSES, THE ANTITRUST DIVISION, THE
FEDERAL TRADE COMMISSION, STATE ANTITRUST AUTHORITIES OR A PRIVATE PERSON COULD
SEEK TO ENJOIN THE MERGER OR CAUSE EITHER OF THE COMPANIES TO DIVEST CERTAIN
ASSETS. THE MERGER AGREEMENT CONDITIONS THE MERGER ON THE RECEIPT OF ALL
REQUIRED GOVERNMENTAL CONSENTS AND APPROVALS, INCLUDING EXPIRATION OR
TERMINATION OF THE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ACT.

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DESCRIPTION OF THE CONVERTIBLE PREFERRED STOCK

As a portion of the merger consideration, HA-LO will issue 5.1 million
shares of convertible participating preferred stock, assuming the exercise of
all the assumed stock options.

RANKING

With respect to rights on liquidation, winding-up and dissolution, the
convertible preferred stock ranks senior to the Company's common stock, and in
parity with or senior to all other existing and future classes of capital stock
and series of shares of convertible preferred stock of the Company.

DIVIDENDS AND PARTICIPATION RIGHTS

Except as described below under "--Redemption," no dividends will accrue on
the convertible preferred stock. However, if the Company declares or pays any
dividends on its common stock (whether payable in cash, securities, or other
property), other than dividends payable solely in shares of common stock, the
holders of convertible preferred stock will be entitled to participate in such
dividends, on an as-converted basis, at the same time that the Company declares
and pays such dividends to the holders of its common stock.

LIQUIDATION PREFERENCE

Upon any liquidation, winding-up or dissolution of the Company, before any
distribution or payment is made to any holder of equity securities of the
Company ranking junior to the shares of convertible preferred stock, each holder
of convertible preferred stock will be paid (1) a liquidation preference of
$10.00 per share of convertible preferred stock then owned by such holder, and
(2) such holder's proportionate share (based upon the aggregate number of shares
of common stock then outstanding, assuming conversion of all outstanding shares
of convertible preferred stock) of the amount available for payment to the
holders of our outstanding common stock.

If, upon any liquidation, winding-up or dissolution of the Company, the
assets of the Company are insufficient to pay in full the amount due on the
convertible preferred stock and the amount due on any parity securities, then
such assets will be distributed among the holders of the convertible preferred
stock and the holders of such other parity securities on a ratable basis.

VOTING RIGHTS

The holders of convertible preferred stock will have the right to vote on
all matters on which the holders of the Company's common stock are entitled to
vote. For purposes of such voting, each share of convertible preferred stock
will have the number of votes equal to the number of shares of common stock then
issuable upon conversion of such shares of convertible preferred stock.

PROTECTIVE PROVISIONS

The Company will not, without consent of the holders of at least a majority
of the outstanding shares of convertible preferred stock, voting as a class:

(1) increase the number of authorized shares of convertible preferred stock
or issue any additional shares of convertible preferred stock, except as
contemplated by the terms of the convertible preferred stock;

(2) amend or modify the powers, preferences or rights of the convertible
preferred stock or amend, alter or repeal any of the provisions of the
Company's articles of incorporation or by-laws (including by merger or
similar transaction or otherwise) so as to exchange, reclassify or
eliminate the shares of convertible preferred stock or any part of the
convertible preferred

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stock or otherwise affect adversely the powers, preferences or rights of
the holders of convertible preferred stock; change the designations,
preferences, qualifications, limitations, restrictions, or special or
relative rights of the common stock; divide the shares of such class into
series and fix or authorize the board of directors to fix the variations
in the relative rights and preferences between the shares of such series;
change the shares of such class into the same or a different number of
shares of the same class or another class or classes; create a right of
exchange, of all or any part of the shares of another class into the
shares of such class; cancel or otherwise affect dividends on the shares
of such class which had accumulated but had not been declared; limit or
deny the voting rights of the shares of such class; or

(3) other than the convertible preferred stock, create, authorize, issue or
permit to exist any class of capital stock or series of preferred shares
that ranks senior to or in parity with the shares of convertible
preferred stock with respect to dividend rights or rights on liquidation,
winding-up or dissolution, or reclassify any class or series of any
junior stock into, or authorize any securities exchangeable for,
convertible into or evidencing the right to purchase, any such class or
series.

CONVERSION RIGHTS

Each holder of convertible preferred stock will be entitled, at such
holder's option and at any time prior to redemption, to convert all or any
portion of such holder's shares into shares of the Company's common stock. Each
share of convertible preferred stock will be convertible initially into one
share of the Company's common stock. The conversion price is subject to
adjustment from time to time in order to prevent dilution of the conversion
rights granted in the articles of amendment.

In the event the average closing price of the Company's common stock equals
or exceeds $24.00 per share for ten consecutive trading days, each share of
convertible preferred stock will automatically convert into one share of common
stock or, if the conversion price has been adjusted in accordance with the
anti-dilution provisions, the number of shares as so adjusted.

REDEMPTION

The Company may not redeem the convertible preferred stock at its option.

The holders of the convertible preferred stock, at any time during the
30-day period commencing on the first anniversary of the effective date of the
merger, will have the right to require the Company 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. The Company will be
required to effect any redemption for which notice has been timely delivered no
later than 60 days after the Company's receipt of such notice. This redemption
right will terminate and become unexercisable after the last day of the
redemption period (except with respect to any shares of convertible preferred
stock for which the redemption rights have been timely exercised but which have
not yet been redeemed). Any shares of convertible preferred stock which are not
tendered for redemption during the redemption period will remain outstanding
indefinitely and will continue to possess all of the rights, privileges and
restrictions described in this section, except redemption rights.

If the Company defaults on its obligation to redeem any shares of
convertible preferred stock, for so long as the Company is in default, the
shares of convertible preferred stock that the Company failed to redeem will
accrue dividends, at a rate of 8% of the liquidation price per annum on the
$10.00 per share liquidation preference of such shares, beginning on the first
date on which the Company 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 liquidation preference per annum on
each six month anniversary of the date of default until the redemption price
(including accrued dividends) has been paid in full.

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In the event of a "change of control," as defined in the articles of
amendment to the Company's articles of incorporation (establishing the
convertible preferred stock), each holder of convertible preferred stock will be
entitled, at such holder's option, to require the Company to redeem all or any
part of their shares at a price per share in cash equal to a redemption price
equal to the greater of (1) the liquidation preference of $10.00 per share, plus
any accrued and unpaid dividends, and (2) the amount that would have been
payable if the holder had exercised his or her conversion immediately prior to
such change of control.

If the Company sells all of the capital stock, or all or substantially all
of the assets of any subsidiary or significant business division of the Company
for consideration consisting, in whole or in part, of cash while any shares of
convertible preferred stock remain outstanding, then the Company is required to
use all of the cash proceeds of such sale to fund the working capital and
general corporate needs of the Company (including repayment of outstanding
indebtedness under the Company's line of credit or other commercial bank loan)
and/or to redeem the maximum possible number of shares of convertible preferred
stock that can be redeemed with such cash proceeds. To the extent that the
Company does not use all of the cash proceeds of any significant sale for
working capital and general corporate purposes within 90 days of a significant
sale, within 15 days after the expiration of such 90-day period, it must deliver
a written purchase offer to all holders of convertible preferred stock then
outstanding and promptly purchase shares from all holders who accept this offer,
pro rata based on the number of shares then held by each at a purchase price per
share equal to the liquidation preference of $10.00 per share, plus any accrued
and unpaid dividends.

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ASSUMPTION OF OUTSTANDING STARBELLY.COM OPTIONS

INTRODUCTION

Starbelly.com currently maintains the 1999 Stock Option Plan for
Starbelly.com employees, directors and consultants. Under this plan, as amended,
and before we complete the merger, Starbelly.com may grant options to purchase
up to an aggregate of 3,355,000 shares of its common stock. As of March 15,
2000, options for 2,894,334 shares were issued and outstanding, 395,000 shares
have been issued for exercised options, and 65,666 shares remain available for
grants. The options issued and outstanding, have a weighted average exercise
price of $1.00 per share and are 11.9% vested.

All employees, including all current directors of Starbelly.com, hold 89.3%
of the total issued and outstanding options as of March 15, 2000, as a group.
Two employees, Simeon Schnapper and Steven Scheyer hold 17.3% and 6.9%,
respectively, of the options issued and outstanding under the plan as of
March 15, 2000. Neither Brad Keywell, Eric Lefkofsky, nor any holders of five
percent or more of Starbelly.com's capital stock holds any options. Under the
merger agreement, HA-LO is required, at the effective time of the merger, to
assume Starbelly.com's obligations under the plan and each option outstanding
under the plan. As a result, each Starbelly.com option will, as of the effective
date of the merger, entitle the holder to receive upon exercise the same number
of shares of HA-LO common stock and of HA-LO convertible preferred stock as such
holder would have received pursuant to the merger agreement if the option had
been exercised immediately prior to the merger. The other terms of each
Starbelly.com option will continue to apply after the merger, except that prior
to the effective time, Starbelly.com may cause up to (1) fifty percent (50%) of
all Starbelly.com's options held by each key employee (as defined in the merger
agreement) to become fully vested at the effective time, and (2) thirty-three
and one-third percent (33 1/3%) of all Starbelly.com options held by each
employee identified by Starbelly.com to become fully vested at the effective
time. In order to assume Starbelly.com's options and its obligations under the
plan, your board of directors has adopted the HA-LO Industries, Inc. Stock
Option Plan for Starbelly.com Employees, Directors and Consultants. After the
merger closes, no new options will be granted under Starbelly.com's plan or the
new HA-LO plan. A vote by the HA-LO shareholders in favor of the merger will
constitute a vote in favor of the adoption of the HA-LO stock option plan and
the reservation of shares of common stock and shares of convertible preferred
stock for issuance upon exercise of the assumed options.

PLAN SUMMARY

In the paragraphs that follow, we summarize the material features of the
Starbelly.com plan. As you read this summary, you should bear in mind that, at
the time the merger closes, the Starbelly.com plan will be incorporated into the
new HA-LO plan, and HA-LO will assume Starbelly.com's obligations under the
Starbelly.com plan. The new HA-LO plan will be substantially identical to the
Starbelly.com plan, except that, after the merger closes:

- the options to purchase Starbelly.com shares outstanding immediately
before the merger will treated as options to purchase our common stock and
our convertible preferred stock (in amounts calculated consistently with
the conversion of shares under the merger agreement);

- the exercise price for each share of HA-LO common stock underlying each
option under the new HA-LO plan will be equal to the exercise price of the
assumed option to purchase Starbelly.com class A common stock in effect
immediately before the merger, divided by the fraction equal to the
portion of a share of HA-LO common stock to be issued upon conversion of
one share of Starbelly.com common stock pursuant to the merger agreement;
and

- the compensation committee of your board of directors will administer the
new HA-LO plan.

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The summary below is neither exhaustive nor definitive, and you should read
the full text of the HA-LO plan which is attached to this proxy statement as
Exhibit D for a complete description.

PURPOSE

The purpose of the plan is to advance the interests of Starbelly.com and its
stockholders by providing an incentive to attract, retain and reward persons
performing services for Starbelly.com and by motivating such persons to
contribute to the growth and profitability of Starbelly.com.

ADMINISTRATION

The plan is administered by Starbelly.com's board of directors. All
questions of interpretation of the plan or of any option granted under the plan
will be determined by the board, and such determinations will be final and
binding upon all persons having an interest in the plan or such option.

With respect to participation by executive officers or directors of
Starbelly.com or any other person whose transactions in Starbelly.com securities
are subject to Section 16 of the Securities Exchange Act of 1934, at any time
that any class of equity security of Starbelly.com is registered pursuant to
Section 12 of that Act, the plan will be administered in compliance with the
requirements of Rule 16b-3 under that Act.

SHARES RESERVED

The maximum number of shares of Starbelly.com common stock that may be
issued under the plan, as amended, is 3,355,000, of which 395,000 shares have
already been issued. If an outstanding option for any reason expires or is
terminated or canceled or if shares of common stock are repurchased by
Starbelly.com under the terms of the plan, the shares allocable to the
unexercised portion of that option or the repurchased shares will again be
available for issuance under the plan.

ELIGIBILITY

Options may be granted to Starbelly.com employees, directors and
consultants.

TERMS OF OPTIONS

Each option is evidenced by an option agreement specifying the number of
shares of common stock covered by the option. Unless otherwise specified by the
board of directors, each option has a term of ten years. The period during which
an option is exercisable may be reduced in the event the optionee's service with
Starbelly.com is terminated as described below.

EXERCISE OF OPTIONS

Options are exercisable at the time or times, or upon the event or events,
and subject to those terms, conditions, performance criteria and restrictions
which are determined by the board of directors and set forth in the option
agreement evidencing such option. With the exception of an option granted to an
officer, director or consultant, no option may become exercisable at a rate less
than 20% per year over a period of five years from the effective date of grant
of such option, subject to the optionee's continued service.

Except as otherwise provided, payment of the exercise price for the number
of shares of common stock being purchased pursuant to any option must be made:

- in cash, by check or cash equivalent;

- by tender to Starbelly.com of shares of common stock owned by the optionee
having a fair market value (as determined by Starbelly.com) not less than
the exercise price;

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- by the assignment of the proceeds of a sale or loan with respect to some
or all of the shares being acquired upon the exercise of the option;

- by the optionee's promissory note in a form approved by Starbelly.com;

- by such other consideration as may be approved by the board of directors
from time to time to the extent permitted by applicable law; or

- by any combination of these methods.

Starbelly.com reserves the right to establish, decline to approve or
terminate any program or procedures for the exercise of options by means of a
cashless exercise.

OPTION PRICE

The exercise price for each option is established in the discretion of the
board of directors; provided, however, that (1) the exercise price for an
incentive stock option may not be less than the fair market value of a share of
common stock on the effective date of grant of the option, (2) the exercise
price for a nonstatutory stock option may not be less than 85% of the fair
market value of a share of common stock on the effective date of grant of the
option, and (3) no option granted to a ten percent owner optionee will have an
exercise price less than 110% of the fair market value of a share of common
stock on the effective date of grant of the option.

TRANSFERABILITY

During the lifetime of the optionee, an option may be exercised only by the
optionee or the optionee's guardian or legal representative. No option will be
assignable or transferable by the optionee, except by will or by the laws of
descent and distribution.

CHANGE IN CAPITALIZATION

In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the capital
structure of Starbelly.com, appropriate adjustments will be made in the number
and class of shares subject to the plan and to any outstanding options and in
the exercise price of any outstanding options. If a majority of the shares which
are of the same class as the shares that are subject to outstanding options are
exchanged for, converted into, or otherwise become shares of another
corporation, the board of directors may unilaterally amend the outstanding
options to provide that such options are exercisable for shares of such other
corporation.

TERMINATION OF SERVICE

If the optionee's service with Starbelly.com is terminated because of the
disability of the optionee, the option may be exercised by the optionee (or the
optionee's guardian or legal representative) at any time prior to the expiration
of six months following such cessation of service. If the optionee's service
with Starbelly.com is terminated because of the death of the optionee, the
option may be exercised by the optionee's legal representative at any time prior
to the expiration of six months following such cessation of service. If the
optionee's service with Starbelly.com terminates for any reason, except
disability or death, following such cessation of service, the option may be
exercised by the optionee within thirty days following such cessation of
service. Certain employees have agreements whereby upon termination, there will
be an acceleration of vesting on unvested options. Such acceleration ranges from
30 days to twelve months of additional vesting, in no case extending past the
option expiration date.

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OCCURRENCE OF CERTAIN CORPORATE TRANSACTIONS

In the event of a "Change in Control" (as defined in the plan), the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be, may either assume Starbelly.com's
rights and obligations under outstanding options or substitute for outstanding
options substantially equivalent options for the acquiring corporation's stock.
An option will be deemed assumed if, following the Change in Control, the option
confers the right to purchase in accordance with its terms and conditions for
each share of common stock subject to the option immediately prior to the Change
in Control, the consideration (whether stock, cash or other securities or
property) to which a holder of a share of common stock on the effective date of
the Change in Control was entitled. Any option which is neither assumed or
substituted for by the acquiring corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control terminates and
cease to be outstanding effective as of the date of the Change in Control.

LIMITATION ON INCENTIVE STOCK OPTIONS

To the extent that an option designated as an incentive stock option becomes
exercisable by an optionee for the first time during any calendar year for stock
having a fair market value greater than $100,000, the portion of such option
which exceeds such amount will be treated as a nonstatutory stock option.

TERMINATION; AMENDMENT

The board of directors may terminate or, subject to certain limitations,
amend the plan at any time. Generally, no amendment of the plan may adversely
affect any then outstanding option without the consent of the optionee.

CERTAIN TAX MATTERS

Starbelly.com has the right to deduct from the shares of common stock
issuable upon exercise of an option a number of shares having a fair market
value equal to any federal, state, local and foreign taxes required to be
withheld by Starbelly.com upon the exercise of the option. Alternatively,
Starbelly.com may require the optionee to make adequate provision for any such
tax withholding obligations of Starbelly.com arising in connection with the
exercise of the option.

The following is only a summary of the possible effects of federal income
taxation upon the optionee and Starbelly.com with respect to the exercise of
options under the plan. The summary does not purport to be complete and does not
discuss the income tax laws of any state or foreign country in which an optionee
may reside.

NON-STATUTORY OPTIONS

In the case of non-statutory options, no taxable income is recognized upon
grant of such an option. Taxation is deferred until the option is exercised at
which time the excess of (1) the fair market value of the common stock purchased
under the option over (2) the exercise price paid for such shares will be taxed
to the optionee at ordinary income rates, and Starbelly.com will be entitled to
a corresponding income tax deduction at that time. Upon subsequent sale of the
purchased shares, any gain or loss would be treated as a sale or exchange of a
capital asset.

INCENTIVE STOCK OPTIONS

In the case of incentive stock options, no taxable income is recognized by
the optionee at the time an incentive stock option is granted, and no taxable
income is generally recognized at the time the option is exercised. The optionee
will, however, recognize taxable income in the year in which the

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shares purchased under an incentive stock option are sold in an amount equal to
the difference, if any, between the exercise price of the incentive option stock
and the fair market value of those shares on the date of sale. To the extent any
option designated as an incentive stock option fails the statutory requirements
of such characterization, such option will be treated as a non-statutory stock
option.

For federal income tax purposes, dispositions are divided into two
categories: qualifying and disqualifying. The optionee will make a qualifying
disposition if the sale or other disposition of the option shares is made after
the optionee has held the shares for more than two years after the grant date of
the option and more than one year after the exercise date. If the optionee fails
to satisfy either of these two holding periods, then a disqualifying disposition
will result. If the optionee makes a disqualifying disposition of the purchased
shares, the optionee recognizes ordinary income to the extent of the lesser of
(1) the difference between the disposition price and the exercise price or
(2) the difference between the exercise price and the fair market value of the
stock on the date of exercise. Starbelly.com will be entitled to an income tax
deduction for the taxable year in which such disposition occurs, equal to the
amount by which the fair market value of such shares on the date the option was
exercised exceeded the option price.

COMPARATIVE MARKET PRICE DATA

HA-LO COMMON STOCK

HA-LO's common stock is traded on the New York Stock Exchange under the
symbol "HMK." The following table sets forth, for the periods indicated, the
high and low sales prices of the HA-LO common stock as reported on New York
Stock Exchange.

<TABLE>
<CAPTION>
HIGH LOW
------------------------ ------------------------
<S> <C> <C>
1998 (1)
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
1999
First Quarter............................................. 25 7/16 8 9/16
Second Quarter............................................ 14 3/4 9 1/2
Third Quarter............................................. 9 7/8 5 5/16
Fourth Quarter............................................ 9 4 7/16
2000
First Quarter (through March )..........................
</TABLE>

- ------------------------

(1) All share prices have been adjusted to take into account a 3-for-2 stock
split which was effected on February 19, 1999.

HA-LO has not paid any dividends since its initial public offering in 1992.

On January 14, 2000, the last full trading day prior to the public
announcement of the execution of the merger agreement, the last sale price of
the HA-LO common stock as reported on the New York Stock Exchange was $12 3/16.
On March , 2000, the most recent practicable date prior to the printing of
this proxy statement for which sales price information was obtainable, the last
sale price of the HA-LO common stock as reported on the New York Stock Exchange
was $ .

On March 27, 2000, there were approximately holders of record of HA-LO
common stock.

STARBELLY.COM COMMON STOCK

Starbelly.com is privately-held and there is, therefore, no established
public trading market for the Starbelly.com common stock. For information
regarding the Starbelly.com common stock, see

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"Unaudited Comparative Per Share Data" (page 13) and "Starbelly.com Selected
Historical Financial Data" (page 74).

POST-MERGER DIVIDEND POLICY

After the merger, we intend to retain earnings to finance the expansion of
our businesses. Any future dividends will be at the discretion of your board of
directors and will be determined after consideration of factors such as our
earnings, financial condition, cash flows from operations, current and
anticipated cash needs, expansion plans and any restrictions that may be imposed
under our current and future credit facilities.

THE MERGER AGREEMENT

THIS DISCUSSION SUMMARIZES THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT.
A COPY OF THE MERGER AGREEMENT IS INCLUDED IN THIS DOCUMENT AS EXHIBIT A. THIS
SUMMARY IS QUALIFIED BY REFERENCE TO THE FULL AGREEMENT, WHICH YOU ARE
ENCOURAGED TO READ.

CLOSING OF THE MERGER

The merger agreement provides that the merger will be completed when the
certificate of merger is filed with the Secretary of State of the State of
Delaware Secretary of State. If our shareholders approve the merger and all
other conditions to the merger are satisfied or waived, the merger is expected
to be completed promptly after our special meeting.

CONSIDERATION TO BE RECEIVED IN THE MERGER

If we complete the merger, Starbelly.com stockholders will receive
approximately $240 million, which amount we will pay by paying $19 million in
cash (less Starbelly.com's merger expenses in excess of $500,000) and paying the
balance by issuing 17 million shares of HA-LO common stock valued in the merger
agreement at $170 million and 5.1 million shares of HA-LO convertible preferred
stock valued in the merger agreement at $51 million. The merger consideration
includes shares of HA-LO common stock and HA-LO convertible preferred stock
issuable upon exercise of Starbelly.com's outstanding stock option which will be
assumed by HA-LO.

Ownership of HA-LO common stock and voting rights after the merger will be
substantially different than ownership and voting before the merger. When
comparing HA-LO's ownership and

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control after the merger to its ownership and control before the merger, you
should bear in mind that the Starbelly.com stockholders receiving convertible
preferred stock may convert some or all of these shares into our common stock,
and that the holders of Starbelly.com options may exercise some or all of these
options for shares of the Company's common stock and convertible preferred
stock. Moreover, the holders of the convertible preferred stock are entitled to
one vote for each of their preferred shares when matters are submitted to a vote
to the holders of our common stock. Therefore, the holders of convertible
preferred stock exercise to that extent control over matters submitted to our
shareholders even if these holders of convertible preferred stock do not convert
their shares into common stock. Assuming that former Starbelly.com stockholders
convert all their HA-LO convertible preferred stock and former Starbelly.com
optionholders exercise all assumed stock options and convert the underlying
convertible preferred stock, such persons will own in the aggregate 31% of our
common stock and our pre-merger shareholders will own 69% of the common stock.

NO CONVERSION OF OUR COMMON STOCK

Nothing will happen to your HA-LO shares as a result of the merger. They
will not be converted, and you will not need to surrender them for any exchange.
After the merger, your certificates will represent the same number of shares as
they represented before the merger.

TERMS OF THE MERGER

STARBELLY.COM'S REPRESENTATIONS AND WARRANTIES

In the merger agreement, the parties have made various customary
representations and warranties as to, among other things:

- their corporate organization and compliance with law

- their capitalization

- the enforceability of the merger agreement and the authority of the
parties to enter into the merger agreement

- absence of conflicts

- litigation

- absence of changes in their businesses

- employee benefit matters

- tax matters

- intellectual property rights

- significant contracts

- environmental matters

- related party transactions

Starbelly.com has also made representations and warranties as to, among
other things:

- its business and financial condition

- required approvals or consents to complete the merger

- financial statements and business records

- real property

- title to its assets

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- inventory and warranty matters

- Starbelly.com's ownership of our common stock

- Starbelly.com's website

- year 2000 matters

- Starbelly.com's technology systems

We have also made representations and warranties as to, among other things:

- our proper filing of periodic reports with the Securities and Exchange
Commission

- the non-applicability of the takeover statute contained in the Illinois
Business Corporation Act

- absence of a HA-LO shareholder rights plan

All of these representations and warranties will expire one year after the
merger closes.

CONDITIONS TO THE MERGER

The obligations of the parties to complete the merger are subject to
satisfaction or waiver of certain conditions on or before the closing. These
include:

- our required shareholder approval;

- the absence of a governmental order, law or private action preventing the
transaction or seeking to prevent it;

- receipt of all necessary third party and governmental consents;

- listing on the New York Stock Exchange of our shares to be issued in the
merger;

- the continuing truthfulness of the representations made in the merger
agreement;

- all parties' compliance with the merger agreement's terms;

- receipt of signed employment agreements and non-competition agreements
from certain key employees and stockholders of Starbelly.com; and

- receipt of the escrow agreements (see "--Other Agreements Related to the
Merger Agreement --Escrow Agreements" (page 68)).

Our obligation to close the merger is subject to the satisfaction or waiver
of certain additional conditions on or before the closing. These include:

- payment by Starbelly.com stockholders, board members and employees of
their debts to Starbelly.com;

- Silicon Valley Bank's exercise of its warrant to purchase 28,369 shares of
Starbelly.com Series B Convertible Preferred Stock and conversion of these
preferred shares into shares of Starbelly.com common stock (or, instead of
this warrant exercise and conversion transaction, Silicon Valley Bank's
granting its consent to be treated in the merger as if this warrant
exercise and conversion had taken place); and

- our receipt of indemnification agreements from each of Bradley Keywell,
Starbelly.com's current chief executive officer, and Eric Lefkofsky,
Starbelly.com's current president.

Starbelly.com's obligation to close the merger is subject to the
satisfaction or waiver of certain additional conditions on or before the
closing. These include:

- receipt of an opinion from its attorneys as to the tax consequences of the
merger to the Starbelly.com stockholders;

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- receipt of our agreement to release claims against the officers and
directors of Starbelly.com relating to their actions as officers,
directors and stockholders occurring before the merger closing (but not
including obligations related to the merger agreement and related
agreements);

- filing with the Secretary of State of the State of Illinois our statement
establishing the convertible preferred stock to be issued in the merger;
and

- receipt by the Starbelly.com stockholders of signed registration rights
agreements (see "--Other Agreements Related to the Merger
Agreement--Registration Rights Agreements" (page 69)).

OBLIGATIONS PENDING CLOSING

The merger agreement imposes obligations and restrictions on its parties
pending the transaction. The affirmative obligations for both parties include:

- providing access to each other's business records and management
personnel;

- operating their businesses in the usual manner;

- preserving their business relations;

- maintaining existing insurance policies;

- consulting with each other on operational matters (to the extent legally
permitted); and

- filing tax returns before their due dates.

The merger agreement also restricts the parties to agreed levels of the
following (or prohibits them entirely):

- bonuses and salary increases;

- new employee benefit plans;

- changing Starbelly.com's overall business (prohibited);

- incurrence of new debt;

- capital expenditures;

- dividends and distributions (prohibited);

- changes in capitalization (prohibited);

- acquisitions and mergers (prohibited);

- dispositions of material assets (prohibited);

- amendments to material organizational documents (prohibited); and

- soliciting the sale of Starbelly.com or HA-LO to a third party
(prohibited).

OTHER COVENANTS AND AGREEMENTS

The merger agreement requires the parties to fulfill certain other
obligations that relate to the merger and the issuance of our shares of common
stock and convertible preferred stock, including the following:

- All parties to the merger agreement must make efforts to permit the merger
to be a tax-free reorganization under the Internal Revenue Code.

- We will register for resale, in four steps, the shares of our common stock
received by the Starbelly.com stockholders in the merger and the shares of
our common stock issuable to the Starbelly.com stockholders upon their
conversion of our convertible preferred stock. These registrations will
occur beginning ten days after the merger closing and will be completed
within

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two years. See "--Other Agreements Related to the Merger
Agreement--Registration Rights Agreements" (page 69).

- We will also take certain other actions relating to the issuance of our
common stock, as needed, including filing notices for state securities law
compliance and for listing shares of our common stock on the New York
Stock Exchange.

- Each of the Starbelly.com stockholders will enter into a shareholders
agreement with us. See "--Other Agreements Related to the Merger
Agreement--Stockholders' Agreements" (page 69).

- We, Starbelly.com, and Starbelly.com's stockholders will take actions
necessary to complete the merger, including obtaining all required third
party and governmental consents. We will keep each other informed of any
events or conditions that may prevent the merger or any of the other
transactions relating to the merger.

- We and Starbelly.com will cooperate in order to obtain the tax opinion
from Starbelly.com's counsel. See "--Terms of the Merger--Conditions to
the Merger" (page 63)).

- In connection with the merger, we have agreed to give Starbelly.com
pre-merger stockholders the number of directors on the board which is
proportionate to the Starbelly.com stockholder ownership of our common
stock (assuming the conversion of our convertible preferred stock and
exercise of options) in the merger. We have agreed to place three
designees on your board and to amend our bylaws to increase the size of
your board from eight to eleven directors. Immediately following the
merger, Bradley Keywell will designate one person to serve on your board
and Eric Lefkofsky will designate two persons to serve on your board.

- We will assume the outstanding options to purchase Starbelly.com common
stock. At the time the merger closes, we will register the shares of
common stock and convertible preferred stock which are issuable upon
exercise of these options. See "Assumption of Outstanding Starbelly.com
Options."

- We agreed to loan Starbelly.com up to an additional $10 million, depending
upon when the merger is completed. Because we did not complete the merger
by March 1, 2000, we extended Starbelly.com an unsecured $5 million loan,
and because we did not close the merger by April 1, 2000, we extended
Starbelly.com another unsecured $5 million loan. These loan amounts are
not a part of the merger consideration, although under certain
circumstances (1) Starbelly.com may not be required to pay back all or a
portion of these loans if we become obligated to pay Starbelly.com
termination fees, and (2) the maturity dates of the loans may be
accelerated if we properly terminate the merger agreement.

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- We have agreed to exculpate from liability and indemnify, after the
merger, those persons who are currently Starbelly.com officers, agents,
employees and directors to the same extent that these protections are
afforded by the Starbelly.com certificate of incorporation and by-laws
immediately before the merger closes. This undertaking relates only to
actions which occurred prior to the completion of the merger.
Starbelly.com's governing documents currently provide indemnification
rights for these persons to the extent permitted under Delaware law,
subject to certain limited exceptions. We anticipate that these rights
will not change before the merger closes because, under the merger
agreement, Starbelly.com cannot amend its certificate of incorporation or
by-laws without our prior written consent. HA-LO's governing documents
effectively provide indemnification for its officers, agents, employees
and directors to the extent permitted under Illinois law, subject to
certain limited exceptions. As the Starbelly.com and HA-LO indemnification
protections are substantially similar in all material respects, we do not
expect that there will be, after the merger, material differences between
the indemnification protections extended to Starbelly.com's officers,
agents, employees and directors for pre-merger actions, on the one hand,
and those extended to HA-LO's officers, agents, employees and directors,
on the other.

- If Starbelly.com requests, we will be required to amend the merger
agreement to provide that Starbelly.com, rather than our merger
subsidiary, will be the surviving entity after the merger.

For a description of other agreements among Starbelly.com, certain
Starbelly.com stockholders and us, see "--Other Agreements Related to the
Merger--Registration Rights Agreements" (page 69), "--Other Agreements Related
to the Merger--Stockholders' Agreements" (page 69) and "--Other Agreements
Related to the Merger--Escrow Agreements" (page 68).

TERMINATION OF THE MERGER AGREEMENT

The merger agreement may be terminated at any time before the transaction is
completed:

- by mutual consent of the Starbelly.com board of directors and your board
of directors;

- by your board of directors if Starbelly.com has breached the merger
agreement and the damages we would suffer as a result of this breach would
reasonably be expected to exceed $14 million;

- by their board of directors if we have breached the merger agreement and
the damages Starbelly.com would suffer as a result of this breach would
reasonably be expected to exceed $40 million;

- by either your board of directors or Starbelly.com's board of directors if
any final decision of a governmental authority prohibits concluding the
merger;

- by either party if our shareholders fail to approve at our special meeting
the issuance of our shares in the merger or if the merger transaction is
not completed by April 29, 2000 (the "Outside Date");

- by Starbelly.com if we have not, by February 28, 2000, provided evidence
reasonably satisfactory to Starbelly.com that we have a working capital
credit facility with substantially the same terms as our current facility;
or

- by Starbelly.com if, because of your board of directors' fiduciary duties
to HA-LO shareholders, your board acts upon a proposal to enter into
certain business combinations with someone other than Starbelly.com.

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<PAGE>

provide for borrowings of up to $80 million and will be secured by the Company's
domestic assets. It is contemplated that borrowings under the new facility would
bear interest based on a defined ratio at either between prime and prime plus
0.75% or the London Interbank Offered Rate (LIBOR) plus between 1.25% and 2.25%.
The term of this facility is expected to be three years.

The maturity dates for loans we have advanced to Starbelly.com will be
extended for one year if, either:

- we are unable to close the merger by the Outside Date because certain
regulatory approvals or processes have not been completed; or

- we or Starbelly.com have properly terminated the merger agreement (not due
to any breach by Starbelly.com) and Starbelly.com cannot repay these loans
in the ordinary course of their business.

TERMINATION FEES

We have agreed to pay Starbelly.com for up to $500,000 of merger-related
expenses incurred by Starbelly.com and its stockholders plus their actual
damages up to a maximum of $10 million if:

- our shareholders do not approve the merger, or

- we are unable, by February 28, 2000, to provide evidence reasonably
satisfactory to Starbelly.com that we have a working capital credit
facility with substantially the same terms as our current facility (which
condition has been modified by Starbelly.com by extending such deadline to
April 20, 2000), or

- if, because of your board of directors' fiduciary duties to HA-LO
shareholders, your board acts upon a proposal to enter into certain
business combinations with someone other than Starbelly.com, and
Starbelly.com terminates the merger agreement.

We have also agreed that we will reimburse Starbelly.com for merger-related
expenses incurred by Starbelly.com and its stockholders, up to $500,000, if
Starbelly.com terminates the agreement because we materially breach it. Under
this circumstance Starbelly.com's obligations to pay amounts under the loans we
have extended to Starbelly.com would be extended one additional year. If,
however, our breach were to be willful and in bad faith, we would be liable to
Starbelly.com, not only for its expenses up to $500,000, but also for
Starbelly.com's actual damages, up to a maximum of $10 million.

Starbelly.com has agreed to reimburse us for our expenses related to the
merger agreement, up to $500,000, if we terminate the merger agreement because
Starbelly.com materially breaches it. Under this circumstance, Starbelly.com
would be required to pay us, within six months, all amounts outstanding under
the loans we have extended Starbelly.com. If, however, Starbelly.com's breach
were to be willful and in bad faith, Starbelly.com would be liable to us, not
only for expenses up to $500,000, but also for our actual damages, up to a
maximum of $10 million, and Starbelly.com would be immediately required to pay
us all amounts outstanding under the loans we have extended to them.

INDEMNIFICATION

FOR OUR BENEFIT

The merger agreement requires the Starbelly.com stockholders to indemnify us
for claims brought within one year against all losses, expenses (including
reasonable attorneys' fees and expenses) or liabilities arising out of any
breach by Starbelly.com of the merger agreement, up to a maximum of
$25 million. However, we are not entitled to indemnification payments unless our
damages are greater than $5 million, and, if our damages reach this threshold,
we may recover only the portion of our damages which exceeds $5 million. Our
recovery of damages through indemnification is subject to an

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important limitation. We can recover our losses only from the escrow accounts
holding $25 million of the merger consideration in the form of shares of our
common stock and convertible preferred stock. These shares will be treated as
having the same value they did at the time of the merger. See "--Other
Agreements Related to the Merger Agreement--Escrow Agreements," below.

FOR THE BENEFIT OF STARBELLY.COM'S STOCKHOLDERS

The merger agreement also provides that we will indemnify the Starbelly.com
stockholders for claims brought within one year against all losses, expenses
(including reasonable attorneys' fees and expenses) or liabilities, arising out
of our breach of the merger agreement, up to a maximum of $29 million. However,
the Starbelly.com stockholders are not entitled to indemnification payments
unless their damages are greater than $15 million, and, if their damages reach
this threshold, Starbelly.com stockholders may recover only the portion of their
damages which exceeds $15 million.

AMENDMENT AND WAIVER

The merger agreement may be amended only by mutual written agreement.
Waivers under the agreement must be in writing.

OTHER AGREEMENTS RELATED TO THE MERGER AGREEMENT

ESCROW AGREEMENTS

We have entered into separate escrow agreements with (1) five principal
Starbelly.com stockholders and an escrow agent to provide us limited protections
in the event we are entitled to indemnification under the merger agreement and
(2) two principal Starbelly.com stockholders, who will enter into employment
agreements in connection with the merger. Under the first set of escrow
agreements, when we complete the merger, these five principal Starbelly.com
stockholders will deposit $25 million of the merger consideration, consisting of
shares of our common stock and shares of our convertible preferred stock issued
in the merger, with American National Bank and Trust Company of Chicago (the
"Escrow Agent"). The Escrow Agent will hold the escrowed shares as security for
Starbelly.com's indemnification obligations under the merger agreement: if we
have a proper claim for indemnification, we are entitled to recover escrowed
shares with a value equal to our claim. If our claim is disputed, the Escrow
Agent will retain escrowed shares with a value equal to the disputed amount (but
any undisputed portion would be released to us). For purposes of the escrow
agreements, the value of our shares will be equal to their values in the merger.
Unless we have a claim pending one year after the merger closes, all remaining
shares in the escrow will be released to the former principal Starbelly.com
stockholders who originally deposited the shares into escrow.

Under the second set of escrow agreements, Bloomfield Partners Family
Limited Partnership (of which Bradley Keywell is a beneficial owner) and
Coventry Partners Family Limited Partnership (of which Eric Lefkofsky is a
beneficial owner) will each deposit 20% of their merger consideration (in the
form of HA-LO capital stock) with the Escrow Agent. Bloomfield Partners Family
Limited Partnership will deposit approximately $11.6 million on behalf of
Bradley Keywell. Coventry Partners Family Limited Partnership will deposit
approximately $11.6 million on behalf of Eric Lefkofsky. In each case, these
deposits of $11.6 million relate to the value of the merger consideration
pursuant to, and as of the date of, the merger agreement. This portion of the
merger consideration is intended to secure each of Bradley Keywell's and Eric
Lefkofsky's performance of their respective three-year employment agreements
after the merger. See "--Employment Agreements With Key Executives." If either
Mr. Keywell or Mr. Lefkofsky defaults under his respective employment agreement,
Bloomfield Partners (in the case of a default by Mr. Keywell) or Coventry
Partners (in the case of a default by Mr. Lefkofsky) will forfeit the escrowed
shares escrowed under these agreements. However, we have agreed that a portion
of the escrowed shares will be released to each of Bloomfield Partners and

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Coventry Partners each year provided that no employee default has occurred for
Mr. Keywell or Mr. Lefkofsky, respectively. The Escrow Agent will release 100%
of the escrowed shares on the third anniversary of the merger closing, if no
employee default has occurred before that time.

STOCKHOLDERS' AGREEMENTS

Starbelly.com stockholders with an approximate 94% of the stockholder voting
power have already approved the merger and have entered into separate agreements
with us ("Stockholders' Agreements") restricting these stockholders from
revoking their approval (or agreeing to a competing business combination)
between the date of the merger agreement and the completion of the merger
(unless the merger agreement is earlier terminated and except as Delaware law
may otherwise require). These Stockholders' Agreements also contain customary
investment representations regarding the stockholders' acquisition of our common
stock and convertible preferred stock in the merger.

Of the Starbelly.com stockholders who have executed these agreements,
holders of shares representing 69% of our common stock to be issued in the
merger (assuming conversion of shares of convertible preferred stock but
excluding exercise of assumed options) have agreed, for a period of three years
after the merger closing and subject to certain limitations contained in the
Stockholders' Agreements; to refrain from certain transactions involving our
capital stock and management of our company, including:

- future acquisitions of more than 1% of our common stock (assuming the
conversion of convertible preferred stock and the exercise of outstanding
options);

- acting or seeking to control our management, board of directors or
policies; and

- transferring shares of our capital stock to another person who, after the
transfer, would own more than 10% of the voting power of HA-LO.

In addition, the two Starbelly.com stockholders who are also key
Starbelly.com employees, Bradley Keywell and Eric Lefkofsky, have also agreed to
certain restrictive covenants which apply after the merger. Upon the merger
closing, each of Mr. Keywell and Mr. Lefkofsky will enter into separate
five-year agreements restricting them from competing against us, using or
disclosing our proprietary information or soliciting our employees or customers.

REGISTRATION RIGHTS AGREEMENTS

These agreements between HA-LO and each of the Starbelly.com stockholders
specify in greater detail our obligations to register our common stock and
convertible preferred stock for the Starbelly.com stockholders (see "--Other
Covenants and Agreements"). We are required to register for resale, in four
steps, the shares of our common stock received by the Starbelly.com stockholders
in the merger and the shares of our common stock issuable to the Starbelly.com
stockholders upon their conversion of convertible preferred stock. We will
register 25% of these shares within ten days after completion of the merger, an
additional 15% within three months after completion of the merger, an additional
33 1/3% of these shares within nine months after completion of the merger and
the remaining shares within two years after completion of the merger. We are
required to register for resale any shares of our common stock issuable upon
conversion of preferred stock by one of the Starbelly.com stockholders, Chase
Venture Capital Associates, L.P., and for any of its affiliates, within 30 days
after its notice of conversion, to the extent not already registered. We are
responsible for paying expenses relating to the registration, but the
Starbelly.com stockholders are responsible for paying any selling commissions
and attorneys' fees.

Under these agreements, we have also agreed to indemnify a seller or
underwriter of our common stock against all losses, expenses (including
reasonable attorneys' fees and expenses) or liabilities resulting from an untrue
statement (or omission of an important fact) in the resale prospectus for the

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registered shares, unless such damages relate to an untrue statement (or
omission of an important fact) that someone else furnished (or neglected to
furnish) us. However, principal Starbelly.com stockholders have agreed to
indemnify us against losses, expenses (including reasonable attorneys' fees and
expenses) or liabilities under the securities laws as a result of an untrue
statement (or omission of an important fact) that they furnished (or neglected
to furnish) to us for the resale prospectus or this proxy statement.

The registration agreements also contain customary investor representations
from the Starbelly.com stockholders.

HA-LO LOANS TO STARBELLY.COM

On January 6, 2000, while negotiating the merger agreement but before the
merger agreement was signed, we loaned Starbelly.com $5 million on an unsecured
basis, and, upon signing the merger agreement, we extended Starbelly.com an
additional unsecured $5 million loan. Under the merger agreement, we extended
Starbelly.com additional unsecured loans of $5 million each on March 1, 2000 and
April 1, 2000 because we did not complete the merger by such dates. These loan
amounts are not a part of the merger consideration, although under certain
circumstances (1) Starbelly.com may not be required to pay back all or a portion
of these loans if we become obligated to pay Starbelly.com termination fees, and
(2) the maturity dates of the loans may be accelerated if we properly terminate
the merger agreement.

EMPLOYMENT AGREEMENTS WITH KEY EXECUTIVES

At the time the merger closes, we will enter into three-year employment
agreements with each of Bradley Keywell, who will become president of HA-LO, and
Eric Lefkofsky, who will become chief integration officer of HA-LO. Under Mr.
Keywell's agreement, so long as Mr. Keywell's employment agreement is in effect,
he will have a right to request the board of directors to nominate his designee,
and if he does so, our board of directors (within legal limits) is required to
present such designee to our shareholders as nominee for election to the board
of directors. Under Mr. Lefkofsky's agreement, so long as his employment
agreement is in effect, he will have the right to request the board of directors
to nominate and the board of directors (within legal limits) is required to
present two designees to our shareholders as nominee for election to the board
of directors. Under each of these agreements, the key executive agrees to the
following:

- maintain confidentiality;

- assign works made for hire to HA-LO; and

- refrain, during the term of the employment agreement and for two years
afterward, from competing against HA-LO or soliciting its employees or
customers.

If either Messrs. Keywell or Lefkofsky defaults under their respective
agreements, certain shares of HA-LO common stock received as Merger
Consideration in which Mr. Keywell or Mr. Lefkofsky, respectively, hold a
beneficial interest will be forfeited. See "--Escrow Agreements."

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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

HA-LO AND STARBELLY.COM PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The following unaudited Pro Forma Combined Condensed Balance Sheet reflects
adjustments computed assuming that the merger had closed as of December 31,
1999. The unaudited Pro Forma Combined Statements of Operations reflect
adjustments computed assuming that the merger had closed on March 22, 1999 (the
date of inception of Starbelly.com), and carried forward through December 31,
1999. Accordingly, the effects of pro forma adjustments on income are not
reflected in retained earnings on the Pro Forma Balance Sheet. The pro forma
information gives effect to the merger under the purchase method of accounting
and to the assumptions and adjustments described in the accompanying notes to
the pro forma combined condensed financial statements.

The pro forma combined condensed financial statements are based on the
historical financial statements of HA-LO and the related notes thereto
incorporated herein by reference and the historical financial statements of
Starbelly.com and the related notes thereto included elsewhere herein. These pro
forma statements are presented for informational purposes only and may not
necessarily be indicative of the results that actually would have occurred had
the merger been consummated at the dates indicated, nor are they necessarily
indicative of future operating results or financial position.

HA-LO AND STARBELLY.COM PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------
PRO FORMA PRO FORMA
HA-LO STARBELLY.COM ADJUSTMENTS COMBINED
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................... $650,412 $ 347 $ -- $650,759
Cost of sales--Recurring.................... 424,040 309 -- 424,349
Cost of sales--Non-recurring................ 2,653 -- -- 2,653
-------- ------- -------- --------

Gross Profit.............................. 223,719 38 -- 223,757

Selling expenses............................ 94,280 2,689 -- 96,969
General and administrative expenses......... 125,010 6,051 40,328 (D)(G) 171,389
Non-Recurring Charges....................... 27,347 -- -- 27,347
-------- ------- -------- --------

Loss from operations...................... (22,918) (8,702) (40,328) (71,948)

Other income (expense), net................. 355 129 (1,346)(C) (862)
-------- ------- -------- --------

Loss before taxes......................... (22,563) (8,573) (41,674) (72,810)

Income tax benefit.......................... (9,025) -- (3,968)(F) (12,993)
-------- ------- -------- --------

Net loss for the period..................... $(13,538) (8,573) $(37,706) $(59,817)
======== ======= ======== ========

Net loss per share:
Basic/Diluted............................. $ (0.28) $ (0.51) $ (0.97)

Weighted Average Shares Outstanding:
Basic/Diluted............................. 48,598 16,755 (3,495)(E) 61,858
</TABLE>

See Notes to Pro Forma Combined Condensed Financial Statements

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HA-LO AND STARBELLY.COM PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HA-LO STARBELLY.COM ADJUSTMENTS COMBINED
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 10,729 $ 3,341 -- $ 14,070
Short-term investments....................... -- -- -- --
Receivables.................................. 178,712 205 -- 178,917
Inventories.................................. 37,746 43 -- 37,789
Prepaid expenses and deposits................ 17,406 220 -- 17,626
-------- ------- -------- --------
Total current assets....................... 244,593 3,809 -- 248,402
-------- ------- -------- --------
PROPERTY AND EQUIPMENT, NET.................... 37,003 1,855 -- 38,858
-------- ------- -------- --------
OTHER ASSETS:
Intangible assets, net....................... 77,111 -- 219,459 (A) 296,570
Due from related party....................... -- 338 -- 338
Other........................................ 21,596 -- -- 21,596
-------- ------- -------- --------
Total other assets......................... 98,707 338 219,459 318,504
-------- ------- -------- --------
$380,303 $ 6,002 $219,459 $605,764
======== ======= ======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt......... $ 984 $ 244 -- $ 1,228
Book overdraft............................... 3,177 -- -- 3,177
Accounts payable............................. 58,729 1,920 -- 60,649
Accrued expenses:
Other...................................... 38,565 2,168 -- 40,733
Restructuring.............................. 3,771 -- -- 3,771
-------- ------- -------- --------
Total current liabilities.................. 105,226 4,332 -- 109,558
LONG-TERM DEBT,
less maturities shown above.................. 21,230 558 23,000 (C) 44,788
-------- ------- -------- --------
ACCRUED RESTRUCTURING EXPENSES................. 11,863 -- -- 11,863
DEFERRED LIABILITIES........................... 5,438 -- -- 5,438
-------- ------- -------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CONVERTIBLE PARTICIPATING PREFERRED
STOCK........................................ -- -- 51,000 (A) 51,000
SHAREHOLDERS' EQUITY:
Preferred stock.............................. -- 7 (7)(B) --
Common stock................................. 214,060 18 169,982 (A) 384,060
Note receivable from stockholder............. -- (10) 10 (B) --
Additional paid-in capital................... -- 9,670 (9,670)(B) --
Other........................................ (3,747) -- (23,429)(A) (27,176)
Retained earnings (deficit).................. 26,233 (8,573) 8,573 (B) 26,233
-------- ------- -------- --------
Total shareholders' equity................. 236,546 1,112 145,459 383,117
-------- ------- -------- --------
$380,303 $ 6,002 $219,459 $605,764
======== ======= ======== ========
</TABLE>

See Notes to Pro Forma Combined Condensed Financial Statements

72
<PAGE>
NOTES TO HA-LO AND STARBELLY.COM PRO FORMA COMBINED CONDENSED BALANCE SHEET

<TABLE>
<S> <C>
(A) The following is a summary of the purchase price and its
components assumed for the pro forma financial statements.

Purchase Price:
Common Stock.............................................. $ 170,000
Convertible participating preferred stock................. 51,000
Cash...................................................... 19,000
Cost and fees of acquisition................................ 4,000
Less: Net tangible assets acquired.......................... (1,112)
Less: Contingent purchase consideration..................... (23,429)
---------
Goodwill.................................................... $ 219,459
=========

(B) To eliminate the historical equity accounts of
Starbelly.com.

(C) To record the effects of additional financing incurred
to fund the acquisition and the related interest charges
for the period at an interest rate of 7.5%.
</TABLE>

<TABLE>
<CAPTION>
12/31/99
---------
<S> <C>
Assumed additional debt borrowings (cash plus cost and fees
of acquisition)........................................... $ 23,000
Assumed interest rate....................................... 7.5%
---------
Annual interest expense..................................... 1,725
---------
Percentage of period included............................... 78%
---------
Additional interest expense 3/22/99--12/31/99............... $ 1,346
=========

(D) To record amortization of goodwill over 5 years on a
straight-line basis.

12/31/99
---------
Goodwill.................................................... $ 219,459
Amortization period......................................... 5
---------
Annual Amortization expense................................. 43,892
---------
Percentage of period included............................... 78%
---------
Amortization expense 3/22/99--12/31/99...................... $ 34,236
=========

(E) To adjust the weighted average shares for the shares
issued in the acquisition.
12/31/99
---------
Common stock issued in the transaction...................... 17,000
Percentage of period included............................... 78%
---------
Target adjusted weighted average shares outstanding......... 13,260
Target weighted average shares outstanding from
3/22/99--12/31/99......................................... 16,755
---------
Pro forma share adjustment.................................. (3,495)
=========

(F) To record income tax benefit on proforma adjustments
affecting income.
<CAPTION>
12/31/99
---------
Pro-forma loss before taxes. ) (72,810
<S> <C>
Less: Non-deductible goodwill and deferred compensation
amortization.............................................. 40,328
---------
Taxable loss................................................ (32,482)
Tax rate.................................................... 40.0%
---------
Benefit..................................................... (12,993)
Less: Benefit recorded in HA-LO............................. (9,025)
---------
Pro Forma Adjustment........................................ $ (3,968)
=========

(G) To record compensation expense related to contingent
purchase consideration.
<CAPTION>
12/31/99
---------
Contingent Consideration. $ 23,429
<S> <C>
Amortization period......................................... 3
---------
Annual Amortization expense................................. 7,810
---------
Percentage of period included............................... 78%
---------
Amortization expense 3/22/99--12/31/99...................... $ 6,092
=========
</TABLE>

73
<PAGE>
STARBELLY.COM SELECTED HISTORICAL FINANCIAL DATA

The following tables set forth selected historical financial data and other
operating information for Starbelly.com for the period March 22, 1999 (its date
of inception) to December 31, 1999. The selected financial information for the
period has been derived from the Financial Statements of Starbelly.com, which
have been audited by Arthur Andersen LLP, independent auditors to Starbelly.com,
and from the underlying accounting records of Starbelly.com. Operating results
from the date of inception to December 31, 1999 are not necessarily indicative
of future results.

All information contained in the following tables should be read in
conjunction with "Starbelly.com's Management's Discussion and Analysis of
Financial Condition and Results of Operations" (page 75), "Unaudited Pro Forma
Combined Condensed Financial Information" (page 71) and with the Financial
Statements and related notes of Starbelly.com included herein. Certain amounts
from the statements of operation of Starbelly.com have been reclassified to
conform with the presentation below.

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
-------------------------
<S> <C>
INCOME STATEMENT DATA:
Net sales................................................. $ 347
Net loss.................................................. $(8,573)
Diluted loss per share.................................... $ (0.51)

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................................. $ 6,002
Working capital........................................... $ (523)
Long-term debt, net of current portion.................... $ --
Stockholders' equity...................................... $ 1,112
</TABLE>

74
<PAGE>

STARBELLY.COM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

Starbelly.com intends to create a leading e-commerce marketplace for the
custom-decorated merchandise industry. Starbelly.com believes that its business
model can 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 also believes its offerings will extend the reach of current sales
and marketing channels to not only large corporations, but also small- to
mid-size businesses, associations, smaller promotional product distributors, and
consumers.

Starbelly.com intends to unify key aspects of the custom-decorated
merchandise supply chain through integrated fulfillment systems. These systems
will ultimately act together as a single efficient interface between the
end-user and the other elements of the supply chain, such as blank merchandise
suppliers, decorators, customer service representatives and shippers. Starbelly
intends to remove several links in the traditional supply chain, providing its
customers with exceptional convenience, a simplified customizing and ordering
process, faster delivery, lower costs and enhanced customer experience. In
addition, by accessing the national distributor network directly, Starbelly.com
is establishing a virtual distribution network with key distributors that
provides it with just-in-time inventory of a large selection of hard and soft
goods thereby minimizing the inventory requirements for both Starbelly.com and
its customers.

Starbelly.com was incorporated in Delaware on March 22, 1999. Its primary
activities since inception have been raising equity capital to fund operations;
developing and refining its business model; and recruiting and hiring employees
in technology, sales and marketing, operations, and administration. To date,
Starbelly.com has not realized significant revenues and only a small percentage
of such revenues have been generated through the Internet.

RESULTS OF OPERATIONS

Due to Starbelly.com's limited operating history, it believes that its
results of operations are not overly meaningful and should not be relied upon as
an indication of future performance. The results of operations are for the
period from inception, March 22, 1999, through December 31, 1999.

NET SALES. Since inception, Starbelly.com has been in the development stage
and has recognized approximately $347,000 of sales. Substantially all such sales
prior to October 1, 1999 were generated by traditional off-line means.
Starbelly.com's first StarStores came on-line in October 1999 and Internet sales
represented approximately 1% of its sales in the fourth quarter 1999. Net sales
relate to the sale of custom-decorated merchandise to business customers.
Starbelly.com's three largest customers, NFL Properties, Inc., Quaker Oats
Company, and Jim Beam Brands, Co. accounted for approximately 17.3%, 12.9%, and
7.7% of net sales for the period, respectively.

COST OF SALES. Starbelly.com's cost of sales for the period was
approximately $309,000, resulting in a gross profit margin of approximately 11%.
Cost of sales includes the cost of blank product, decoration, and freight and
handling. Starbelly.com's gross profit margin was negatively impacted during the
period by charges incurred to re-decorate products that were initially
incorrectly decorated. COD charges result from the fact that, due to its limited
operating history, Starbelly.com did not have open credit terms with some of its
suppliers, which also negatively impacted gross margins.

SALES, MARKETING AND OPERATIONS EXPENSES. Starbelly.com incurred
approximately $2,689,000 of sales, marketing and operations expenses during the
period. These expenses are comprised mainly of compensation and benefits for
personnel engaged in sales, marketing, merchandising, business development, and
operations; certain consulting costs; advertising and promotion activities; and
other

75
<PAGE>

miscellaneous sales and marketing activities. Starbelly.com expects to incur
substantial expenses in this area in the future as it expands its sales and
business development efforts, builds out its operating infrastructure, and
continues to build brand name recognition through advertising and promotional
activities.

TECHNOLOGY AND DEVELOPMENT EXPENSES. Starbelly.com incurred approximately
$3,258,000 of technology and development expenses during the period. These
expenses are comprised primarily of compensation and benefits for personnel
engaged in the design and development of Starbelly.com's website and the
maintenance and support of Starbelly.com's internal systems and infrastructure;
and consulting expenses related to development of Starbelly.com's technology
strategy and website. Starbelly.com believes that it will be necessary to
continue to invest heavily in technology and development to remain competitive.

GENERAL AND ADMINISTRATIVE EXPENSES. Starbelly.com incurred approximately
$2,791,000 of general and administrative expenses during the period. These
expenses are comprised primarily of compensation and benefits for executive and
administrative personnel, facilities, professional services and other general
corporate activities. Starbelly.com believes that its general and administrative
expenses will grow substantially as it expands its infrastructure to support its
business.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, Starbelly.com has financed its operations primarily
through the private placement of equity securities, raising approximately
$9.5 million through December 31, 1999. At December 31, 1999, Starbelly.com had
approximately $3.3 million in cash and cash equivalents. Starbelly.com has had
significant negative cash flows from operating activities since inception.

Net cash used in operating activities for the period totaled approximately
$4.9 million. Cash used in operating activities consisted primarily of net
operating losses, increases in accounts receivable, due from related party, and
prepaid expenses, which were partially offset by increases in accounts payable
and accrued expenses.

Net cash used in investing activities for the period totaled approximately
$2.1 million and consisted primarily of capital expenditures for computer and
technology equipment, purchased software, and other equipment.

Net cash provided by financing activities for the period totaled
approximately $10.4 million, comprised primarily from the proceeds from the
private sale of convertible preferred stock. Starbelly.com also borrowed
approximately $848,000 from a bank as an equipment loan.

Starbelly.com believes it will require substantial additional working
capital to continue to fund the growth of its business. Starbelly.com believes
its sale to HA-LO Industries, Inc. will allow it to have the available working
capital to fund the growth of its business.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, Accounting for the
Costs of Computer Software Developed for Internal Use. SOP 98-1 requires
entities to capitalize some of the costs related to internal-use software once
the applicable criteria have been met. Starbelly.com has adopted SOP 98-1.

In April 1998, the AICPA issued SOP 98-5, Reporting for the Costs of
Start-Up Activities. SOP 98-5 requires that all start-up costs related to new
operations be expensed as incurred. Starbelly.com has adopted SOP 98-5, which
did not have a material impact on its financial statements.

76
<PAGE>
THE BUSINESS OF STARBELLY.COM

GENERAL

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 services, or sell such goods or services directly to consumers via the
Internet. 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.

DISTRIBUTION CHANNELS

Starbelly.com intends to implement its custom-decorated merchandise
marketplace so as to provide multiple customized interfaces for four different
distribution channels. The custom-decorated 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 Starbelly.com refers are four
separately designed e-commerce mediums which facilitate order placement for
these four distribution channels: (1) business-to-business,
(2) business-to-consumer, (3) Internet properties, and (4) promotional product
distribution. Each of these customized interfaces is being developed for
Starbelly.com's Web site and StarStores (Starbelly.com's virtual storefront for
its customers). StarStores are customized Web interfaces that are linked to a
customer's Web site which function as online catalogs that can be customized and
adapted to the customer's specific needs. These StarStores present a compelling
affiliate model for Starbelly.com, meaning that they enhance Starbelly.com's
ability to promote the branded identity of its customers with greater
efficiency. Starbelly.com builds StarStores for customers. These are located on
Starbelly.com's servers and are designed to require limited user maintenance.
Starbelly.com currently has agreements with over 100 businesses to create
customized StarStores and as of March 15, 2000 has deployed over 30 of these
StarStores. Starbelly.com believes its Web site, Starbelly.com, will be
accessible to customers by June 1, 2000. The Web site will be customized for
both private password secured access and general public access.

In management's estimate, Starbelly.com plans to provide these customized
interfaces for all four of its distribution channels by June 1, 2000, without
facing any significant technological obstacles, requiring any additional
contracts or commercial relationships or incurring any inordinate expenses.
However, Starbelly.com management does believe additional usability testing
needs to be completed and can be completed prior to the anticipated availability
date of June 1, 2000. Starbelly.com will test its integrated fulfillment system
against its internal Quality Assurance program the week of April 7, 2000, which
will test for functionality and usability. By April 30, 2000, Starbelly.com
believes it will have commenced more expansive trials, including principally its
system's password protection features, with

77
<PAGE>

select audiences, which it expects to complete by May 30, 2000. Starbelly.com
expects that its Web site will become publicly available by June 1, 2000, but
has not determined when it will officially launch its public access to its Web
site, or promote it aggressively.

As discussed above, Starbelly.com targets its marketing efforts on four
distribution channels:

BUSINESS-TO-BUSINESS. Starbelly.com intends to offer multiple solutions to
meet the diverse needs of participants in the business-to-business market.
First, Starbelly.com intends to provide businesses with a password protected
private version of Starbelly.com for their promotional product needs including
storing and policing the use of their logos. Starbelly.com and its customers can
store digital copies of logos on Starbelly.com's password protected site. The
site will secure the logos so that they only are accessible by individuals
possessing the relevant passwords so that, for example, non-authorized parties
will not have access to a company's trademarked logo. This site will also use
digital asset management system software which will regulate and govern the
manner in which a customer's logo may be applied to merchandise. For instance,
customers providing the logo will be able to limit the number, size, type or
color of the product to which their digital logos can be applied and also
establish limits as to size, color and other matters with respect to the manner
of presentation. Starbelly.com believes that the customer's ability to limit the
use of their logos in this manner will be important to them. Second, customers
will be able to access Starbelly.com's marketplace through a private, customized
Starbelly.com interface for the procurement of uniforms. Starbelly.com believes
that that will permit certain customers to sell in the business-to-business
market while maintaining very little inventory and customize their marketing
efforts for specific regions or other criteria. Third, Starbelly.com intends to
provide hosted StarStores for its business customers that reside on an intranet
or extranet and provide a customized "company store" that carries selected
merchandise chosen by Starbelly.com's customer. Starbelly.com has developed over
thirty StarStores since October 1999 and will continue to implement StarStores
as an effective marketing strategy. Finally, Starbelly.com intends to enable its
customers to market custom created promotional/incentive products to their
customers using selections from Starbelly.com's marketplace.

INTERNET PROPERTIES. Starbelly.com intends to provide content sites,
community sites and commerce sites on the Web with virtual StarStores offering
merchandise featuring these sites' own brands or logos with virtually no
inventory commitments for those sites. In addition, Starbelly.com can offer high
traffic Web sites, such as portals and community sites, the ability to offer the
full Starbelly.com site on their Web site with Starbelly.com providing the
hosting and fulfillment. This function is expected to be available June 1, 2000
after additional usability testing is completed.

PROMOTIONAL PRODUCT DISTRIBUTORS. Starbelly.com is designed to make
available to the fragmented network of over 17,000 small- to medium-sized
promotional product distributors their own private label versions of
Starbelly.com. This will provide participating distributors with an Internet
presence and access to Starbelly.com's automated fulfillment system, which would
be expected to facilitate business development for those distributors.
Starbelly.com's role in sales on these sites will be invisible to the purchasers
from these distributors. It is anticipated that pricing by Starbelly.com would
include a portion of the revenue generated from orders on those sites.
Starbelly.com expects to implement this marketing strategy, similarly to the way
it implemented the StarStores strategy which it will continue to implement to
effectively create captive markets.

BUSINESS-TO-CONSUMER. Starbelly.com plans to offer consumers the ability to
interactively customize and design products on Starbelly.com's Web site by
June 1, 2000. The Starbelly.com Web site will offer consumers access to an
extensive library of blank products, as well as a database of images that can be
used to decorate the products. Consumers will also be able to store their own
images to be used for decoration. In addition, Starbelly.com intends to offer
templates that provide their customers with ideas and graphic options to assist
them in designing a product from blanks, as well as offer predesigned
merchandise selected in anticipation of consumer tastes or buying trends during
or for certain seasons,

78
<PAGE>

holidays or special events. However, additional usability testing needs to be
completed prior to the anticipated availability date.

TARGET CUSTOMERS

Starbelly.com's target market consists of all companies, groups and
associations that are engaged in promoting their brands or identities through
the application of their brands on to physical merchandise. For example, brand
managers for beverages, food, products, financial services, manufactured
products, consumer and business-to-business services, and team sponsors will be
able to design or select a product designed by Starbelly.com through the
Internet and place an order for any quantity of items selected. Additionally,
team sponsors, universities, colleges, national fraternities and sororities and
other groups may also lodge their logos, or other identity with Starbelly.com's
Web site and permit ordering by authorized individuals. These are essentially
the same target customers as Starbelly.com's "bricks-and-mortar" competitors.
Starbelly.com plans to use the Internet to provide more services to a larger
audience, particularly to smaller enterprises, than existing service providers.

ORDER FULFILLMENT

Starbelly.com has developed an integrated fulfillment system which can be
used to coordinate and track each stage in the process of the supply of
promotional products, including preparation, manufacture, distribution, and
ultimate delivery of the end product, other than the supply of blank product.
Starbelly.com primarily relies on its automated fulfillment system designed to
integrate the front-end customer interface system with the back-end production
system. The front-end customer interface system receives and processes order
placement through the specially designed web page for the distribution channel
through which the order is placed. The back-end production system fulfills
orders through automated production scheduling, tracking and delivery of both
blanks and products with Starbelly.com's suppliers. Starbelly.com believes that
its automated fulfillment system provides a main advantage over its competitors.
Starbelly.com directly performs or has established relationships with key
suppliers at each stage of the process. As a result, it intends to provide its
customers with a one-stop source for their custom-decorated merchandise.

Starbelly.com generally does not (and plans not to) own the decoration
machines or employ or manage the people operating them. Starbelly.com intends to
require its contract suppliers (which include, for example, embroiderers and
screen press operators) to use Starbelly.com's production automation systems and
quality control procedures and be connected by the Internet to Starbelly.com.
Through these systems, Starbelly.com will be able to monitor and schedule its
suppliers' production of Starbelly.com ordered products. Starbelly.com has
entered into more than thirty contractual relationships with suppliers to
implement its production automation systems and quality control procedures.
Starbelly.com has developed relationships with a number of blank suppliers,
including soft goods distributors and hard goods suppliers, and is actively
seeking to develop more of such relationships with other distributors and
suppliers. In these relationships, Starbelly.com aims to establish exclusive
on-site decorating facilities at the distribution warehouses of these suppliers
to provide decoration services for products that are sold on Starbelly.com's Web
site and other sites maintained by Starbelly.com and to have them agree that
Starbelly.com will be the exclusive supplier of decorated goods for their
customers.

When fully operational, Starbelly.com anticipates that its proprietary
technology will provide real-time tracking of orders at any stage within the
production process. Starbelly.com believes that access to such real time
information from its suppliers will strengthen its relationships with those
suppliers. Starbelly.com believes that its fulfillment system is flexible and
scalable and will allow it to control the supply chain while minimizing capital
expenditures.

In all soft goods categories and certain hard goods categories,
Starbelly.com intends to align its relationships and asset structure (Web site,
StarStore arrangements, integrated and automated

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<PAGE>

fulfillment system and customized interfaces for the four target distribution
channels) to coordinate the entire production and fulfillment process. In doing
so, Starbelly.com expects to realize significant economies of scale and cost
savings that it will be able to pass on to its customers. In other hard goods
categories, however, suppliers from whom Starbelly.com has placed orders
traditionally stock the inventory, control the pre-press steps and decorate the
product. Starbelly.com has access to over 2,500 of these hard goods distributors
who provide it with a one-stop supply of fully-decorated goods and ensure it a
large, virtual inventory of hard goods. As of March 15, Starbelly.com has
ordered products through over 100 of these suppliers and distributors.
Management believes that blank soft goods are, and will continue to be,
available on economical terms. This expectation of availability of blanks on
economical terms is supported by commercial experiences of both Starbelly.com
and HA-LO. As of March 15, 2000 orders processed by Starbelly.com since
inception were comprised of approximately 40% hard goods and 60% soft goods.

Starbelly.com intends to further streamline the production process by giving
its customers greater control over the design of their products. In the
traditional offline process, advertising specialty companies work with
decorators before the outsourced decoration process can begin. This model tends
to result in numerous meetings and cost mark-ups, in addition to a three to six
week delivery time. In contrast, under Starbelly.com's model, customers will use
the multiple interfaces to its StarStores and Starbelly.com Web site to select
their blanks, create their designs and approve online samples all with mouse
clicks. This will enable the customer to complete the pre-press and approval
process before the initial order is placed and would reduce, and in some cases
eliminate, the pre-press errors that can occur in the offline process.

ADVANTAGES TO STARBELLY.COM'S MARKETPLACE SOLUTIONS

Starbelly.com's marketplace solutions are the (1) four customized web site
interfaces, (2) StarStores arrangements and (3) its Web site, all used in
conjunction with Starbelly.com's integrated and automated fulfillment system.
The marketplace solutions are intended to or are designed to provide the
following key benefits:

"CLICKS AND MORTAR" INFRASTRUCTURE. Starbelly.com intends to combine the
interactive advantages of the Internet, its integrated production, tracking and
delivery software and access to significant decorating capacity to provide a
customer focused solution to its customers' needs. Starbelly.com's relationships
with its current decoration suppliers provide committed capacity to decorate
30,000 screenprint units per day and 10,000 embroidered units per day.
Management believes these capacities may be expanded readily to the extent
needed to meet increased customer demand.

VIRTUAL INVENTORY. Starbelly.com's access to distributors provides it and
its customers with just-in-time inventory capabilities. For this reason,
Starbelly.com and its customers should be able to minimize their inventories of
decorated products.

BRAND VARIETY. The blank product market includes some of the most
recognizable brands. The broad selection of blank products accessible to
Starbelly.com provides its customers with access to the brands that enable its
customers to make these brands their own through customization. In addition,
Starbelly.com plans to enhance its own brand through association with these
recognizable brands.

INTERACTIVE AND CUSTOMIZED DECORATION. Customers will be able to design
their own products in real-time with the results of their customization
presented immediately online. This process not only pushes the design power and
accountability to Starbelly.com's customers but also eliminates the
time-consuming pre-press aspects of the traditional supply chain.

NO MINIMUM ORDER SIZE. Starbelly.com's fulfillment infrastructure,
including its Internet site and its automated production system, which currently
provides integrated process of selecting the product to be decorated and the
method and content of the decoration, permits customers to generally order in

80
<PAGE>

any quantity, including a single piece, which deviates from the traditional
sourcing system that requires larger orders.

As discussed above, Starbelly.com has software in place to monitor the
production process and has established extensive relationships with suppliers,
decorators and other providers of goods and services through the process from
purchase of "blank" goods to delivery of the finished goods.

SIGNIFICANTLY LOWER PRICES RELATIVE TO TRADITIONAL PROVIDERS. Starbelly.com
believes that due to favorable pricing from its network of distributors and its
ability to deal directly with suppliers through the Internet, it is able to
purchase goods and services at prices which are generally less than those which
must be paid by most off-line providers who often purchase product from
commissioned distributors.

CUSTOMERIZATION.-TM- Rather than a salesperson-driven business model,
Starbelly.com's marketplaces are designed to be buyer-focused. Starbelly.com's
buyers "pull" the entire manufacturing process, meaning that once an order is
placed, the manufacturing process is triggered. Starbelly.com believes that its
interactive, dynamic user experience that includes "cutting-edge" customization
technology, will result in adoption and loyalty among its customer groups.

DIGITAL ASSET MANAGEMENT CAPABILITIES. Starbelly.com stores its customers'
digital artwork and maintains a database such that it is easily accessible at
any time. In addition, Starbelly.com allows its customers to determine the
business constraints around which their valuable brands may be used for
decorated products, thereby providing the proper "policing" of its customers'
digital assets.

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PRODUCT CATEGORIES AND BRANDS

Starbelly.com offers a large selection of soft and hard goods in its
custom-decorated merchandise marketplace. These include:

<TABLE>
<CAPTION>
SELECTED LIST OF SOFT GOODS OFFERED SELECTED LIST OF HARD GOODS OFFERED
- -------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
T-shirts Windwear Leather Items Pottery
Polo shirts Uniforms Paperweights Pins/Pendants
Sweatshirts Robes Awards Magnets
Hats Towels Food Products Sunglasses
Polar Fleece Sheeting Candy/Gum Coolers
Jackets/Movers Outerwear Children's Furniture Calendars
Button-down shirts Corporate Uniforms Mugs Computer Items
Denim Jackets Aprons Plates Golf Balls
Windbreakers Cooking Mits Crystal Beverage Holders
Baby Clothes Bags/Luggage Frames Handy Knives
Hunting Clothes Umbrellas Clocks Toys
Sweaters Briefcase/Folios Pens/Pencils Luggage Tags
Scarves Mouse Pads
</TABLE>

Through the broad-based distribution market for blanks, Starbelly.com also
offers its customers access to a wide range of well-known brands for soft and
hard goods. Starbelly.com has not generated any international sales thus far.
However, through its Internet site, Starbelly.com products are accessible to
customers worldwide. Starbelly.com has made arrangements with shipping companies
to provide for international delivery of products. Starbelly.com intends to
offer through its Web site blanks of the following brands:

SELECTED LIST OF BRANDS OFFERED

<TABLE>
<S> <C>
Champion Jerzees
Hanes Gildan
Lee Munsingwear
Columbia Sportswear Jonathan Corey
Fruit of the Loom Outer Banks
Cross Creek Spaulding
Russell Athletic Arrow
Country Cottons Timberline Colorado
Gerber Childrenswear Fieldcrest Cannon
Weatherproof Bic pens
Bill Blass Cross pens
Eastpak Waterford
Patagonia Swiss Army
Rawlings Golden Bear
Antigua Bike
Port Authority Bickies
London Fog Anvil
Van Heusen New Era
</TABLE>

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<PAGE>

TECHNOLOGY

Starbelly.com is developing its front-end interactive customization, its
digital asset management and its back-end fulfillment technology to handle a
high volume, complex supply chain. The key components of its technology include:

ARCHITECTURE

Starbelly.com's underlying architecture not only addresses structure and
behavior but has been designed to address usage, functionality, performance,
resilience, reuse, comprehensibility, economic and technology constraints and
trade-offs, and aesthetic concerns. Starbelly.com has followed proven design
methodologies to create a reliable and adaptable architecture.

The Starbelly.com network provides online sales and procurement solutions
for the customized apparel industry. Starbelly.com's technology is based on thin
client architecture which means the applications are hosted on Starbelly.com's
servers, accessed through user's Internet browsers and is highly scalable to
support growth in transactions and offerings. This allows users to access
Starbelly.com's system with no special software other than their browsers on
their computers. This allows access to Starbelly.com's system without the need
to obtain or install new software and permits faster operation, as large
software programs need not be down loaded by the end user, and the end users
benefit from the additional computing power of the host computer.

Starbelly.com's production data center is currently located at Level (3),
Starbelly.com's Tier I Provider, located in Chicago, Illinois. This data center
provides 24 hours-a-day, 7 days-a-week system support and connectivity to all
major Internet backbones and provides bandwidth via redundant high-speed
connections.

SALES AND MARKETING

Starbelly.com's sales and marketing approach is designed to establish broad
business, affinity group and consumer recognition of Starbelly.com and its
custom-decorated merchandise marketplace. Starbelly.com intends to foster
customer relationships whereby its customers rely on its marketplace and
integrated fulfillment system for their custom-decorated merchandise needs.
Starbelly.com sells its business-to-business marketplace solutions through its
direct sales force and its lead generation campaigns. Access to Starbelly.com's
interfaces and integrated fulfillment system permits its sales force to become
more productive by reducing the time and energy they must expend sourcing,
tracking, monitoring, and fulfilling orders through automation of those
processes. Starbelly.com's direct sales force segments the business-to-business
market into four vertical segments to provide increased focus and customer
service capabilities. These segments are corporate sales, entertainment sales,
Internet content sales and retail sales.

Starbelly.com intends to continue to aggressively promote its brand name to
access business-to-business opportunities as well as drive traffic to
Starbelly.com by combining traditional offline strategies, including public
relations, print and radio advertising, with online marketing vehicles such as
banner advertising and strategic partnerships with relevant Web sites and
portals. Starbelly.com believes that by establishing partnerships with many of
the leading portals, it will succeed in building a large and diverse customer
base that utilizes its fulfillment engine on a private label basis to purchase
products. Starbelly.com has established strategic relationships with several
leading Internet companies, including procurement portals such as Ariba,
Intelisys, Purchase Pro, and Concur Technologies. Additionally, Starbelly.com
also has a two year contract with Yahoo!, providing for broadcast services that
will enable Starbelly.com to promote its brand on Yahoo! properties. As of
March 15, 2000, Starbelly.com had a sales organization of 42 people, comprising
sales, marketing, and merchandising personnel, many of whom have experience in
the custom-decorated merchandise industry. Companies at which Starbelly.com's
sales team has gained experience include HA-LO, Cyrk and Group II
Communications.

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<PAGE>

CUSTOMERS

Starbelly.com's three largest customers in terms of sales for the period
ended December 31, 1999 were NFL Properties, Inc., Quaker Oats Company and Jim
Beam Brands, Co. (Jim Beam) accounted for 17.3%, 12.9% and 7.7% of net sales,
respectively. A selected list of other Starbelly.com customers includes:

<TABLE>
<S> <C>
Art.com Lettuce Entertain You Enterprises
Arthur Andersen Starbucks
Chase Manhattan Bank Whitman-Hart
Chevron Young Presidents Organization
Foote, Cone & Belding
Harris Bank
</TABLE>

COMPETITION

Electronic commerce generally, and the online custom-decorated merchandise
market specifically, are new, rapidly evolving and intensely competitive, and
Starbelly.com expects such competition to intensify in the future. Currently,
Starbelly.com competes with a broad range of companies including traditional
custom-decorated merchandise retailers, direct retailers (E.G., L.L. Bean and
Land's End), promotional product firms (E.G., HA-LO and Cyrk), advertising
agencies, and apparel or hard goods manufacturers who sell direct to the
customer. These competitors sell most of their products through a direct sales
force or mail-order catalogs.

While Starbelly.com does not believe that it has any direct online
competition in the custom-decorated merchandise market that combines an
interactive marketplace and integrated fulfillment system, there are several Web
sites focused on electronic commerce opportunities in this area. These include
companies like iPrint.com, imagex.com and MadeToOrder.com that could expand
their offerings to compete more directly with Starbelly.com. As the market for
online custom-decorated merchandise grows, other companies, including
established retailers and distributors, are likely to develop online services
that compete directly with Starbelly.com's services.

OTHER INFORMATION

FACILITIES AND EMPLOYEES

Starbelly.com's headquarters are located in Chicago, Illinois, at a location
where Starbelly.com leases approximately 25,000 square feet of space. As of
March 15, 2000, Starbelly.com had 174 employees, including 9 in general
management, 78 in technology, 42 in sales and marketing and 45 in finance and
operations. Starbelly.com also employs an additional 31 full-time contract
employees.

INTELLECTUAL PROPERTY

Starbelly.com relies on a combination of copyright, trade secret trademark,
confidentiality procedures and contractual provisions to protect its proprietary
rights in its products and technology. Starbelly.com generally enters into
confidentiality agreements with its employees and consultants and limits access
to, and distribution of, its proprietary information. Starbelly.com maintains
trademarks, to identify the source of its products, development tools and
service offerings and relies upon trademark laws to protect its proprietary
rights in these marks.

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<PAGE>

YOUR BOARD OF DIRECTORS AFTER THE MERGER

At the time of the merger, your board of directors will be increased from
eight to eleven directors. All eight persons who are members of your board of
directors immediately before the merger will continue to serve as directors
immediately after the merger. Your board will then fill the three vacancies
created by the board expansion with persons requested to be nominated by Bradley
Keywell, Starbelly.com's chief executive officer, and Eric Lefkofsky,
Starbelly.com's president. We anticipate that Mr. Keywell and Mr. Lefkofsky will
request nomination of themselves to fill two of the three vacant positions on
your board, but they have not yet advised HA-LO whom they intend to request be
nominated to fill the vacancies.

Bradley A. Keywell, age 30, co-founder of Starbelly.com, has been a director
and the chief executive officer of Starbelly.com since its inception on
March 22, 1999. Upon completing the merger, Mr. Keywell will serve as president
of HA-LO and, under an employment agreement, will have the right to nominate a
director to serve on the HA-LO board for a period of time. In addition, since
August 1994, Mr. Keywell has served as director and president of Brandon Apparel
Group, Inc., Chicago, Illinois, which is a manufacturer and marketer of licensed
apparel.

Eric Lefkofsky, age 30, co-founder of Starbelly.com, has been a director and
the chairman of the board, secretary and treasurer of Starbelly.com since its
inception on March 22, 1999. Upon completion of the merger, Mr. Lefkofsky will
serve as chief integration officer of HA-LO and, under an employment agreement,
will have the right to nominate two directors to serve on the board for a period
of time. In addition, since August 1994, Mr. Lefkofsky has served as director
and chief executive officer of Brandon Apparel Group, Inc., Chicago, Illinois.

STOCK OWNERSHIP

The following table sets forth, as of March 27, 2000, certain information
concerning the beneficial ownership of our common stock by (1) our directors,
and (2) all directors and executive officers as a group. Unless otherwise
indicated, each person has sole investment and voting power (or shares such
powers with his or her spouse) with respect to the shares shown as beneficially
owned by that person. No other person or entity beneficially owns 5% or more of
our common stock.

<TABLE>
<CAPTION>
NUMBER OF SHARES APPROXIMATE
BENEFICIALLY OWNED APPROXIMATE PERCENT OF CLASS
NAME AND ADDRESS(1) ON MARCH 27, 2000 PERCENT OF CLASS AS ADJUSTED(2)
- ------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C>
Lou Weisbach................................... 3,365,058(3) 6.8% 4.7%
Linden D. Nelson............................... 3,084,931(4) 6.3% 4.3%
John R. Kelley, Jr............................. 762,825(5) 1.6% 1.1%
Seymour N. Okner............................... 668,454(6) 1.4% *
Marshall J. Katz............................... 416,387(7) * *
Thomas Herskovits.............................. 121,346(8) * *
Brian Hermelin................................. 10,012 * *
All Directors and Executive Officers, as a
group (15 persons)........................... 8,894,384(9) 17.5% 12.2%
</TABLE>

- ------------------------

(1) The address of each executive officer and director of the Company is in care
of the Company, 5980 West Touhy Avenue, Niles, Illinois 60714.

(2) Adjusted to give effect to the issuance in the merger and upon exercise of
the assumed options of 17 million shares of our common stock and
5.1 million shares of our convertible preferred stock.

(3) Includes 794,256 shares subject to immediately exercisable options held by
Mr. Weisbach, and 2,205,102 shares owned by the Lou Weisbach Revocable
Trust. Excludes 127,500 shares held in

85
<PAGE>
trust for the benefit of Mr. Weisbach's wife and 76,780 shares held in
trusts for the benefit of Mr. Weisbach's children, over which Mr. Weisbach
has no sole or shared powers to vote or dispose.

(4) Includes 43,372 shares owned by Maple Lane Acquisition Limited Liability
Company ("Maple Lane"), of which Mr. Nelson is the managing member; 131,250
shares owned by Mr. Nelson's wife; 78,300 shares held by a charitable
foundation of which Mr. Nelson is President; and 448,744 shares subject to
immediately exercisable options. Excludes 262,500 shares held in trusts for
the benefit of Mr. Nelson's children, over which Mr. Nelson has no voting or
dispositive powers.

(5) Includes 4,167 shares subject to immediately exercisable options.

(6) Includes 42,500 shares subject to immediately exercisable options held by
Mr. Okner, 526,241 shares owned by the Seymour N. Okner Revocable Trust,
99,667 shares held by a charitable foundation of which Mr. Okner is the
President, and 46 shares held by Mr. Okner's spouse. Excludes shares held in
trusts for the benefit of two of Mr. Okner's children, over which Mr. Okner
has no sole or shared powers to vote or dispose and in which Mr. Okner's
spouse is a trustee.

(7) Includes 412,787 shares subject to immediately exercisable options held by
Mr. Katz.

(8) Includes 32,718 shares held jointly with Mr. Herskovits' wife; 11,250 shares
owned by Mr. Herskovits' minor son; and 68,753 shares subject to options
held by Mr. Herskovits that are exercisable during the Measurement Period.

(9) Includes 2,113,517 shares subject to immediately exercisable options.

PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE
AUTHORIZED CAPITAL STOCK

Your board of directors believes that it is in the best interests of HA-LO
to amend Article Four of HA-LO's articles of incorporation to increase the
number of shares of its common stock that the Company is authorized to issue
from 100 million shares to 250 million shares and the number of shares of
preferred stock that the Company is authorized to issue from 10 million shares
to 20 million shares. The text of the proposed amendment is attached as
Exhibit E to this proxy statement.

As of March 27, 2000, 48,954,836 shares of our common stock were issued and
outstanding, 9,000,000 shares of our common stock were reserved for issuance
upon the exercise of options granted and to be granted under the 1997 Stock
Plan, 5,834,822 shares of our common stock were reserved for issuance upon the
exercise of options granted and to be granted under HA-LO's 1992 stock option
plan, and 755,473 shares of common stock were reserved for issuance upon the
exercise of other options and warrants we have granted. If the merger is
completed, 17 million shares of our common stock will be issued in the merger or
reserved for issuance upon exercise of the Starbelly.com stock options being
assumed by HA-LO and an additional 5.1 million shares will be reserved for
issuance upon the conversion of the convertible preferred stock to be issued in
the merger.

As of March 27, 2000, no shares of our convertible preferred stock were
outstanding. If the merger is completed, an aggregate 5.1 million shares of
convertible preferred stock will be issued in the merger or reserved for
issuance upon exercise of the assumed Starbelly.com stock options.

If approved, the increased number of authorized shares of common stock and
preferred stock will be available for your board to issue for purposes and
consideration as your board of directors may approve. Subject to the approval of
an amendment to the Company's articles of incorporation to permit the board to
provide for the issuance of preferred stock without shareholder approval as
described below, no further vote of holders of our common stock will be required
for such issuance, except as provided under Illinois law, the rules of the New
York Stock Exchange (or the securities exchange

86
<PAGE>

where our capital stock may in the future be listed) or as may otherwise be
agreed to by the Company. See "Description of the Convertible Preferred
Stock--Protective Provisions" (page 53). The availability of additional shares
of common stock and preferred stock for issue, without the delay and expense of
obtaining the approval of shareholders at a special meeting, will afford us
greater flexibility in acting upon proposed transactions. Other than the shares
of common stock and convertible preferred stock to be issued in the merger and
shares reserved for issuance as described above, we currently have no specific
plans or arrangements to issue additional common or preferred stock; however,
from time to time we have explored various acquisition opportunities.
Nevertheless, your board of directors may consider the advisability of issuing
preferred stock after the completion of the merger in order to provide funds to
repay a portion of the indebtedness incurred in connection with the merger, for
working capital or for other corporate purposes. Your board of directors
believes that the availability of additional common stock and preferred stock
will afford HA-LO increased flexibility should appropriate opportunities arise.

The additional shares of common stock for which we are seeking your
authorization would be identical to the shares of common stock now authorized.
Holders of our common stock do not have preemptive rights to subscribe for
additional securities which may we may issued in the future. The additional
shares of preferred stock for which we are seeking your authorization would be
issued in such series with such dividend rates, liquidation preferences, terms
of redemption, sinking fund provisions, conversion rights and voting rights as
may be established by your board of directors without further approval of
holders of common stock if the proposed amendment described below under
"Proposed Amendment to the Company's Articles of Incorporation Relating to the
Issuance of Preferred Stock" is approved.

You should be aware that the additional shares of common stock and preferred
stock for which we are seeking your authorization would be available for your
board of directors to issue and could be used for purposes that some might
consider to be in defense of a potential takeover threat. We would be able to
sell these shares to purchasers who might side with your board of directors in
opposing a takeover bid which your board determines not to be in the best
interests of HA-LO and its shareholders. Issuing new shares could discourage
persons seeking to gain control of HA-LO in other ways as well. In the event
someone tries to take over HA-LO by purchasing a substantial amount of our
common stock or convertible preferred stock, and if this person acquired this
stock intending to effect a merger, a sale of all or any part of our assets, or
a similar transaction, our issuance of new shares could be used to dilute the
stock ownership of such person.

Neither this amendment nor the proposed amendment described below under
"Proposed Amendment to the Company's Articles of Incorporation Relating to the
Issuance of Preferred Stock" is directed at any specific effort to obtain
control of HA-LO that we know of. Your board of directors does not currently
intend to solicit a shareholder vote on any other proposal relating to a
possible takeover of HA-LO. However, your board of directors intends to study
developments in this area, and, if additional anti-takeover measures are deemed
desirable, your board will adopt, or propose to our shareholders to adopt, such
additional measures.

Approval of this proposal requires the affirmative vote of persons who hold
a majority of the outstanding shares of our common stock. Broker non-votes and
abstentions will count as votes cast AGAINST this proposal. Your board believes
that the proposed increase in the number of authorized shares is in the best
interests of HA-LO and its shareholders and unanimously recommends that
shareholders vote FOR the proposed amendment. If the merger is approved, the
merger will be completed even if this proposal to amend our articles of
incorporation is not approved.

87
<PAGE>

PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION RELATING TO THE
ISSUANCE OF PREFERRED STOCK

Your board of directors is authorized to provide from time to time for the
issuance of up to 10 million shares (20 million shares if the preceding proposal
is approved) of preferred stock in one or more series and to fix the
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations, restrictions and privileges of each series
of preferred stock, including the serial designation and authorized number of
shares, the dividend rates, liquidation preferences, terms of redemption,
sinking fund provisions, conversion rights and voting rights. Although the
company's articles of incorporation purport to enable your board to take these
actions without shareholder approval, the articles of incorporation also provide
that if preferred stock is issued as a class, then your board of directors is to
determine liquidation and dividend rights by filing articles of amendment to the
articles of incorporation prior to the issuance of any shares of the "preferred
class." Because under Illinois law the adoption of an amendment to the articles
of incorporation requires shareholder approval, the inclusion of this provision
in our articles of incorporation effectively negates the power which would
otherwise be vested in your board to provide for the issuance of preferred stock
without shareholder action.

In order to increase the flexibility of the board of directors and enable it
to provide for the issuance of preferred stock without the significant delay and
expense which would result from having to obtain prior shareholder approval,
your board has adopted, subject to shareholder approval, an amendment to Article
Four of HA-LO's articles of incorporation to delete the requirement that
liquidation and dividend rights be determined through an amendment to the
articles of incorporation. The text of the proposed amendment is attached as
Exhibit E to this proxy statement. If this proposal is approved, no further vote
of HA-LO shareholders will be required to fix the terms of and issue shares of
preferred stock, except as required under Illinois law, the rules of the New
York Stock Exchange (or the securities exchange where our capital stock may in
the future be listed) or as may otherwise be agreed to by the Company. See,
however, "Description of the Convertible Preferred Stock--Protective Provisions"
(page 53).

The issuance of preferred stock, while providing the board of directors with
flexibility in connection with possible acquisitions, financings or other
corporate purposes, may have the effect, as described above, of delaying,
deferring or preventing a change of control of the Company. Except for the
issuance of convertible preferred stock pursuant to the merger agreement and
upon exercise of assumed stock options, the Company has no present plans to
issue any shares of preferred stock. See, however, "Proposed Amendment to the
Company's Articles of Incorporation to Increase Authorized Capital Stock."

Approval of this proposal requires the affirmative vote of persons who hold
a majority of the outstanding shares of our common stock. Broker non-votes and
abstentions will count as votes AGAINST this proposal. Your board believes that
the proposed amendment is in the best interests of HA-LO and its shareholders
and unanimously recommends that shareholders vote FOR the proposed amendment. If
the merger is approved, the merger will be completed even if this proposal to
amend our articles of incorporation is not approved.

PROPOSED POSTPONEMENT OR ADJOURNMENT OF THE SPECIAL MEETING

Your board of directors may determine that it will recommend that the
special meeting scheduled for April 28, 2000 be postponed or adjourned. One
reason for this action would be to allow additional time for management to
solicit proxies in support of the merger or the other proposals at the meeting.
Approval of this action by our shareholders would require the affirmative vote
of a majority of the shares represented at the meeting in person or by proxy. An
abstention or failure to vote on this proposal will NOT count as votes against
this proposal. Your board of directors recommends a vote FOR adoption of the
proposal to postpone or adjourn the special meeting if requested by your board
of directors.

88
<PAGE>
SUBMISSION OF FUTURE SHAREHOLDER PROPOSALS

The 2000 Annual Meeting of Shareholders is presently scheduled to be held on
, , 2000. Any proposals of shareholders intended to be
personally presented at such meeting were to have been received by the Secretary
of HA-LO for inclusion in HA-LO's proxy statement for the annual meeting and
form of proxy by November 30, 1999. Any proposals of shareholders intended to be
personally presented at such meeting (but not to be included in the HA-LO's
proxy statement or form of proxy) were to have been received by the Secretary of
HA-LO by , 2000.

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 NASD's
offices at 1735 K Street, Washington, D.C. 20006.

As allowed by SEC rules, this proxy statement does not contain all the
information you can find in the Registration Statement or its exhibits.

The SEC allows us to "incorporate by reference" information into this proxy
statement, 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 proxy
statement, except for any information superseded by information contained
directly in the proxy statement. This proxy statement 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
Current Report on Form 8-K................... Dated January 21, 2000
Current Report on Form 8-K................... Dated March 23, 1999
Description of common stock contained in
Registration Statement, and amendments and
reports updating this description............ Dated October 20, 1992
</TABLE>

We are also incorporating by reference additional documents we may file with
the SEC between the date of this proxy statement and the date of our special
meeting.

If you are one of our shareholders, we may have sent you some of the
documents incorporated by reference, but you can still obtain those documents
through us, or the SEC, or the SEC's Internet World Wide Web site described
above. Documents incorporated by reference are available from us without charge,
excluding their exhibits unless specifically incorporated by reference as an
exhibit to

89
<PAGE>
this proxy statement. Documents incorporated by reference in this proxy
statement may be obtained from us upon request in writing or by telephone at the
following address and phone number:

HA-LO Industries, Inc.
5980 West Touhy Avenue
Niles, Illinois 60714
Attention: Gregory J. Kilrea
Telephone: (847) 647-2300

IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM US, PLEASE DO SO BY APRIL 14,
2000 TO RECEIVE THEM BEFORE THE SPECIAL MEETING. Requested documents will be
mailed to you by first-class mail, or other equally prompt means, within one
business day after we receive your request.

You should rely only on the information contained or incorporated by
reference in this proxy statement to vote your shares at the special meeting. We
have not authorized anyone to provide you with information that is different
from that contained in this proxy statement. This proxy statement is dated
April 3, 2000. You should not assume that the information contained in the proxy
statement is accurate as of any other date, and neither the mailing of this
proxy statement to our shareholders nor the issuance of our common stock in the
merger shall create any contrary implication.

90
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
HA-LO Industries, Inc.

Report of Independent Public Accountants.................. F-2

Consolidated Balance Sheets at December 31, 1999 and
1998.................................................... F-3

Consolidated Statements of Operations for each of the
years ended December 31, 1999,
1998 and 1997........................................... F-4

Consolidated Statements of Shareholders' Equity for each
of the years ended
December 31, 1999, 1998 and 1997........................ F-5

Consolidated Statements of Cash Flows for each of the
years ended December 31, 1999,
1998 and 1997........................................... F-6

Notes to Consolidated Financial Statements................ F-7

Starbelly.com, Inc.

Report of Independent Accountants......................... F-23

Balance Sheet as of December 31, 1999..................... F-24

Statement of Operation for the Period from March 22, 1999
(Date of Inception), to December 31, 1999............... F-25

Statement of Stockholders' Equity for the Period from
March 22, 1999 (Date of Inception), to December 31,
1999.................................................... F-26

Statement of Cash Flows for the Period from March 22, 1999
(Date of Inception), to December 31, 1999............... F-27

Notes to Financial Statements............................. F-28
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of HA-LO Industries, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of HA-LO
Industries, Inc. (an Illinois corporation) and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years ended
December 31, 1999, 1998 and 1997. 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 in the U.S. 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, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years ended December 31, 1999, 1998 and
1997, in conformity with generally accepted accounting principles in the U.S.

ARTHUR ANDERSEN LLP

Chicago, Illinois,
March 22, 2000

F-2
<PAGE>

HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and equivalents...................................... $ 10,729 $ 7,276
Short-term investments.................................... -- 50,922
Receivables--
Trade................................................... 158,332 147,174
Services and costs billable to clients.................. 18,058 12,679
Other................................................... 2,322 8,953
Inventories............................................... 37,746 29,637
Prepaid expenses and deposits............................. 17,406 15,139
-------- --------
Total current assets................................ 244,593 271,780
-------- --------
PROPERTY AND EQUIPMENT, net................................. 37,003 42,225
-------- --------
OTHER ASSETS:
Intangible assets, net.................................... 77,111 26,621
Other..................................................... 21,596 6,391
-------- --------
Total other assets.................................. 98,707 33,012
-------- --------
$380,303 $347,017
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 984 $ 3,423
Book overdraft............................................ 3,177 287
Customer deposits......................................... 6,975 10,638
Accounts payable.......................................... 58,729 63,591
Accrued expenses--
Commissions and wages................................... 16,986 11,355
Other................................................... 14,604 19,535
Reserve for restructuring................................. 3,771 --
Due to related parties.................................... -- 200
-------- --------
Total current liabilities........................... 105,226 109,029
-------- --------
LONG-TERM DEBT, less maturities shown above................. 21,230 --
RESERVE FOR RESTRUCTURING................................... 11,863 --
DEFERRED LIABILITIES........................................ 5,438 2,497

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 48,724,790 and 47,780,742 issued and outstanding in
1999 and 1998, respectively............................. 214,060 198,228
Other..................................................... (1,488) (1,728)
Accumulated other comprehensive loss...................... (2,259) (780)
Retained earnings......................................... 26,233 39,771
-------- --------
Total shareholders' equity.......................... 236,546 235,491
-------- --------
$380,303 $347,017
======== ========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE>

HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES:
Products.................................................. $493,197 $464,826 $350,981
Services.................................................. 157,215 124,843 114,740
-------- -------- --------
Net Sales........................................... 650,412 589,669 465,721

COST OF SALES:
Products.................................................. 326,759 296,730 234,187
Services.................................................. 97,281 85,773 79,569
Restructuring--products................................... 2,653 -- --
-------- -------- --------
Cost of Sales....................................... 426,693 382,503 313,756
-------- -------- --------
Gross Profit........................................ 223,719 207,166 151,965

SELLING EXPENSES............................................ 94,280 76,639 57,354
GENERAL AND ADMINISTRATIVE EXPENSES......................... 125,010 80,950 63,819
OTHER EXPENSES:
Pooling acquisition expenses.............................. -- 8,837 3,845
Restructuring and other................................... 27,347 1,500 --
-------- -------- --------
Operating Income(Loss).............................. (22,918) 39,240 26,947
-------- -------- --------
INTEREST INCOME............................................. 2,105 2,870 434
INTEREST EXPENSE............................................ (1,750) (1,237) (2,633)
-------- -------- --------
Income (Loss) Before Income Taxes................... (22,563) 40,873 24,748
PROVISION(BENEFIT) FOR INCOME TAXES......................... (9,025) 16,123 9,290
-------- -------- --------
NET INCOME (LOSS)........................................... $(13,538) 24,750 15,458
========
PRO FORMA INCOME DATA (unaudited):
Pro forma adjustment for income tax provision............. 230 612
-------- --------
PRO FORMA NET INCOME........................................ $ 24,520 $ 14,846
======== ========
NET INCOME(LOSS) PER SHARE (unaudited pro forma in 1998 and
1997)
Basic..................................................... $ (.28) $ 0.55 $ 0.37
Diluted................................................... $ (.28) $ 0.53 $ 0.36
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic..................................................... 48,598 44,734 39,628
Diluted................................................... 48,598 46,447 41,112
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>

HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ACCUMULATED
OTHER TOTAL
SHARES COMPREHENSIVE RETAINED SHAREHOLDERS' COMPREHENSIVE
ISSUED AMOUNT OTHER INCOME (LOSS) EARNINGS EQUITY INCOME (LOSS)
---------- -------- -------- -------------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996........ 39,353,530 $ 55,446 $(2,242) $ 62 $ 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)
Net income...................... -- -- -- -- 15,458 15,458 $ 15,458
Foreign currency translation
adjustments--
Net of allocated income tax
benefits of $139.......... -- -- -- (208) -- (208) (208)
---------- -------- ------- ------- -------- -------- --------
BALANCE, December 31, 1997........ 40,171,844 66,241 (1,985) (146) 21,363 85,473 $ 15,250
========
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)
Net income...................... -- -- -- -- 24,750 24,750 $ 24,750
Foreign currency translation
adjustments--
Net of allocated income tax
benefits of $423............ -- -- -- (634) -- (634) (634)
---------- -------- ------- ------- -------- -------- --------
BALANCE, December 31, 1998...... 47,780,742 198,228 (1,728) (780) 39,771 235,491 $ 24,116
========
Issuance of shares in connection
with acquisitions, net........ 430,806 9,835 -- -- -- 9,835
Amortization of unearned
compensation.................. -- -- 240 -- -- 240
Recognition of tax benefits from
options and warrants.......... -- 1,946 -- -- -- 1,946
Exercise of stock options and
warrants...................... 513,242 4,051 -- -- -- 4,051
Net loss........................ -- -- -- -- (13,538) (13,538) $(13,538)
Foreign currency translation
adjustments--
Net of allocated income tax
benefits of $986............ -- -- -- (1,479) -- (1,479) (1,479)
---------- -------- ------- ------- -------- -------- --------
BALANCE, December 31, 1999........ 48,724,790 $214,060 $(1,488) $(2,259) $26,233 $236,546 $(15,017)
========== ======== ======= ======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements

F-5
<PAGE>

HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year............................ $(13,538) $24,750 $15,458
Adjustments to reconcile net income to net cash provided
by (used for) operating activities--
Depreciation and amortization........................... 14,172 9,454 6,564
Deferred taxes.......................................... (8,548) (896) (50)
Increase in cash surrender value........................ (655) (433) (246)
Increase (decrease) in deferred liabilities--other...... 1,755 120 (399)
Loss (gain) on disposal of property and equipment....... (198) 65 92
Changes in assets and liabilities, net of effects of
acquired companies-
Receivables............................................. (5,814) (16,765) (42,493)
Inventories............................................. (5,452) (1,031) (9,436)
Prepaid expenses and deposits........................... 490 (7,872) (2,246)
Accounts payable, accrued expenses and restructuring
reserve............................................... 1,106 21,272 26,095
-------- ------- -------
Net cash provided by (used for) operating
activities.......................................... (16,682) 28,664 (6,661)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (18,067) (23,321) (10,056)
Proceeds on sale of property and equipment................ 11,105 788 24
Maturity (purchase) of short-term investments............. 50,922 (50,922) 2,908
Increase in other assets.................................. (3,210) (1,513) (789)
Increase (decrease) in deferred liabilities............... (114) 763 (307)
Cash paid for acquisitions................................ (41,913) (7,036) (7,200)
-------- ------- -------
Net cash used for investing activities................ (1,277) (81,241) (15,420)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on long-term debt................... (4,535) (11,248) 9,355
Net borrowings (payments) under line of credit............ 20,485 (38,832) 7,068
Decrease (increase) in book overdraft..................... 2,890 (9,633) 8,082
Net proceeds from issuance of common stock................ 4,051 126,697 1,845
Repayments from related party............................. -- 663 719
Cash dividends paid by pooled companies................... -- (11,518) (5,296)
Repurchase of common stock................................ -- (450) (901)
-------- ------- -------
Net cash provided by financing activities............... 22,891 55,679 20,872
-------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS..... (1,479) (634) (208)
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............. 3,453 2,468 (1,417)
CASH AND EQUIVALENTS, beginning of year..................... 7,276 4,808 6,225
-------- ------- -------
CASH AND EQUIVALENTS, end of year........................... $ 10,729 $ 7,276 $ 4,808
======== ======= =======
</TABLE>

The accompanying notes are an integral part of these statements

F-6
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF THE BUSINESS:

HA-LO Industries, Inc. and Subsidiaries (the "Company") is 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, direct and database
marketing as well as brand strategy and identity services principally to large
corporations throughout 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 1998 and 1997 balances have been reclassified to conform with the
1999 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. These investments are
classified into one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally for the
purpose of selling them. Held-to-maturity securities are those securities which
the Company has the ability and intent to hold until maturity. All other
securities not included in trading or held-to-maturity are classified as
available-for-sale.

F-7
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1998, the Company had approximately $48.9 million of short
term investments, comprised primarily of tax-exempt securities, classified as
held-to-maturity. These investments are carried at cost plus accrued interest.
The remaining balance of approximately $2.0 million in short-term investments at
December 31, 1998 relate to equity securities classified as available-for-sale.
These available-for-sale securities are recorded at market value. Unrealized
holding gains and losses, net of the related income tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Realized gains and
losses for securities classified as available-for-sale are included in earnings
and are derived using the specific identification method for determining the
cost of securities sold.

There were realized losses of approximately $152,000 from the sales of
short-term investments in 1999. There were no realized gains or losses from the
sales of short-term investments in 1998 or 1997.

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>
<S> <C>
Buildings............................ 15-39 years
Furniture, fixtures and equipment.... 5-10 years
Computer and telephone equipment..... 5-7 years
Vehicles............................. 5 years
Leasehold Improvements............... Life of lease
</TABLE>

Property and equipment at December 31, are composed of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------- -------- --------
<S> <C> <C>
Land...................................................... $ 1,129 $ 1,768
Buildings................................................. 5,403 12,922
Furniture, fixtures and equipment......................... 23,617 21,518
Computer and telephone equipment.......................... 31,169 26,407
Vehicles.................................................. 608 629
Leasehold improvements.................................... 7,251 4,928
------- -------
69,177 68,172
Less--Accumulated depreciation............................ 32,174 25,947
------- -------
Property and equipment, net............................... $37,003 $42,225
======= =======
</TABLE>

H. LONG-LIVED ASSETS

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. Amortization expense in 1999,
1998, and 1997 was approximately $5,377,000, $2,732,000 and $1,555,000,
respectively. Accumulated amortization as of December 31, 1999 and 1998 was
$12,755,000 and $7,611,000, respectively.

The Company reviews the carrying value of all long-lived assets to determine
whether there are any impairment losses. If this review indicates that the
carrying amounts of long-lived assets will not be recoverable, as determined
based on the expected future operating cash flows, an impairment loss

F-8
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

would be charged to expense in the period identified. In connection with the
restructuring in 1999, there was an impairmant of certain long-lived assets
(Note 11).

I. INVENTORIES

Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market. The following are the major components of inventories at December 31.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
(IN THOUSANDS) 1999 1998
- -------------- -------- --------
<S> <C> <C>
Raw Materials............................................. $ 7,113 $ 6,203
Finished goods............................................ 30,633 23,434
------- -------
Inventories............................................. $37,746 $29,637
======= =======
</TABLE>

J. ACCRUED EXPENSES

Accrued expenses--other is primarily comprised of accrued royalties and
rebates, income taxes, sales taxes and other miscellaneous expenses.

K. 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) 1999 1998 1997
- -------------- -------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest............. $ 2,136 $ 1,259 $ 2,172
Cash paid during year for income taxes......... $ 3,004 $ 5,180 $ 4,073
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Issuance of common shares in connection with
business acquisitions, net................... $ 9,835 $ 1,426 $10,273
Liabilities assumed in connection with business
acquisitions................................. $24,063 $ 7,093 $19,633
Recognition of tax benefits from exercise of
stock options, warrants and restricted
stock........................................ $ 1,946 $ 9,490 $ 1,984
Write-off of assets in connection with
restructuring................................ $12,773 $ -- $ --
Conversion of non-operating assets to note
receivable................................... $ -- $ -- $ 1,530
</TABLE>

L. FOREIGN CURRENCY TRANSLATION

The functional currency for the Company's foreign operations is the
applicable local currency. Revenues and expenses from foreign operations are
translated at average rates in effect at the time of the underlying transaction,
with gains or losses included in income. Assets and liabilities of foreign
entities are translated at year-end exchange rates with gains and losses
resulting from such translations included in shareholders' equity.

F-9
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

M. 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.

N. NEW ACCOUNTING PRONOUNCEMENTS

In 1998, The FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Company has adopted this statement and
no disclosures are required as there was no impact.

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.
Trade receivables in the accompanying consolidated balance sheets are net of
reserves for doubtful accounts of approximately $3,056,000 as of December 31,
1999 and $2,836,000 as of December 31, 1998. Services and cost billable to
clients represent earned, but unbilled receivables relating to the Company's
marketing services segment. 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 net sales in 1999, 1998 or
in 1997.

NOTE 4. INCOME TAXES:

The Company's provision(benefit) for income taxes consists of the following
amounts:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -------------- -------- -------- --------
<S> <C> <C> <C>
Current provision(benefit)........................ $ (663) $16,354 $9,827
Deferred benefit.................................. (8,362) (231) (537)
------- ------- ------
Total provision(benefit).......................... $(9,025) $16,123 $9,290
======= ======= ======
</TABLE>

The Company's effective tax rate is reconciled to the Federal statutory rate
as follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate.................................... 35.0% 35.0% 35.0%
State income taxes (net of Federal benefit)............... 5.0 5.0 5.0
Valuation allowance....................................... -- 1.6 2.0
Effect of non-taxable S Corporation (earnings)/losses..... (--) (0.6) (2.5)
Other..................................................... (--) (1.6) (2.0)
---- ---- ----
Effective tax rate........................................ 40.0% 39.4% 37.5%
==== ==== ====
</TABLE>

F-10
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Deferred income taxes result from temporary differences in the recognition
of revenue and expense items for income tax and financial reporting purposes and
are summarized as follows:

<TABLE>
<CAPTION>
(ASSET)/LIABILITY
-------------------
(IN THOUSANDS) 1999 1998
- -------------- -------- --------
<S> <C> <C>
DEFERRED TAXES--CURRENT:
Restructuring reserves..................................... (3,574) --
Credits due................................................ 2,327 1,267
Advanced commissions....................................... 354 249
Non-deductible reserves.................................... (1,148) (1,592)
Inventory valuation........................................ (382) (242)
Other...................................................... 450 57
------- ------
Total deferred taxes-current............................. $(1,973) $ (261)
DEFERRED TAXES--NON-CURRENT:
Samples.................................................... $ -- $ 735
Restructuring reserves..................................... (4,713) --
Acquisition costs.......................................... (2,968) (2,923)
Depreciation............................................... 1,514 1,021
Amortization............................................... (642) (916)
Deferred costs............................................. (1,189) (433)
Basis difference in acquired companies..................... 735 920
Tax credit carryforward.................................... (1,006) --
------- ------
Total deferred taxes-non-current......................... (8,269) (1,596)
------- ------
Less: Valuation allowance.................................. 1,484 1,461
======= ======
Total deferred taxes--non-current, net of valuation
allowance.............................................. (6,785) (135)
------- ------
Total deferred tax asset................................. $(8,758) $ (396)
======= ======
</TABLE>

Current and non-current deferred tax assets are included in prepaid expenses
and other assets, respectively, on the accompanying consolidated balance sheets.

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.

NOTE 5. PRO FORMA NET INCOME PER SHARE (UNAUDITED):

The unaudited pro forma income data in the consolidated statements of
operations for 1998 and 1997 provides information as if S Corporations acquired
and accounted for using the pooling-of-interests accounting method had been C
Corporations for income tax purposes.

NOTE 6. DEBT:

The Company has received a proposal to refinance its existing domestic
credit facility. It is anticipated that the new facility will provide for
borrowings of up to $80 million and will be secured by the Company's domestic
assets. The proposal contemplates that outstanding borrowings will bear interest
based on a defined ratio at either between prime and prime plus .75% or the
London

F-11
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Interbank Offered Rate (LIBOR) plus between 1.25% and 2.25%. Under the proposal
the new facility will contain certain financial covenants that the Company must
meet, including minimum tangible net worth, minimum interest coverage ratio and
maximum leverage.

The term of the facility is expected to be three years. The refinancing has
been reflected retroactively as if it occurred on December 31, 1999. As such,
outstanding borrowings are included as a long-term liability on the accompanying
balance sheet.

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%. Another one of the Company's European subsidiaries
has revolving credit facilities with two banks that provide for borrowings of up
to $4.5 million at the Euribor rate.

As of December 31, 1999, the prime rate was 8.50% and the LIBOR and Euribor
were 6.5%.

Long-term debt at December 31, was as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------- -------- --------
<S> <C> <C>
Revolving credit agreements................................. $21,784 $ 816
Other debt.................................................. 381 2,390
Capital leases.............................................. 49 217
------- -----
22,214 3,423
Less--current maturities.................................... 984 3,423
------- -----
Long term debt, net......................................... $21,230 $ --
======= =====
</TABLE>

NOTE 8. 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 and is paid in the
form of cash plus options at an exercise price equal to the fair market value of
the underlying stock on the date of grant. These options vest over various
periods up to two years. During 1999, the director earned cash compensation of
approximately $910,000 and was granted 49,191 options. During 1998, the director
earned cash compensation of approximately $770,000 and was granted 264,400
options. During 1997, the director earned cash compensation of approximately
$1,564,000 and was granted 153,383 options. Cash compensation paid to the
director has been reflected as a cost of the related acquisitions. The fair
value of the options granted to the director has not been material to any of the
periods presented. In the future these options will be recorded at their fair
value on the date of grant.

In June 1999, the Company received approximately $9.6 million, which
approximated fair market value of the facility, in connection with its exercised
option to sell an office and warehouse facility to an entity controlled by the
Vice Chairman of the Board ("Vice Chairman") of the Company. No gain or loss was
recognized as a result of this sale. Subsequent to the sale, the Company made
lease payments of approximately $520,000 for the use of this property.
Additionally, the Vice Chairman controls another entity which leased office
space to the Company for approximately $601,000 and $328,000 in 1999 and 1998
respectively.

In 1999, 1998 and 1997, the Company paid approximately $1,306,000,
$1,067,000 and $545,000, respectively, to an entity in which the Vice Chairman
indirectly owns a 49% interest. Payments were primarily for embroidery services.

F-12
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In connection with a 1997 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 was fully paid in 1998.

NOTE 9. 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, 1999 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31- (IN THOUSANDS)
- ---------------------------------------
<S> <C>
2000........................................................ $ 13,875
2001........................................................ 16,916
2002........................................................ 16,009
2003........................................................ 14,354
2004........................................................ 13,953
Thereafter.................................................. 105,595
--------
$180,702
========
</TABLE>

Rent expense (exclusive of operating expenses) charged for the facilities
totaled approximately $11,371,000, $6,838,000 and $5,560,000 for 1999, 1998 and
1997, respectively.

At December 31, 1999, the Company has approximately $3,049,000 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.

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.

Subsequent to year-end, the Board of Directors approved a merger agreement
with an internet based promotional products company. In connection with this
transaction, the company has entered into certain financial commitments. See
Note 19 for further discussion.

F-13
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. BUSINESS COMBINATIONS:

During 1999, the Company acquired eight companies. All of the acquisitions
were accounted for as purchases. In January 1999, the Company completed the
acquisition of Parsons International, a French based promotional products
company, for approximately 400,000 shares of its common stock, which had a fair
market value of $9.0 million, and $35.2 million in cash, net of transaction
expenses. The transaction also includes a two year earn-out period in which the
Company may incur an additional $23.5 million payment, payable in common stock,
if certain profit levels are attained. Additionally, the Company completed the
acquisitions of seven other promotional products and marketing services
companies in 1999, for an aggregate of approximately $12.2 million in cash, net
of transaction expenses. One of the acquisitions includes a three year earn-out
period in which the Company may incur an additional $1.4 million payment if
certain profit levels are attained. Goodwill related to 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 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 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. (together CCA) 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. 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.

F-14
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The caption "Pooling acquisition expenses" on the accompanying Consolidated
Statements of Operations relate to transaction costs incurred for legal,
accounting, regulatory and acquisition consulting fees for acquisitions
accounted for as pooling-of-interests.

NOTE 11: RESTRUCTURING AND OTHER CHARGES:

In July 1999, the Company adopted a plan to restructure its promotional
products operations and to a lesser extent its marketing services segment. The
focus of the restructuring was to centralize back office functions, consolidate
distribution capabilities and information systems and streamline the management
reporting structure. The restructuring will result in the elimination of
approximately 200 positions and the consolidation and closing of over 20
offices/warehouses.

During the third quarter of 1999 the Company recorded a charge to operations
of $30.0 million. Major components of the charge related to lease buyouts and
abandoned lease accruals, asset write-downs, severance and termination costs and
other charges. As of December 31, 1999, approximately 40 of the anticipated
employee terminations have occurred. This charge has had the effect of reducing
after tax earnings by $18.0 million or $0.37 per share. The Company anticipates
the restructuring will be completed by September 30, 2000.

<TABLE>
<CAPTION>
DECEMBER
31, 1999
EXPENSED REALIZED ACCRUAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Facility consolidation........................... $14,994 $ 2,199 $12,795
Asset write-downs................................ 8,804 8,804 --
Severance and termination costs.................. 3,528 949 2,579
Other charges.................................... 2,674 2,414 260
------- ------- -------
Total............................................ $30,000 $14,366 $15,634
======= ======= =======
</TABLE>

Asset write-downs are the result of consolidating the operations of various
promotional product operations. These asset write-downs relate to duplicate
computer systems and warehouse systems that will not be used due to the
consolidation. Included in the asset write downs above, are inventory write-
downs of $2.7 million, which have been classified as a component of cost of
goods sold, for the cancellation of certain promotional programs and exiting
certain lines of business.

The other charges captioned above primarily relate to sample products
utilized by the sales force. These long term assets were previously capitalized
when purchased and amortized over six years. The restructuring plan includes a
sales force reduction. In conjunction with the implementation of the sales force
reduction, the Company changed its policy to provide that ownership of the
sample products would revert to the sales force. Accordingly, the unamortized
balance of sample products is being written off as part of the restructuring
charge.

NOTE 12. 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.

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

F-15
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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>
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income(loss)(pro forma in 1998 and 1997)................ $(13,538) $24,520 $14,846
Net income(loss) per share--Basic:
Weighted average common shares............................ 48,598 44,734 39,628
Net income(loss) per share--Basic......................... $ (.28) $ .55 $ .37
Net income(loss) per share--Diluted:
Weighted average common shares............................ 48,598 44,734 39,628
Effect of dilutive stock options and warrants............. -- 1,713 1,484
-------- ------- -------
Weighted average shares assuming dilution................. 48,598 46,447 41,112
-------- ------- -------
Net income(loss) per share--Diluted....................... $ (.28) $ .53 $ .36
-------- ------- -------
</TABLE>

NOTE 13: 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 14. 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. 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 on January 11, 1995. These warrants vest at the end of
nine years but can be accelerated if minimum purchase levels are achieved. As of
December 31, 1999 and 1998, there were 50,670 and 212,938 warrants outstanding,
respectively, and no warrants were exercisable at either year-end. These
warrants were issued at a value equal to the Company's common stock on the date
of grant and no expense is reflected in the accompanying statement of
operations. These warrants were granted prior to the effective date of FAS
No. 123, which requires that companies value warrants issued to non-employees at
fair market value. As such, valuation is consistent with provisions of APB
No. 25.

On December 27, 1995, the Company issued 562,420 warrants at $8.89 per share
in connection with the extension of the agreement through 2004. These warrants
expire January 11, 2011. Effective December 15, 1995, FAS No. 123 requires that
companies value warrants issued to non-employees at fair market value.
Accordingly, the warrants were valued at $1,448,000 using the Black-Scholes
option pricing model and were recorded as a deferred marketing cost. This amount
is recorded in the statements of shareholders' equity under the caption "other".
This cost will be charged against income over the five-year term of the
extension, beginning in January, 2000. As of December 31, 1999 and 1998, all of
these warrants are outstanding and no warrants are exercisable.

Both warrant grants are included in the summary of the status of the
Company's fixed stock option plan and warrants issued in footnote 15.

F-16
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15. 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, 1999, there was an aggregate 1,265,308 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 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>
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income(loss)(pro forma in 1998 and 1997)
As reported............................................... $(13,538) $24,520 $14,846
Pro forma................................................. $(22,158) $17,222 $ 7,143

Basic earnings(loss) per share
As reported............................................... $ (.28) $ .55 $ .37
Pro forma................................................. $ (.46) $ .38 $ .18

Diluted earnings(loss) per share
As reported............................................... $ (.28) $ .53 $ .36
Pro forma................................................. $ (.46) $ .37 $ .17
-------- ------- -------
</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 1999 and 1998 and between 6.4% and 6.8%
in 1997; zero dividend yield for all years; expected lives of 4 years for 1999
and 1998 and 5 years for 1997; and volatility of 40 percent for 1999 and 1998
and 30 percent for 1997.

F-17
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of the status of the Company's fixed stock option plan and
warrants issued as of December 31, 1999, 1998, and 1997, and changes during the
years ending on those dates is presented below:

<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING OUTSTANDING........ 9,117,825 $15.03 7,625,672 $11.76 5,252,310 $ 8.98
GRANTED
Price equal to fair
value.................... 2,416,153 $11.14 3,294,210 $17.59 2,814,453 $16.06
Price in excess of fair
value.................... 202,300 $ 8.25 -- -- -- --
EXERCISED.................... (513,242) $ 7.89 (1,729,022) $ 5.40 (378,935) $ 4.87
CANCELLED.................... (274,592) $15.84 (73,035) $15.38 (62,156) $13.13
---------- ------ ---------- ------ --------- ------
ENDING OUTSTANDING........... 10,948,444 $14.37 9,117,825 $15.03 7,625,672 $11.76

EXERCISABLE AS OF 12/31...... 5,724,238 3,831,682 3,474,830
Weighted average fair value
of options granted:
Price equal to fair value.... $ 4.20 $ 6.73 $ 6.26
Price in excess of fair
value...................... $ 0.18 -- --
---------- ------ ---------- ------ --------- ------
</TABLE>

The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE 12/31/99 EXERCISE PRICE
- --------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.47-$ 5.60 524,742 5.65 $ 3.58 410,090 $ 3.54
$ 5.81-$ 9.11 1,850,007 8.83 $ 7.89 531,689 $ 8.60
$ 9.19-$12.56 1,059,842 8.15 $10.62 538,178 $10.51
$12.67-$15.50 2,177,193 8.53 $14.74 692,067 $14.60
$15.59-$16.75 2,780,948 7.39 $16.51 1,895,304 $16.53
$16.79-$24.69 2,555,712 7.94 $20.18 1,656,910 $20.54
---------- ---- ------ --------- ------
$ 1.47-$24.69 10,948,444 7.98 $14.37 5,724,238 $15.22
========== ==== ====== ========= ======
</TABLE>

F-18
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16. 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,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Promotional products........................................ $493,197 $464,826 $350,981
Marketing services.......................................... 157,215 124,843 114,740
-------- -------- --------
Total consolidated........................................ $650,412 $589,669 $465,721
======== ======== ========
Operating income (loss)(1):
Promotional products (2).................................... $(36,375) $ 29,550 $ 16,910
Marketing services.......................................... 13,457 9,690 10,037
-------- -------- --------
Total consolidated........................................ $(22,918) $ 39,240 $ 26,947
======== ======== ========
Depreciation and amortization:
Promotional products........................................ $ 11,280 $ 7,064 $ 4,410
Marketing services.......................................... 2,892 2,390 2,154
-------- -------- --------
Total consolidated........................................ $ 14,172 $ 9,454 $ 6,564
======== ======== ========
Total assets:
Promotional products........................................ $289,956 $237,515 $194,708
Marketing services.......................................... 79,618 51,304 38,537
Corporate (3)............................................... 10,729 58,198 4,808
-------- -------- --------
Total consolidated........................................ $380,303 $347,017 $238,053
======== ======== ========
Capital expenditures:
Promotional products........................................ $ 11,382 $ 19,917 $ 5,719
Marketing services.......................................... 6,685 3,404 4,337
-------- -------- --------
Total consolidated........................................ $ 18,067 $ 23,321 $ 10,056
======== ======== ========
</TABLE>

- ------------------------

(1) Includes other expenses (pooling acquisition expenses and restructuring and
other expenses) of $30.0, 10.3 and $3.8 million in 1999, 1998 and 1997
respectively.

(2) Includes corporate overhead expenses for all periods presented.

(3) Cash and short-term investments are considered corporate assets.

F-19
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Summarized financial information by geographic area follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States................................. $558,926 $541,490 $440,349
Foreign....................................... 91,486 48,179 25,372
-------- -------- --------
Total consolidated.......................... $650,412 $589,669 $465,721
======== ======== ========
Long-lived assets:
United States................................. $ 83,633 $ 63,178 $ 42,931
Foreign....................................... 43,808 11,926 9,510
-------- -------- --------
Total consolidated.......................... $127,441 $ 75,104 $ 52,441
======== ======== ========
</TABLE>

NOTE 17. UNAUDITED SELECTED QUARTERLY OPERATING RESULTS:

The following table represents unaudited selected financial information for
the eight quarters ended December 31, 1999. 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.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
1999 1998
----------------------------------------- -----------------------------------------
MAR.31 JUNE 30 SEPT. 30 DEC.31 MAR.31 JUNE 30 SEPT. 30 DEC.31
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $156,967 $160,312 $147,306 185,828 $124,815 $138,238 $150,669 $175,948

Gross profit.............................. $ 54,719 $ 55,125 $ 45,916 $ 67,959 $ 42,141 $ 48,946 $ 54,280 $ 61,799

Net income (pro forma in 1998)............ $ 4,199 $ 853 $(20,583) $ 1,993 $ 2,654 $ 5,244 $ 6,848 $ 9,774

Net income(loss) per share-diluted (pro
forma in 1998).......................... $ .09 $ .02 $ (.42) $ .04 $ .06 $ .11 $ .14 $ .20
</TABLE>

NOTE 18. 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 14, 2000, there were 435 holders of record
of the Company's Common

F-20
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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>
1999
First quarter.............................................. $25 7/16 $ 8 9/16
Second quarter............................................. 14 3/4 9 1/2
Third quarter.............................................. 9 7/8 5 5/16
Fourth quarter............................................. $ 9 $ 4 7/16
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
</TABLE>

NOTE 19. SUBSEQUENT EVENTS:

Subsequent to year-end, the Board of Directors approved a merger agreement
to acquire all the shares of Starbelly.com ("Starbelly"). Starbelly is an
internet based promotional products company that was formed in March of 1999.
The merger is subject to HA-LO shareholder approval which is currently pending a
special shareholders meeting. If approved, the Starbelly shareholders will
receive approximately $240 million, consisting of approximately $19 million in
cash, $170 million of HA-LO common stock (17 million shares) and $51 million of
convertible preferred stock (5.1 million shares). At the special meeting of
HA-LO shareholders, the shareholders will vote on the merger, including the
issuance of common stock and preferred stock in the merger, the assumption of
Starbelly's stock options, and amendments to HA-LO's articles of incorporation
to increase its capital stock and to provide for the future issuance of
preferred stock without further shareholder approval.

Subsequent to year-end, HA-LO extended three unsecured $5 million loans to
Starbelly. If the transaction is not closed by April 1, 2000, HA-LO will extend
Starbelly an additional unsecured $5 million. These loan amounts are not a part
of the merger consideration, although under certain circumstances (1)Starbelly
may not be required to pay back all or a portion of these loans if HA-LO becomes
obligated to pay Starbelly termination fees, and (2) the maturity dates of the
loans may be accelerated if the merger agreement is properly terminated.

HA-LO has agreed to pay termination fees to Starbelly for up to $500,000 of
merger-related expenses incurred by Starbelly plus its actual damages up to a
maximum of $10 million if; (1) HA-LO shareholders do not approve the merger, or
(2) the HA-LO Board acts upon a proposal to enter into certain business
combinations with someone other than Starbelly and the agreement is terminated.

The convertible zero coupon preferred stock to be issued has a redemption
feature that allows holders the right to require the Company to redeem all or
any part of their shares at a price per share in cash equal to the liquidation
preference of $10 per share. Holders can exercise this option for a 30-day
period commencing on the first anniversary date of the effective date of the
merger.

Assuming this acquisition had occurred on March 22, 1999 (the date of
inception of Starbelly) and carried forward through December 31, 1999, net loss
for 1999 would have been $59.8 million or $(.97) per diluted share. This
includes the expenses incurred by Starbelly for the nine month period along with
a calculation of the probable goodwill amortization over the same period. Due to
the developmental stage of Starbelly, sales would not have changed materially
from the reported amount.

F-21
<PAGE>
HA-LO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

These unaudited pro forma amounts are presented for comparative purposes only
and do not purport to be indicative of what the results of operations would
actually have been, nor is it indicative of the results that may occur in the
future.

F-22
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Starbelly.com, Inc.:

We have audited the accompanying balance sheet of STARBELLY.COM, INC. (a
Delaware corporation in the development stage) as of December 31, 1999, and the
related statements of operations, stockholders' equity and cash flows for the
period from March 22, 1999 (date of inception), to December 31, 1999. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards in the U.S. 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 audit provides 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 Starbelly.com, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
period from March 22, 1999 (date of inception), to December 31, 1999, in
conformity with generally accepted accounting principles in the U.S.

Arthur Andersen LLP
Chicago, Illinois
March 2, 2000

F-23
<PAGE>

STARBELLY.COM, INC.

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET

AS OF DECEMBER 31, 1999

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $3,341,451
Accounts receivable, less allowance for doubtful accounts
of $20,000.............................................. 204,539
Inventory................................................. 42,681
Prepaid expenses and other current assets................. 219,987
----------
Total current assets................................ 3,808,658
----------
PROPERTY AND EQUIPMENT, AT COST............................. 2,134,494
Less- Accumulated depreciation............................ (279,282)
----------
Property and equipment, net......................... 1,855,212
----------
DUE FROM RELATED PARTY...................................... 337,948
----------
Total assets........................................ $6,001,818
==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable.......................................... $1,920,059
Current portion of long-term debt......................... 243,947
Accrued expenses.......................................... 2,167,815
----------
Total current liabilities........................... 4,331,821
----------
LONG-TERM DEBT, net of current portion...................... 558,354
----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A; $.001 par value;
1,500,000 shares authorized; 1,500,000 shares issued and
outstanding............................................. 1,500
Convertible preferred stock, Series B; $.001 par value;
5,653,711 shares authorized; 5,653,711 shares issued and
outstanding............................................. 5,654
Common stock, Class A; $.001 par value; 3,105,000 shares
authorized; 395,000 shares issued and outstanding....... 395
Common stock, Class B; $.001 par value; 36,895,000 shares
authorized; 16,500,000 shares issued and outstanding.... 16,500
Note receivable from stockholder.......................... (10,000)
Additional paid-in capital................................ 9,670,339
Accumulated deficit....................................... (8,572,745)
----------
Total stockholders' equity.......................... 1,111,643
----------
Total liabilities and stockholders' equity.......... $6,001,818
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-24
<PAGE>

STARBELLY.COM, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM MARCH 22, 1999 (DATE OF INCEPTION), TO DECEMBER 31, 1999

<TABLE>
<S> <C>
NET SALES................................................... $ 346,960
COST OF SALES............................................... 309,311
-----------
Gross profit........................................ 37,649
-----------
OPERATING EXPENSES:
Sales, marketing and operations........................... 2,689,237
Technology and development................................ 3,258,220
General and administrative................................ 2,791,770
-----------
Total operating expenses............................ 8,739,227
-----------
INTEREST INCOME............................................. 128,833
-----------
Loss before taxes................................... (8,572,745)
INCOME TAXES................................................ --
-----------
Net loss.................................................. $(8,572,745)
===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-25
<PAGE>
STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 22, 1999 (DATE OF INCEPTION), TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-------------------------------------------
COMMON STOCK, SERIES A, SERIES B,
PAR VALUE $.001, PAR VALUE $.001, PAR VALUE $.001,
40,000,000 SHARES 1,500,000 SHARES 5,653,711 SHARES
AUTHORIZED AUTHORIZED AUTHORIZED
---------------------------------- -------------------- --------------------
CLASS A, CLASS B,
3,105,000 36,895,000 ADDITIONAL
SHARES SHARES PAR PAR PAR PAID-IN
AUTHORIZED AUTHORIZED VALUE SHARES VALUE SHARES VALUE CAPITAL
---------- ---------- -------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 22, 1999
Issuance of Class B common
stock................... 16,500,000 16,500 (8,250)
Issuance of Series A
preferred stock......... 1,500,000 1,500 1,498,500
Issuance of Series B
preferred stock......... 5,653,711 5,654 7,994,346
Issuance of warrants...... 10,987
Exercise of Class A common
stock options........... 395,000 395 101,355
Compensation and other
noncash expense related
to stock transactions... 73,401
Net loss for period.......
------- ---------- ------- --------- ------ --------- ------ ----------
BALANCE, December 31,
1999...................... 395,000 16,500,000 $16,895 1,500,000 $1,500 5,653,711 $5,654 $9,670,339
======= ========== ======= ========= ====== ========= ====== ==========

NOTE
RECEIVABLE
FROM ACCUMULATED
STOCKHOLDER DEFICIT TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, March 22, 1999
Issuance of Class B common
stock................... 8,250
Issuance of Series A
preferred stock......... 1,500,000
Issuance of Series B
preferred stock......... 8,000,000
Issuance of warrants...... 10,987
Exercise of Class A common
stock options........... (10,000) 91,750
Compensation and other
noncash expense related
to stock transactions... 73,401
Net loss for period....... (8,572,745) (8,572,745)
-------- ----------- -----------
BALANCE, December 31,
1999...................... $(10,000) $(8,572,745) $ 1,111,643
======== =========== ===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-26
<PAGE>

STARBELLY.COM, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM MARCH 22, 1999 (DATE OF INCEPTION), TO DECEMBER 31, 1999

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(8,572,745)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation............................................ 279,282
Compensation and other noncash expense related to stock
transactions.......................................... 73,401
Changes in assets and liabilities-
Accounts receivable................................... (204,539)
Inventory............................................. (42,681)
Prepaid expenses and other current assets............. 209,000
Due from related party................................ (337,948)
Accounts payable...................................... 1,920,059
Accrued expenses...................................... 2,167,815
-----------
Net cash used in operating activities............... (4,926,356)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (2,134,494)
-----------
Net cash used in investing activities............... (2,134,494)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 8,250
Proceeds from issuance of preferred stock................. 9,500,000
Exercise of common stock options.......................... 91,750
Proceeds from equipment loan.............................. 848,242
Payments of principal on equipment loan................... (45,941)
-----------
Net cash provided by financing activities........... 10,402,301
-----------
NET INCREASE IN CASH........................................ 3,341,451
CASH AND CASH EQUIVALENTS, beginning of period.............. --
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 3,341,451
===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of note receivable in connection with exercise of
options................................................. $ 10,000
Exchange of note receivable for common stock.............. $ 250,000
Issuance of warrants in connection with equipment loan
financing............................................... $ 10,987
===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-27
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999

DESCRIPTION OF BUSINESS

Starbelly.com, Inc. (the "Company"), f/k/a The Zebra.com, is a Delaware
corporation which was incorporated on March 22, 1999, and is a development stage
company. The Company has a calendar year-end. Its primary activities since
inception have been to raise equity capital to finance operations and to develop
an Internet-based business solution for the custom-decorated merchandise
industry, which includes promotional and ad specialty products and casual
uniforms.

The Company has incurred significant losses since inception and expects to
continue to incur substantial losses. The net loss was $8,572,745 for the period
ended December 31, 1999. The Company expects to continue to incur significant
expenses related to marketplace development, technology, sales and marketing and
administration. Significant revenue will need to be generated to achieve and
maintain profitability. There can be no assurance that the Company will be able
to generate sufficient revenues to achieve or sustain profitability in the
future. If profitability is reached, the Company may not be able to sustain or
increase profitability. As further discussed in Note 9, on January 17, 2000, the
Company signed a definitive stock purchase agreement agreeing to be acquired by
Ha-Lo Industries, Inc. The Company anticipates that the transaction will close
in April and the acquiring company intends to fund the Company's operations
through 2000.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

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 and
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.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all highly liquid investments purchased
with original maturities of three months or less. Cash and cash equivalents are
recorded at cost, which approximates fair value due to the short maturity of
these instruments.

TRADE ACCOUNTS RECEIVABLE

For the period ended December 31, 1999, the Company charged approximately
$20,000 to trade allowance for doubtful accounts.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method at rates adequate to depreciate the cost of applicable
assets over their expected useful lives. Repairs and maintenance are charged to
expense as incurred. Gains or losses resulting from sales or

F-28
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

retirements are recorded as incurred, at which time related costs and
accumulated depreciation are removed from the accounts. The estimated useful
lives are as follows:

<TABLE>
<CAPTION>
USEFUL
ASSET DESCRIPTION LIFE
- ----------------- ---------
<S> <C>
Computer equipment and software............................. 2-3 years
Furniture and office equipment.............................. 5 years
Production equipment........................................ 10 years
Leasehold improvements...................................... 3 years
=========
</TABLE>

FINANCIAL INSTRUMENTS

The carrying value for current assets and current liabilities reasonably
approximates fair value due to the short maturity of these items.

The financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash investments and trade
receivables. The Company has cash investment policies that limit cash
investments to short-term, low-risk investments. With respect to trade
receivables, the Company grants unsecured credit to its customers. Management
believes that its accounts receivable credit risk is limited as these customers
are geographically dispersed and are in numerous different industries.
Additionally, the Company establishes accounts receivable allowances based upon
factors relating to the credit risk of specific customers and other information.
Two customers accounted for approximately 17.3% and 12.9% of the Company's sales
for the period ended December 31, 1999. Revenue generated for the two largest
customers was approximately $60,000 and $45,000, respectively.

REVENUE RECOGNITION

The Company recognizes revenue from product sales, net of any discounts,
when the products are shipped to the customers.

COST OF SALES

Cost of sales consists primarily of merchandise sold to customers including
product cost, decoration cost and freight and handling charges.

SALES, MARKETING AND OPERATIONS COSTS

Sales, marketing and operations costs consist primarily of advertising and
promotional expenditures, operations facility expenses and payroll and related
expenses for personnel engaged in marketing, operations, sales and customer
service. Advertising expenditures are expensed as incurred. The Company's
advertising to date has related primarily to building brand awareness, including
primarily print advertising and promotions. Total advertising and promotion
costs for the period ended December 31, 1999, was $1,041,000.

F-29
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

TECHNOLOGY AND DEVELOPMENT COSTS

The Company has adopted Statement of Position ("SOP") No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
which provides guidance on the accounting for the cost of computer software
developed or obtained for internal use. Costs incurred in the development of the
Company's main web site and related applications to be used in connection with
the Company's services have been expensed to operations as incurred as the rapid
pace of technological change results in an estimated useful life of one year or
less. These costs consist primarily of payroll and related expenses and
consultant costs. The Company incurred technology and development costs of
approximately $3,258,220 for the period ended December 31, 1999. No significant
costs were capitalized for the period ended December 31, 1999.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. A valuation
allowance has been provided to offset deferred tax assets, which consists
primarily of net operating losses. At December 31, 1999, the deferred tax asset
and offsetting valuation allowance amount to approximately $3,260,000. The
Company has net operating losses for both federal and state tax purposes of
approximately $8,276,000 expiring during 2015. The net operating losses can be
carried forward to offset future taxable income. Utilization of the above
carryforwards may be subject to the utilization limits, which may inhibit the
Company's ability to use carryforwards in the future.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation arrangements with
employees in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies
with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the measurement date, between the estimated fair value of
the Company's stock and the exercise price of options to purchase that stock.
The compensation expense is amortized on a straight-line basis over the vesting
period of the options.

The Company accounts for stock-based compensation arrangements with
nonemployees in accordance with SFAS No. 123. SFAS No. 123 establishes a fair
value based method of accounting for stock-based compensation plans. Under the
fair value based method, compensation cost is measured at the grant date based
on the value of the award, which is calculated using an option pricing model,
and is recognized over the service period, which is usually the vesting period.

F-30
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

SEGMENT INFORMATION

The Company identifies its operating segments based on business activities
and management responsibility. The Company operates in a single business segment
and has no significant international sales.

START-UP COSTS

In accordance with SOP No. 98-5, "Reporting on the Costs of Start-up
Activities," the Company has expensed all start-up costs, including organization
costs, as incurred.

2. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1999, consisted of the following:

<TABLE>
<S> <C>
Computer equipment and software............................. $1,507,527
Furniture and office equipment.............................. 224,248
Production Equipment........................................ 125,188
Leasehold improvements...................................... 277,531
----------
$2,134,494
Less- Accumulated depreciation.............................. (279,282)
----------
Property and equipment, net............................. $1,855,212
==========
</TABLE>

3. DEBT

On September 16, 1999, the Company entered into a Loan and Security
Agreement ("Agreement") with a bank for a committed equipment line up to a
maximum of $1,250,000 that terminates on May 31, 2000. Each equipment advance is
limited to $500,000 until the Company reports monthly revenue of at least
$100,000. The limit will be increased to $1,000,000 when the Company reports
monthly revenue of $200,000. The maximum number of equipment advances is five.
Eligible equipment under the equipment line includes computer equipment, office
equipment and furnishings. Each equipment advance will be considered a separate
borrowing and will have a separate payment schedule and interest rate as
determined by the bank at the time of the equipment advance. Principal and
interest payments are due monthly on the first day of the month following the
funding date and the interest rate will be equal to the bank's basic rate. The
repayment period on each equipment advance is 36 months. The Company is required
to grant the bank a first priority continuing security interest in all presently
existing and later acquired equipment financed under an equipment advance. The
Agreement contains various nonfinancial covenants. The Company borrowed
approximately $848,000 of equipment advances on November 1, 1999. As of
December 31, 1999, the balance due is $802,301. In conjunction with the
Agreement, the Company issued the bank a warrant to purchase 28,369 shares of
Series B preferred stock with an exercise price of $1.41 per share. The warrant
expires in September, 2006. The warrants were valued using the Black-Scholes
option pricing model (see Note 8). The Company borrowed the remaining amount of
approximately $402,000 on the equipment line during March 2000.

F-31
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

As of December 31, 1999, long-term debt consists of the following:

<TABLE>
<CAPTION>
1999
---------
<S> <C>
Note payable, due November, 2002, payable in monthly
installments of $26,821, including interest at 11.25%,
collateralized by certain equipment....................... $ 802,301
Less- Current maturities.................................... (243,947)
---------
Long-term debt.............................................. $ 558,354
=========
</TABLE>

The aggregate maturities of principal are as follows:

<TABLE>
<S> <C>
2000........................................................ $243,947
2001........................................................ 272,840
2002........................................................ 285,514
--------
Total................................................. $802,301
========
</TABLE>

4. 401(K) SAVINGS PLAN

The Company has a savings plan ("401(k) Plan") which qualifies as a defined
contribution arrangement under Section 401 (a), 401(k) and 501(a) of the
Internal Revenue Code. Under the 401(k) Plan, participating employees may defer
a percentage (not to exceed 15%) of their eligible pretax earnings up to the
Internal Revenue Service's annual contribution limit. All employees on the
payroll of the Company are eligible to participate in the 401(k) Plan.

5. COMMITMENTS AND CONTINGENCIES

The Company is, at times, subject to pending and threatened legal action and
proceedings. Management believes that the outcome of such actions or proceedings
is not expected to have a material adverse effect on the financial position or
results of operations of the Company.

During November, 1999, the Company entered into a sublease agreement related
to its main operating facility. It is a three-year agreement which can be
terminated by the Company with six month's notice. The amount of rent is
determined based on the percentage of space used by the Company. The Company
does not anticipate that its monthly rent will exceed $30,000 per month pursuant
to the agreement.

6. RELATED-PARTY TRANSACTIONS

On May 10, 1999, the Company entered into a Supply and Services Agreement
(the "Agreement") with a company that is owned by the founding stockholders of
the Company. The Agreement calls for the provision of decoration services by the
Company to the related party, among other shared services and facilities.
Pursuant to the Agreement, the Company has billed for these decoration services.
Amounts billed have been reflected net of payroll and facilities provided to the
Company by the related party, as well as a software license granted to the
Company by the related party. At December 31, 1999, the net amount due from the
related party is $337,948.

F-32
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

No amounts billed by the Company to the related party have been reflected as
revenue since the relationship pursuant to the Agreement has been determined to
be an agency relationship rather than a principal relationship. Reflected in the
Company's statement of operations within general and administrative operating
expense is approximately $304,000 of payroll and facility expense provided to
the Company by the related party. The payroll expenses are allocated to the
Company based on estimates of the percentage of time these employees provided
services to the Company. The facility expenses are allocated to the Company
based on the percentage of space used by the Company. Management believes that
this amount approximates the fair market value of such services and facilities.

On November 15, 1999, the Agreement was terminated.

The Company also has supply and service agreements with two contract
decorators which operate their businesses in the same facility as the Company.
Certain of the owners of these two companies have been granted Company stock
options with exercise prices equivalent to those granted to Company employees.
As further discussed in Note 8, expense is recognized for these nonemployees, as
determined by a Black-Scholes option pricing model, over the respective vesting
periods.

The Company's primary legal counsel owns 10,000 shares of Class A common
stock and a partner in this firm also owns 10,000 shares. Total legal expense
for the period ended December 31, 1999 for this firm was approximately $383,000
and approximately $262,000 has not been paid as of December 31, 1999.

7. STOCKHOLDERS' EQUITY

COMMON STOCK

The Company was incorporated on March 22, 1999. A total of 8,250,000
founders shares of Class B common stock were issued for consideration of $8,250.
During June, 1999, a one-for-one stock dividend was declared and distributed to
the common stockholders. The effect of this stock dividend is reflected in the
accompanying financial statements.

The Class A common stock is non-voting while the Class B common stock is
voting.

PREFERRED STOCK

On May 10, 1999, the Company issued 1,500,000 shares of Series A preferred
stock at a price of $1.00 per share. The holders of Series A preferred stock are
entitled to receive dividends of 6% per share per annum, payable quarterly, if
declared. The dividend is only payable after all Series B preferred stock
dividends are paid. Upon liquidation, after Series B preferred stock holders are
paid their liquidation preference, Series A preferred stock holders are entitled
to a liquidation preference of the per share price plus declared and unpaid
dividends prior to any distribution. If the amount payable to common stock
holders on liquidation would exceed the amounts paid to holders of Series A
preferred stock on account of their liquidation preferences, the Series A
preferred stock automatically converts to Class B common stock at its conversion
rate. Shares of Series A preferred stock may be converted into Class B common
stock at any time upon a holder's request. All shares of Series A preferred
stock will be converted into Class B common stock upon the first to occur of the
consent of a majority of holders of Series A preferred stock and Series B
preferred stock voting together in a single

F-33
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

class, or upon the consummation of an initial public offering at a price per
share equal to $1.50 per share of Series A preferred stock resulting in
aggregate cash proceeds to the Company of at least $10 million. The aggregate
conversion price of the shares is determined by dividing the purchase price of
the Series A preferred stock by the conversion price ($.50 per share as of
December 31, 1999). The conversion price is subject to adjustment on any
subdivision or stock dividend paid on account of the common stock and was
adjusted based on the stock dividend previously described. In addition, the
conversion price is subject to a proportional adjustment to the extent the
consideration actually received for future issuances of stock are less than the
conversion price of the Series A preferred stock, other than certain issuances,
as defined. Holders of Series A preferred stock have no preemptive rights.
Holders of Series A preferred stock have limited piggy-back registration rights.
Holders of Series A preferred stock are entitled to voting rights as if their
conversion rights had been exercised.

On July 29, 1999, the Company issued 5,653,711 shares of Series B preferred
stock at a price of $1.41 per share. The holders of Series B preferred stock are
entitled to receive dividends of 6% per share per annum, if declared. Upon
liquidation, Series B preferred stock holders are entitled to a liquidation
preference of the per share price plus declared and unpaid dividends prior to
any distribution, including the liquidation preference on account of the
Series A preferred stock. Shares of Series B preferred stock may be converted
into Class B common stock at any time upon a holder's request. All shares of
Series A preferred stock will be converted into Class B common stock upon the
first to occur of the consent of a majority of holders of Series A preferred
stock and Series B preferred stock voting together in a single class, or upon
the consummation of an initial public offering at a price per share equal to
three times the issue price of the Series B preferred stock resulting in
aggregate cash proceeds to the Company of at least $20 million. The aggregate
conversion price of the shares is determined by dividing the purchase price of
the Series B preferred stock by the conversion price ($1.41 per share as of
December 31, 1999). The conversion price is subject to adjustment on any
subdivision or stock dividend paid on account of the common stock. In addition,
the conversion price is subject to a proportional adjustment to the extent the
consideration actually received for future issuances of stock are less than the
lower of the conversion price of the Series B preferred stock or the then-market
value of the Series B preferred stock, other than certain issuances, as defined.
Holders of Series B preferred stock have preemptive rights to the extent
necessary to maintain fully diluted ownership of the Company on issuances of
stock by the Company, other than certain specified issuances. Holders of
Series B preferred stock have been granted certain registration rights. Holders
of Series B preferred stock are entitled to voting rights as if their conversion
rights had been exercised.

8. STOCK OPTION PLANS

In June, 1999, the Board of Directors adopted the 1999 Stock Plan (the
"Plan"). The Plan provides for 3,105,000 shares of Class A common stock to be
granted. Under the terms of the Plan, options may be granted to employees,
consultants and directors. Options granted to consultants are valued by the
Company using a Black-Scholes option pricing model, with such value recorded as
expense over the term of the service provided. Typically, options granted to
employees vest over four years, 25% after the first year, ratably each quarter
over the remaining three years, and generally expire ten years from the date of
grant. Shares issued under the Plan may be subject to a right of refusal,
repurchase options or other conditions and restrictions as determined by the
Board of Directors. By way of example, certain options granted by the Company
are immediately exercisable. The Company has a right to repurchase any unvested
shares from the employee upon termination at the price paid by

F-34
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

the employee upon exercise. Unvested shares are typically held in escrow. At
December 31, 1999, of the 395,000 shares of Class A common stock outstanding,
issued pursuant to exercise of stock options, 25,000 of such shares are unvested
shares which can be subject to repurchase.

In October, 1999, an executive who had previously owned 1,000,000 shares of
common stock via the exercise of stock options left the Company. In
consideration for these shares the Company had received a $250,000 note
receivable from the executive. In connection with the departure, the Company
repurchased 675,000 shares at the original exercise price which were
subsequently retired. The effect of this transaction is shown net on the
Statement of Stockholders' Equity. Additionally, the Company accelerated a
portion of a deferred signing bonus and agreed to remit certain tax
withholdings. The impact of this was a charge to operations in October of
approximately $140,000. All amounts to be remitted by the Company to the
employee were applied to the note receivable. No amounts were due from the
executive at December 31, 1999.

The following table summarizes the Company's stock option activity:

<TABLE>
<CAPTION>
WEIGHTED-
EXERCISE AVERAGE
NUMBER PRICE PER EXERCISE
OF SHARES SHARE PRICE
---------- ----------- ---------
<S> <C> <C> <C>
Outstanding at inception, March 22, 1999.................... -- $ -- $ --
Granted................................................... 2,999,584 .01 to 1.00 .73
Canceled.................................................. (80,500) 1.00 1.00
Exercised................................................. (1,070,000) .01 to .25 .24
---------- ----------- ----
Outstanding at December 31, 1999............................ 1,849,084 1.00 1.00
========== =========== ====
</TABLE>

At December 31, 1999, 153,542 options are exercisable, all of which have an
exercise price of $1.00. Subsequent to December 31, 1999, the Company granted
approximately 944,000 additional stock options, all of which have an exercise
price of $1.00 per share. To the extent that the exercise price of these options
is less than the fair market value of the underlying common stock, as determined
by the Company, compensation expense will result and will be recorded over the
vesting period of the related stock options. During the period the Company
granted 1,458,250 options which had exercise prices less than the fair market
value of the underlying stock. These options had a weighted average exercise
price of $.45 per share and a weighted average fair value at grant date of $.55
per share. The remaining options granted during the period were granted at fair
value. The weighted-average grant-date fair value for all options granted during
the period ended December 31, 1999 was $.29.

Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using the minimum value method, which
utilizes a near-zero volatility factor. The remaining assumptions were an
expected life of five years, a risk-free interest rate of 5.0% and no dividend
yield.

The option valuation method requires input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because the change in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing method does not necessarily provide a reliable single

F-35
<PAGE>

STARBELLY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

measure of the employee stock options. The effects of applying SFAS No. 123 in
the pro forma disclosure are not indicative of future amounts and additional
awards in future years are anticipated.

If the Company recognized employee stock-related compensation expense in
accordance with SFAS No. 123 under the minimum value method, its net loss for
the period ended December 31, 1999, would have been approximately $32,000
higher.

From time to time, the Company grants stock options to nonemployees,
principally consultants, independent contractors and advisors. The Company
accounts for these option grants pursuant to the provisions of SFAS No. 123.
Approximately $67,200 of compensation expense was recorded during the period
ended December 31, 1999, related to these options.

In conjunction with its loan agreement, the Company issued the bank a
warrant to purchase 28,369 shares of Series B preferred stock at $1.41 per share
(see Note 3). The warrant expires in September, 2006. The Company accounted for
this warrant in accordance with SFAS No. 123. The fair value of the warrant was
calculated at the date of grant using the Black-Scholes option pricing model
with the following assumptions: weighted-average risk-free interest rate of 5%,
a dividend yield of 0% and a weighted-average expected life of the warrant of
seven years. The fair value of the warrants was approximately $11,000 and was
included in prepaid expenses on the accompanying balance sheet. The expense will
be amortized over the term of the equipment advances. For the period ended
December 31, 1999, the Company amortized approximately $1,221.

In connection with the closing of the transaction discussed in Note 9, the
Company intends to cause 50% of outstanding options to become fully vested at
the effective date of the transaction for certain employees and 33 1/3% of
outstanding options for all other employees.

9. SUBSEQUENT EVENTS

On January 17, 2000, the Company signed a definitive stock purchase
agreement agreeing to be acquired by Ha-Lo Industries, Inc., a leading provider
of promotional and ad specialty products and marketing services. The purchase
price is $240 million, composed of cash, preferred stock and common stock. The
Company's Board of Directors and stockholders have approved the transaction. The
stockholders of Ha-Lo Industries, Inc. are expected to vote on the transaction
in April, 2000. It is anticipated that the transaction will close in April,
2000.

In conjunction with this transaction, Ha-Lo Industries, Inc. will make
certain specified loans to the Company whether or not the transaction closes.
Subsequent to December 31, 1999, the Company received three separate $5 million
loans from Ha-Lo Industries, Inc. In addition, the agreement stipulates certain
breakup fees and other matters if the transaction does not close.

F-36
<PAGE>

PROXY HA-LO INDUSTRIES, INC. PROXY

SPECIAL MEETING OF SHAREHOLDERS - MARCH ___, 2000

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY

The undersigned shareholder of HA-LO INDUSTRIES, INC., an Illinois corporation
("HA-LO" or the "Company")), hereby appoints John R. Kelley, Jr. and Gregory J.
Kilrea, and each of them, proxies and attorneys-in-fact of the undersigned,
each with full power of substitution, to attend and act for the undersigned at
the special meeting of shareholders to be held on Tuesday, March ___, 2000 at
Harris Bank, Room _____, 111 West Monroe Street, Chicago, Illinois 60603 and
at any adjournments or postponements thereof, and in connection therewith to
vote and represent all of the shares of common stock of HA-LO which the
undersigned would be entitled to vote.

Said proxies and attorneys, and each of them, shall have the powers which the
undersigned would have if acting in person. Said proxies, without hereby
limiting their general authority, are authorized to vote in accordance with
their best judgment with respect to all matters incident to the conduct of the
special meeting and all matters presented at the meeting but which are not
known to the board of directors at the time of solicitation of this proxy. The
undersigned hereby revokes any other proxy to vote at such meeting and hereby
ratifies and confirms all that said proxies and attorneys, and each of them,
may lawfully do by virtue hereof.

Each of the above named proxies at said meeting, either in person or by
substitute, shall have and exercise all the powers of said proxies hereunder.
This proxy will be voted in accordance with the choices specified by the
undersigned on this proxy. In their discretion, each of the above-named
proxies is authorized to vote upon such other business incident to the conduct
of the special meeting as may properly come before the meeting or any
postponements or adjournments thereof.

IF NO INSTRUCTIONS ARE INDICATED HEREIN, THIS PROXY WILL BE TREATED AS A GRANT
OF AUTHORITY TO VOTE FOR THE PROPOSALS AND ANY OTHER MATTERS TO BE VOTED UPON
AT THE SPECIAL MEETING OR AT ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.

PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

<PAGE>

PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY / /

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Approval of the merger, including the issuance in the merger and upon / / / / / /
exercise of options assumed by the Company under Starbelly.com's stock option
plan of 17 million shares of HA-LO common stock to the Starbelly.com
stockholders, an amendment to the Company's articles of incorporation to permit
the issuance in the merger and upon exercise of the assumed options of 5.1
million shares of convertible preferred stock, the reservation of 5.1 million
shares of common stock for issuance upon conversion of the convertible
preferred stock and, the adoption of a new stock option plan under which the
Company will assume Starbelly.com's stock option plan and the options
outstanding under the plan.

FOR AGAINST ABSTAIN
2. Approval of amendment to the Company's articles of incorporation to increase / / / / / /
the number of shares of common stock and the number of shares of convertible
preferred stock the Company is authorized to issue from 100 million to 250
million and from 10 million to 20 million, respectively.

3. Approval of amendment to the Company's articles of incorporation to authorize / / / / / /
the board of directors to provide for the future issuance of convertible
preferred stock without the approval of the holders of our common stock.

4. Approval of any proposal by the board of directors to postpone or adjourn / / / / / /
the meeting.

5. The persons named in this proxy also may vote, in their discretion, upon such
other matters as may properly come before the meeting or any adjournment
thereof.

</TABLE>

Please complete, sign and mail this proxy promptly in the enclosed envelope.
No postage is required for mailing in the United States.

Dated _____________________, 2000

Signature(s) _________________________________
_________________________________

IMPORTANT: Please date this proxy and sign exactly as your name appears on
this proxy. If shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
title as such. If a corporation, please sign in full corporate name by
president, or authorized officer. If a partnership, please sign in partnership
name by authorized person.

<PAGE>

EXHIBIT D

HA-LO INDUSTRIES, INC.

STOCK OPTION PLAN FOR STARBELLY

EMPLOYEES, DIRECTORS AND CONSULTANTS

WHEREAS, HA-LO INDUSTRIES, INC., an Illinois corporation (the
"Company"), HA-LO INDUSTRIES, INC., a Delaware corporation and a wholly-owned
subsidiary of the Company ("Merger Sub"), and STARBELLY.COM, INC., a Delaware
corporation ("Starbelly"), have entered into an Agreement and Plan of
Reorganization dated as of January 17, 2000 (the "Plan of Reorganization") which
contemplates, among other things, (i) the merger of Starbelly with and into
Merger Sub (the "Merger") and (ii) the assumption by the Company of all
outstanding options granted pursuant to the Starbelly.com, Inc. 1999 Stock
Option Plan, as amended, which is attached hereto as Exhibit A and by reference
made a part hereof (the "Starbelly Plan");

WHEREAS, at a meeting held on February 29, 2000, the Company's
shareholders approved the Merger and certain related matters; and

WHEREAS, the Merger was consummated on February 29, 2000.

ACCORDINGLY, subject to the following terms and conditions, the Company
does hereby agree to the following:

1. The Company hereby assumes the Starbelly Plan and all options
outstanding thereunder immediately prior to the effective time (the "Effective
Time") of the Merger (the "Assumed Options"). The Assumed Options are held of
record by the persons and in the amounts set forth on Schedule 1 hereto.

2. From and after the Effective Time, each Assumed Option shall
be deemed to be an option to acquire (a) that number of shares of the
Company's Common Stock equal to the product of (i) the number of shares of
Starbelly Class A Common Stock for which such Assumed Option was exercisable
immediately prior to the Effective Time and (ii) __________ (the number of
shares of Company Common Stock into which each share of Starbelly Class B
Common Stock is convertible pursuant to the Plan of Reorganization), and (b)
that number of shares of the Company's Series A Convertible Preferred Stock
equal to the product of (i) the number of shares of Starbelly Class A Common
Stock for which such Assumed Option was exercisable immediately prior to the
Effective Time and (ii) ________ (the number of shares of Company Series A
Convertible Preferred Stock into which each share of Starbelly Class B Common
Stock is convertible pursuant to the Plan of Reorganization). The shares of
Company Common Stock and Company Series A Convertible Preferred Stock into
which a share of Starbelly Class A Common Stock for which an Assumed Option
was exercisable immediately prior to the effective time of the Merger are
referred to as the "Option Shares." The exercise price for the Option Shares
shall be equal to the exercise price of a share of Starbelly Class A Common
Stock in effect under each Assumed Option immediately prior to the Effective
Time.

<PAGE>

3. Subject to the adjustments described in the immediately
preceding paragraph, each of the Assumed Options shall continue to be
evidenced by the option agreements previously entered into by Starbelly and
the persons to whom options are granted pursuant to the Starbelly Plan (the
"Option Agreements").

4. Subject to the terms hereof, the Company hereby assumes all
of Starbelly's rights and obligations under each of the Option Agreements.

5. The Company will administer the Assumed Options in
accordance with the terms of this HA-LO Industries, Inc. Stock Option Plan
for Starbelly Employees, Directors and Consultants (the "Plan for Starbelly
Employees"), which, with respect to each Assumed Option, shall be
substantially similar to the terms of the Starbelly Plan.

6. The Compensation Committee of the Board of Directors of the
Company is appointed, directed and authorized to administer and interpret the
terms of the Plan for Starbelly Employees.

- 2 -

<PAGE>

Exhibit A

THEZEBRA.COM, INC.

1999 STOCK OPTION PLAN

1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

1.1 ESTABLISHMENT. TheZebra.com, Inc. 1999 Stock
Option Plan (the "PLAN") is hereby established effective as of _________, 1999.

1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by
providing an incentive to attract, retain and reward performing services for
the Participating Company Group and by motivating such persons to contribute
to the growth and profitability of the Participating Company Group.

1.3 TERM OF PLAN. The Plan shall continue in effect
until the earlier of its termination by the Board or the date on which all of
the shares of Stock available for issuance under the Plan have been issued
and all restrictions on such shares under the terms of the Plan and the
agreements evidencing Options granted under the Plan have lapsed. However,
all Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the stockholders of the Company.

2. DEFINITIONS AND CONSTRUCTION.

2.1 DEFINITIONS. Whenever used herein, the following
terms shall have their respective meanings set forth below:

(a) "BOARD" means the Board of Directors of
the Company. If one or more Committees have been appointed by the Board to
administer the Plan, "BOARD" also means such Committee(s).

(b) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.

(c) "COMMITTEE" means the Compensation
Committee or other committee of the Board duly appointed to administer the
Plan and having such powers as shall be specified by the Board. Unless the
powers of the Committee have been specifically limited, the Committee shall
have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to
the terms of the Plan and any applicable limitations imposed by law.

(d) "COMPANY" means TheZebra.com, Inc., a
Delaware corporation, or any successor corporation thereto.

(e) "CONSULTANT" means any person, including
an advisor, engaged by a Participating Company to render services other than
as an Employee or a Director.

- 3 -

<PAGE>

(f) "DIRECTOR" means a member of the Board or
of the board of directors of any other Participating Company.

(g) "DISABILITY" means the inability of the
Optionee, in the opinion of a qualified physician acceptable to the Company,
to perform the major duties of the Optionee's position with the Participating
Company Group because of the sickness or injury of the Optionee.

(h) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an
employee) in the records of a Participating Company and, with respect to any
Incentive Stock Option granted to such person, who is an employee for
purposes of Section 422 of the Code; provided, however, that neither service
as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.

(i) "EXCHANGE ACT" means the Securities
Exchange Act of 1934, as amended.

(j) "FAIR MARKET VALUE" means, as of any
date, the value of a share of Stock or other property as determined by the
Board, in its discretion, or by the Company, in its discretion, if such
determination is expressly allocated to the Company herein, subject to the
following:

(i) If, on such date, the Stock is
listed on a national or regional securities exchange or, market system, the
Fair Market Value of a share of Stock shall be the closing price of a share
of Stock (or the mean of the closing bid and asked prices of a share of Stock
if the Stock is so quoted instead) as quoted on the Nasdaq National Market,
The Nasdaq SmallCap Market or such other national or regional securities
exchange or market system constituting the primary market for the Stock, as
reported in THE WALL STREET JOURNAL or such other source as the Company deems
reliable. If the relevant date does not fall on a day on which the Stock has
traded on such securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day
as shall be determined by the Board, in its discretion.

(ii) If, on such date, there is no
public market for the Stock, the Fair Market Value of a share of Stock shall
be as determined by the Board in good faith without regard to any restriction
other than a restriction which, by its terms, will never lapse.

(k) "INCENTIVE STOCK OPTION" means an Option
intended to be (as set forth in the Option Agreement) and which qualifies as
an incentive stock option within the meaning of Section 422(b) of the Code.

(l) "INSIDER" means an officer or a Director
of the Company or any other person whose transactions in Stock are subject to
Section 16 of the Exchange Act.

(m) "NONSTATUTORY STOCK OPTION" means an
Option not intended to be (as set forth in the Option Agreement) or which
does not qualify as an Incentive Stock Option.

- 4 -

<PAGE>

(n) "OPTION" means a right to purchase Stock
(subject to adjustment as provided in Section 4.2) pursuant to the terms and
conditions of the Plan. An Option may be either an Incentive Stock Option or
a Nonstatutory Stock Option.

(o) "OPTION AGREEMENT" means a written
agreement, including any related form of stock option grant agreement,
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired
upon the exercise thereof.

(p) "OPTIONEE" means a person who has been
granted one or more Options.

(q) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of
the Code.

(r) "PARTICIPATING COMPANY" means the Company
or any Parent Corporation or Subsidiary Corporation.

(s) "PARTICIPATING COMPANY GROUP" means, at
any point in time, all corporations collectively which are then Participating
Companies.

(t) "RULE 16b-3" means Rule 16b-3 under the
Exchange Act, as amended from time to time, or any successor rule or
regulation.

(u) "SECURITIES ACT" means the Securities Act
of 1933, as amended.

(v) "SERVICE" means an Optionee's employment
or service with the Participating Company Group, whether in the capacity of
an Employee, a Director or a Consultant. The Optionee's Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionee renders Service to the Participating Company Group or a change
in the Participating Company for which the Optionee renders such Service,
provided that there is no interruption or termination of the Optionee's
Service. Furthermore, an Optionee's Service with the Participating Company
Group shall not be deemed to have terminated if the Optionee takes any
military leave, sick leave, or other bona fide leave of absence approved by
the Company; provided, however, that if any such leave exceeds ninety (90)
days, on the ninety-first (91st) day of such leave the Optionee's Service
shall be deemed to have terminated unless the Optionee's right to return to
Service with the Participating Company Group is guaranteed by statute or
contract. Notwithstanding the foregoing, unless otherwise designated by the
Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining vesting under the Optionee's Option
Agreement. The Optionee's Service shall be deemed to have terminated either
upon an actual termination of Service or upon the corporation for which the
Optionee performs Service ceasing to be a Participating Company. Subject to
the foregoing, the Company, in its discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.

(w) "STOCK" means the common stock of the
Company, as adjusted from time to time in accordance with Section 4.2.

- 5 -

<PAGE>

(x) "SUBSIDIARY CORPORATION" means any
present or future "subsidiary corporation" of the Company, as defined in
Section 424(f) of the Code.

(y) "TEN PERCENT OWNER OPTIONEE" means an
Optionee who, at the time an Option is granted to the Optionee, owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of a Participating Company within the meaning of Section
422(b)(6) of the Code.

2.2 CONSTRUCTION. Captions and titles contained herein
are for convenience only and shall not affect the meaning or interpretation
of any provision of the Plan. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the
singular. Use of the term "or," is not intended to be exclusive, unless the
context clearly requires otherwise.

3. ADMINISTRATION.

3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan or of
any Option shall be determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the Plan or such
Option.

3.2 AUTHORITY OF OFFICERS. Any officer of a
Participating Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such
matter, right, obligation, determination or election.

3.3 ADMINISTRATION WITH RESPECT TO INSIDERS. With
respect to participation by Insiders in the Plan, at any time that any class
of equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, the Plan shall be administered in compliance with the
requirements, if any, of Rule 16b-3.

3.4 POWERS OF THE BOARD. In addition to any other
powers set forth in the Plan and subject to the provisions of the Plan, the
Board shall have the full and final power and authority, in its discretion:

(a) to determine the persons to whom, and the
time or times at which, Options shall be granted and the number of shares of
Stock to be subject to each Option;

(b) to designate Options as Incentive Stock
Options or Nonstatutory Stock Options;

(d) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for

- 6 -

<PAGE>

shares purchased upon the exercise of the Option, (iii) the method for
satisfaction of any tax withholding obligation arising in connection with the
Option or such shares, including by the withholding or delivery of shares of
stock, (iv) the timing, terms and conditions of the exercisability of the
Option or the vesting of any shares acquired upon the exercise thereof, (v)
the time of the expiration of the Option, (vi) the effect of the Optionee's
termination of Service with the Participating Company Group on any of the
foregoing, and (vii) all other terms, conditions and restrictions applicable
to the Option or such shares not inconsistent with the terms of the Plan;

(e) to approve one or more forms of Option
Agreement;

(f) to amend, modify, extend, cancel, renew,
reprice or otherwise adjust the exercise price of, or grant a new Option in
substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;

(g) to accelerate, continue, extend or defer
the exercisability of any Option or the vesting of any shares acquired upon
the exercise thereof, including with respect to the period following an
Optionee's termination of Service with the Participating Company Group;

(h) to prescribe, amend or rescind rules,
guidelines and policies relating to the Plan, or to adopt supplements to, or
alternative versions of, the Plan, including, without limitation, as the
Board deems necessary or desirable to comply with the laws of, or to
accommodate the tax policy or custom of, foreign jurisdictions whose citizens
may be granted Options; and

(i) to correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Option Agreement
and to make all other determinations and take such other actions with respect
to the Plan or any Option as the Board may deem advisable to the extent
consistent with the Plan and applicable law.

4. SHARES SUBJECT TO PLAN.

4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, the maximum aggregate number of shares
of Stock that may be issued under the Plan shall be one million two hundred
fifty thousand (1,250,000) and shall consist of authorized but unissued or
reacquired shares of Stock or any combination thereof. If an outstanding
Option for any reason expires or is terminated or canceled or if shares of
Stock are acquired upon the exercise of an Option subject to a Company
repurchase option and are repurchased by the Company at the Optionee's
exercise price, the shares of Stock allocable to the unexercised portion of
such Option or such repurchased shares of Stock shall again be available for
issuance under the Plan. Notwithstanding the foregoing, at any such time as
the offer and sale of securities pursuant to the Plan is subject to
compliance with Section 260.140.45 of Title 10 of the California Code of
Regulations ("SECTION 260.140.45"), the total number of shares of Stock
issuable upon the exercise of all outstanding Options (together with options
outstanding under any other stock option plan of the Company) and the total
number of shares provided for under

- 7 -

<PAGE>

any stock bonus or similar plan of the Company shall not exceed thirty
percent (30%) (or such other higher percentage limitation as may be approved
by the stockholders of the Company pursuant to Section 260.140.45) of the
then outstanding shares of the Company as calculated in accordance with the
conditions and exclusions of Section 260.140.45.

4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In
the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, appropriate adjustments shall be made in
the number and class of shares subject to the Plan and to any outstanding
Options and in the exercise price per share of any outstanding Options. If a
majority of the shares which are of the same class as the shares that are
subject to outstanding Options are exchanged for, converted into, or
otherwise become (whether or not pursuant to an Ownership Change Event, as
defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment,
the number of shares subject to, and the exercise price per share of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section
4.2 shall be rounded down to the nearest whole number, and in no event may
the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined
by the Board pursuant to this Section 4.2 shall be final, binding and
conclusive.

5. ELIGIBILITY AND OPTION LIMITATIONS.

5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be
granted only to Employees, Consultants, and Directors. For purposes of the
foregoing sentence, "Employees, "Consultants" and "Directors" shall include
prospective Employees, prospective Consultants and prospective Directors to
whom Options are granted in connection with written offers of an employment
or other service relationships with the Participating Company Group. Eligible
persons may be granted more than one (1) Option.

5.2 OPTION GRANT RESTRICTIONS. Any person who is not
an Employee on the effective date of the grant of an Option to such person
may be granted only a Nonstatutory Stock Option. An Incentive Stock Option
granted to a prospective Employee upon the condition that such person become
an Employee shall be deemed granted effective on the date such person
commences Service with a Participating Company, with an exercise price
determined as of such date in accordance with Section 6.1.

5.3 FAIR MARKET VALUE LIMITATION. To the extent that
options designated as Incentive Stock Options (granted under all stock option
plans of the Participating Company Group, including the Plan) become
exercisable by an Optionee for the first time during any calendar year for
stock having a Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portions of such options which exceed such amount shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5.3,
options designated as Incentive Stock Options shall be taken into account in
the order in which they were granted, and the Fair Market Value of stock
shall be determined as of the time the option with respect to such stock is
granted. If the Code is amended to provide for a different limitation from
that set forth in this

- 8 -

<PAGE>

Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an
Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section 5.3, the Optionee may
designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised
the Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall the exercise of the Option.

6. TERMS AND CONDITIONS OF OPTIONS.

Options shall be evidenced by Option Agreements specifying
the number of shares of Stock covered thereby, in such form as the Board
shall from time to time establish. No Option or purported Option shall be a
valid and binding obligation of the Company unless evidenced by a fully
executed Option Agreement. Option Agreements may incorporate all or any of
the terms of the Plan by reference and shall comply with and be subject to
the following terms and conditions:

6.1 EXERCISE PRICE. The exercise price for each Option
shall be established in the discretion of the Board; provided, however, that
(a) the exercise price per share for an Incentive Stock Option shall be not
less than the Fair Market Value of a share of Stock on the effective date of
grant of the Option, (b) the exercise, price per share for a Nonstatutory
Stock Option shall be not less than eighty-five percent (85%) of the Fair
Market Value of a share of Stock on the effective date of grant of the
Option, and (c) no Option granted to a Ten Percent Owner Optionee shall have
an exercise price per share less than one hundred ten percent (110%) of the
Fair Market Value of a share of Stock on the effective date of grant of the
Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is
granted pursuant to an assumption or substitution for another option in a
manner qualifying under the provisions of Section 424(a) of the Code.

6.2 EXERCISE PERIOD. Options shall be exercisable at
such time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria, and restrictions as shall be determined by
the Board and set forth in the Option Agreement evidencing such Option;
provided, however, that (a) no Option shall be exercisable after the
expiration of ten (10) years after the effective date of grant of such
Option, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the
effective date of grant of such Option, (c) no Option granted to a
prospective Employee, prospective Consultant or prospective Director may
become exercisable prior to the date on which such person commences Service
with a Participating Company, and (d) with the exception of an Option granted
to an officer, Director or Consultant, no Option shall become exercisable at
a rate less than twenty percent (20%) per year over a period of five (5)
years from the effective date of grant of such Option, subject to the
Optionee's continued Service. Subject to the foregoing, unless otherwise
specified by. the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of
grant of the Option.

- 9 -

<PAGE>

6.3 PAYMENT OF EXERCISE PRICE.

(a) FORMS OF CONSIDERATION AUTHORIZED. Except
as otherwise provided below, payment of the exercise price for the number of
shares of Stock being purchased pursuant to any Option shall be made (i) in
cash, by check or cash equivalent, (ii) by tender to the Company, or
attestation to the ownership, of shares of Stock owned by the Optionee having
a Fair Market Value (as determined by the Company without regard to any
restrictions on transferability applicable to such stock by reason of federal
or state securities laws or agreements with an underwriter for the Company)
not less than the exercise price, (iii) by the assignment of the proceeds of
a sale or loan with respect to some or all of the shares being acquired upon
the exercise of the Option (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form
approved by the Company, (v) by such other consideration as may be approved
by the Board from time to time to the extent permitted by applicable law, or
(vi) by any combination thereof. The Board may at any time or from time to
time, by adoption of or by amendment to the standard forms of Option
Agreement described in Section 7, or by other means, grant Options which do
not permit all of the foregoing forms of consideration to be used in payment
of the exercise price or which otherwise restrict one or more forms of
consideration.

(b) LIMITATIONS ON FORMS OF CONSIDERATION.

(i) TENDER OF STOCK. Notwithstanding
the foregoing, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company, or attestation to the ownership, of shares of Stock
unless such shares either have been owned by the Optionee for more than six
(6) months or were not acquired, directly or indirectly, from the Company.

(ii) CASHLESS EXERCISE. The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve or terminate any program or
procedures for the exercise of Options by means of a Cashless Exercise.

(iii) PAYMENT BY PROMISSORY NOTE. No
promissory note shall be permitted if the exercise of an Option using a
promissory note would be a violation of any law. Any permitted promissory
note shall be on such terms as the Board shall determine at the time the
Option is granted. The Board shall have the authority to permit or require
the Optionee to secure any promissory note used to exercise an Option with
the shares of Stock acquired upon the exercise of the Option or with other
collateral acceptable to the Company. Unless otherwise provided by the Board,
if the Company at any time is subject to the regulations promulgated by the
Board of Governors of the Federal Reserve System or any other governmental
entity affecting the extension of credit in connection with the Company's
securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid

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principal and accrued interest, if any, to the extent necessary to comply
with such applicable regulations.

6.4 TAX WITHHOLDING. The Company shall have the right,
but not the obligation, to deduct from the shares of Stock issuable upon the
exercise of an Option, or to accept from the Optionee the tender of, a number
of whole shares of Stock having a Fair Market Value, as determined by the
Company, equal to all or any part of the federal, state, local and foreign
taxes, if any, required by law to be withheld by the Participating Company
Group with respect to such Option or the shares acquired upon the exercise
thereof. Alternatively or in addition, in its discretion, the Company shall
have the right to require the Optionee, through payroll withholding, cash
payment or otherwise, including by means of a Cashless Exercise, to make
adequate provision for any such tax withholding obligations of the
Participating Company Group arising in connection with the Option or the
shares acquired upon the exercise thereof. The Company shall have no
obligation to deliver shares of Stock or to release shares of Stock from an
escrow established pursuant to the Option Agreement until the Participating
Company Group's tax withholding obligations have been satisfied by the
Optionee.

6.5 REPURCHASE RIGHTS. Shares issued under the Plan
may be subject to a right of first refusal, one or more repurchase options,
or other conditions and restrictions as determined by the Board in its
discretion at the time the Option is granted. The Company shall have the
right to assign at any time any repurchase right it may have, whether or not
such right is then exercisable, to one or more persons as may be selected by
the Company. Upon request by the Company, each Optionee shall execute any
agreement evidencing such transfer restrictions prior to the receipt of
shares of Stock hereunder and shall promptly present to the Company any and
all certificates representing shares of Stock acquired hereunder for the
placement on such certificates of appropriate legends evidencing any such
transfer restrictions.

6.6 EFFECT OF TERMINATION OF SERVICE.

(a) OPTION EXERCISABILITY. Subject to earlier
termination of the Option as otherwise provided herein, an Option shall be
exercisable after an Optionee's termination of Service as follows:

(i) DISABILITY. If the Optionee's
Service with the Participating Company Group is terminated because of the
Disability of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal
representative) at any time prior to the expiration of six (6) months (or
such longer period of time as determined by the Board, in its discretion)
after the date on which the Optionee's Service terminated, but in any event
no later than the date of expiration of the Option's term as set forth in the
Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE").

(ii) DEATH. If the Optionee's Service
with the Participating Company Group is terminated because of the death of
the Optionee, the Option, to the extent unexercised and exercisable on the
date on which the Optionee's Service terminated, may be exercised by the
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death at any time prior to
the expiration of

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six (6) months (or such longer period of time as determined by the Board, in
its discretion) after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date. The Optionee's
Service shall be deemed to have terminated on account of death if the
Optionee dies within thirty (30) days (or such longer period of time as
determined by the Board, in its discretion) after the Optionee's termination
of Service.

(iii) OTHER TERMINATION OF SERVICE. If
the Optionee's Service with the Participating Company Group terminates for
any reason, except Disability or death, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within thirty (30) days (or such
longer period of time as determined by the Board, in its discretion) after
the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.

(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.6(a) is prevented by the
provisions of Section II below, the Option shall remain exercisable until
thirty (30) days (or such longer period of time as determined by the Board,
in its discretion) after the date the Optionee is notified by the Company
that the Option is exercisable, but in any event no later than the Option
Expiration Date.

(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION
16(B). Notwithstanding the foregoing, if a sale within the applicable time
periods set forth in Section 6.6(a) of shares acquired upon the exercise of
the Option would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur
of (i) the tenth (10th) day following the date on which a sale of such shares
by the Optionee would no longer be subject to such suit, (ii) the one hundred
and ninetieth (190th) day after the Optionee's termination of Service, or
(iii) the Option Expiration Date.

7. STANDARD FORMS OF OPTION AGREEMENT.

7.1 GENERAL. Unless otherwise provided by the Board at
the time the Option is granted, an Option shall comply with and be subject to
the terms and conditions set forth in the standard forms of Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as
amended from time to time.

7.2 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 7 either in connection with the
grant or amendment of an individual Option or in connection with the
authorization of a new standard form or forms; provided, however, that the
terms and conditions of any such new, revised or amended standard form or
forms of Option Agreement are not inconsistent with the terms of the Plan.

8. CHANGE IN CONTROL.

8.1 DEFINITIONS

(a) An "OWNERSHIP CHANGE EVENT" shall be
deemed to have occurred if any of the following occurs with respect to the
Company: (i) the direct or indirect sale or

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exchange in a single or series of related transactions by the stockholders of
the Company of more than fifty percent (50%) of the voting stock of the
Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company; or (iv) a liquidation or dissolution of the Company.

(b) A "CHANGE IN CONTROL" shall mean an
Ownership Change Event or a series of related Ownership Change Events
(collectively, a "Transaction") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately after the
Transaction, in substantially the same proportions as their ownership of
shares of the Company's voting stock immediately before the Transaction,
direct or indirect beneficial ownership of more than fifty percent (50%) of
the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall
include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the
Transaction, own the Company or the Transferee Corporation(s), as the case
may be, either directly or through one or more subsidiary corporations. The
Board shall have the right to determine whether multiple sales or exchanges
of the voting stock of the Company or multiple Ownership Change Events are
related, and its determination shall be final, binding and conclusive.

8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the
event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may either assume the Corporation's rights and
obligations under the outstanding Options or substitute for outstanding
Options substantially equivalent options for the Acquiring Corporation's
stock. For purposes of this Section 8.2, an Option shall be deemed assumed
if, following the Change in Control, the Option confers the rights to
purchase in accordance with its terms and conditions, for each share of Stock
subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which
a holder of a share of Stock on the effective date of the Change in Control
was entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Change in Control nor exercised
as of the date of the Change in Control shall terminate and cease to be
outstanding effective as of the date of the Change in Control.
Notwithstanding the foregoing, shares acquired upon exercise of an Option
prior to the Change in Control and any consideration received pursuant to the
Change in Control with respect to such shares shall continue to be subject to
all applicable provisions of the Option Agreement evidencing such Option
except as otherwise provided in such Option Agreement.

9. PROVISION OF INFORMATION.

At least annually, copies of the Company's balance sheet
and income statement for the just completed fiscal year shall be made
available to each Optionee and purchaser of shares of Stock upon the exercise
of an Option. The Company shall not be required to provide such information
to key employees whose duties in connection with the Company assure them
access to equivalent information.

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10. NONTRANSFERABILITY OF OPTIONS.

During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.

11. COMPLIANCE WITH SECURITIES LAW.

The grant of Options and the issuance of shares of Stock
upon exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such
securities. Options may not be exercised if the issuance of shares of Stock
upon exercise would constitute a violation of any applicable federal, state
or foreign securities laws or other law or regulations or the requirements of
any stock exchange or market system upon which the Stock may then be listed.
In addition, no Option may be exercised unless (a) a registration statement
under the Securities Act shall at the time of exercise of the Option be in
effect with respect to the shares issuable upon exercise of the Option or (b)
in the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities
Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to
be necessary to the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of any Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and
to make any representation or warranty with respect thereto as may be
requested by the Company.

12. INDEMNIFICATION.

In addition to such other rights of indemnification as they
may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or
employees of the Participating Company Group to whom authority to act for the
Board or the Company is delegated shall be indemnified by the Company against
all reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan, or any right granted hereunder, and against all amounts paid
by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60)
days after the institution of such action, suit or proceeding, such person
shall offer to the Company, in writing, the opportunity at its own expense to
handle and defend the same.

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13. TERMINATION OR AMENDMENT OF PLAN.

The Board may terminate or amend the Plan at any time.
However, subject to changes in applicable law, regulations or rules that
would permit otherwise, without the approval of the Company's stockholders,
there shall be (a) no increase in the maximum aggregate number of shares of
Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable
law, regulation or rule. No termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion
thereof, without the consent of the Optionee, unless such termination or
amendment is required to enable an Option designated as an Incentive Stock
Option to qualify as an Incentive Stock Option or is necessary to comply with
any applicable law, regulation or rule.

14. STOCKHOLDER APPROVAL.

The Plan or any increase in the maximum aggregate number of
shares of Stock issuable thereunder as provided in Section 4.1 (the
"Authorized Shares") shall be approved by the stockholders of the Company
within twelve (12) months of the date of adoption thereof by the Board.
Options granted prior to stockholder approval of the Plan or in excess of the
Authorized Shares previously approved by the stockholders shall become
exercisable no earlier than the date of stockholder approval of the Plan or
such increase in the Authorized Shares, as the case may be.

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